Back to Basics #3: Checking Accounts

Savings accounts are cool and all, but sometimes, you actually want to be able to exchange your money for goods and services. Checking accounts make this easy to do, by allowing you to fill out a little form, appropriately named a “check,” handing over some of the money in your account to someone else.

No Interest?
Although, just like in a savings account, the bank is borrowing your money, they don’t pay you any interest on it. Your money sits there and doesn’t grow at all. This is almost like a “fee,” you’re forgoing the interest in favor of easy access to your money – at least, in most cases. Some banks have checking accounts where if you keep enough money in the account (usually north of $5,000), they’ll pay a very small amount of interest on it.

New technologies have profoundly changed the way we use checking accounts. Debit cards, which are basically the hybrid of a check and a credit card, allow you to easy spend money out of your checking account. They’re also a nice way for the bank to try and get more of your money.

Overdrafts
If you draw out more money from your checking account than you actually have in there, you’ve done something called “overdraft.” There’s a series of different ways the bank might handle this, but most of them involve charging you a fee of some kind.

One thing you can do is have your bank set it up so that if you overdraft, the bank can just take the extra money out of your savings account. But the best solution is simply to pay attention to how much money you have in the account, and not spend more than that. Seriously, it’s not that hard, especially now that you can check you balance from home, using the computer, as many times a day as you want.

Checking on the Interwebs
The other technology transforming checking accounts is online bill-pay and echecks. Using just the account information for your checking account, you can pay many businesses online, including most of your bills. It’s gotten to the point where many people don’t even use paper checks anymore.

Which is where the online banks are starting to swoop in. If you no longer need paper checks, then you can get an online checking account. ING recently rolled out their online checking account, “Electric Orange,” which can be used for online bill-pay and echecks, and comes with a debit card, but no paper checks. However, you can contact ING and they will issue a paper check (for example, to your landlord). Still, the account pays 3+% interest on money sitting there. For the time being, this account is only open to customers who have an ING Orange Savings account, but that’s easy to get, with no fees or minimums.

My philosophy when it comes to my checking account: don’t let money sit in there, earning no interest, if I don’t have to. I only keep enough in there for what I’m going to need in the next two weeks.