Checking Accounts

Checking Accounts Chapter 29

Why do we need a checking account?

Checks are the most common medium of exchange • About 93% of U.S. households have checking accounts

How does it work? • Money is deposited into an account • Checks are written to make purchases or pay bills • Money is released from the account and paid to the person on the check

Demand deposit – money is released from the account on demand

Checking Account Conveniences • You can carry less cash yet still buy what you need at most local stores • You can pay larger bills by mail • You will have a spending record, which would be helpful in analyzing where your money goes • You will have valid receipts • Your paycheck can be deposited directly into your account if your employer offers this service • You will have a clear understanding of how much money you have left, providing your math skills are reliable

Checking Account Pitfalls • You may have to pay a monthly account fee, or maintain a certain account balance • You will need to pay for a set of checks, and the fancy ones will cost more • You will need to balance your account monthly when your statement arrives • If you overdraw your account, the fees could be sizeable—the average fee is about $25—and it could be a double whammy if the business you wrote the check to assesses a fee, too

If you have an ATM or debit card, you may encounter additional fees • If you lose your checkbook and fail to notify the financial institution, you could lose all the funds in your account plus be held responsible for overdrafts • If you lose your ATM or debit cards and fail to notify within a certain timeframe, again you could be responsible for sizeable losses

Opening an Account • Open your account where it is convenient • “Comparison Shop” for your checking account • Account fees – monthly fees vary greatly. You may qualify for low- or no-fee checking by agreeing to a limited number of checks per month. Maintaining a certain balance in checking or savings may qualify you for lower account fees

Other fees – be clear about associated fees. Ask for a fee schedule of all account costs, such as: • For overdrawing your account • Returning your cancelled checks • Falling below a minimum balance • Conducting transactions with a teller • Stopping payments on a check or the account • Costs of checks

Types of Accounts • Regular Account • Designed for customers who write a few checks each month and don-t keep a minimum amount of money in the account. • Interest-Bearing Account • A checking account that earns interest on your account’s balance. • It usually has a minimum balance requirement with an unlimited number of checks allowed each month.

Joint Account • An account shared by two people who are equally responsible for the account. • Often used by married couples or for businesses with more than one owner. • Either person can write checks on the account.

Account Services • Overdraft Protection • A line of credit for overdrawn checks. If you write a check for more than you have in the account, the bank will cover the check up to a certain amount. • Stop Payment • An order for a bank not to cash a particular check • Debit Cards • Like a credit card but money is taken directly from your checking account • Online Banking • Allows you to check your accounts, transfer money, or pay bills at any time of the day.

The Flow of Money Deposit money into account Checking Account Use Debit Card at ATM to get cash Use Debit Card to make purchase Write a check

Making Deposits • To deposit or cash a check you must endorsethe check. • Endorse the check on the back. Use the lines printed for the endorsement. Do not write below the lines. • Use a pen so your signature can’t be erased. • Sign your name exactly as it is written on the front of the check • If you are depositing a check rather than cashing it, write “For Deposit Only” above the signature. Include your account number.

Endorsing a Check To receive as cash: Karen Gannon____________ Called a blank endorsement

To deposit into your checking account: For Deposit Only Karen Gannon _______ 070144675 Called a restrictive endorsement – entire check is deposited. No cash back.

To deposit into your checking account: Karen Gannon _______ 070144675 Non-restrictive endorsement – cash back usually requested.

Sign the check over to a third party: Pay to the order of: Stephanie Sturm Karen Gannon _______ Special endorsement – check is signed over to someone else who then cashes the check.

Making a Deposit

Deposit #1 – You will deposit the following: • $50.00 in cash • Check #4568 for $100.00 • Check #4565 for $150.00 • No cash back What is your Net Deposit?

Deposit #2 – You will deposit the following: • Check #5601 for $1,500.00 • Check #6523 for $50.00 • Cash back is $250.00 What is your Net Deposit?

Deposit #3 – You will deposit the following: • Check #2389 for $300.00 • Check #6956 for $150.00 • Check #2399 for $235.00 • Cash back is $100.00 What is your Net Deposit?

How to Write a Check

Writing a Check • Write all checks in ink • Always start writing at the far left of the line so no one can make changes • Write legibly. If the numbers are not clear or they differ from the written dollar amount, the written amount applies • Sign your name last and sign it the same way every time.

Writing Dollars and Cents When writing a check, you must write the amount of the check in numbers and words. Examples: $10.21 – Ten and 21/100 $1,500.00 – One thousand five hundred and 00/100 $125.46 – One hundred twenty-five and 46/100

Bank Statement – the bank’s record of all the transactions in your checking account. It includes a record of all withdrawals, deposits, interest, and fees. Canceled Check – Checks you have written that have been cashed.

Step One • In your checkbook, make a checkmark in the appropriate box for each check returned or noted on your statement. • Make a checkmark in the appropriate box for each deposit made that is noted on your statement. • Make a checkmark in the appropriate box for each ATM transaction that is noted on your statement.

Step Two • Record in your check register any transactions listed on your bank statement that were not recorded in your check register.

Step Three • Complete the Check Reconciliation Form • Write the ending balance shown on your bank statement • Subtract the total amount of checks that were recorded in your check registered but not yet cleared by the bank – referred to as checks outstanding. • Add the total amount of deposits made that were after the ending date of the bank statement – referred to as deposits outstanding.

Summary Bank Account Statement Ending Balance + Deposits Outstanding – Checks Outstanding = Ending Balance in Checkbook Register

Checking Accounts