Checking account

Posted by Cynthia Smith on August 25th, 2021

A checking account is a deposit account opened with a bank that allows numerous withdrawals and unlimited deposits. The current account is the most liquid account and can be conveniently accessed at any time via ATMs, checks, online banking, credit or debit cards. Due to its characteristics, the current account is also known as a performance or transaction account.

Many financial institutions offer checking accounts at very low monthly or annual fees and banks traditionally use this service as a loss guide. Loss leader is a marketing term that involves offering a product below its market value in order to attract consumers. When consumers have been attracted to free or inexpensive checking accounts, banks offer them more profitable products such as mortgages, personal loans, life insurance investments, or retirement funds.

Functions of the checking account
Different types of checking accounts have been developed to meet the requirements of the users. These can be student accounts, business accounts and joint accounts for households. As a rule, checking accounts do not offer any interest due to their liquidity.

Current accounts can be easily set up in bank branches for a private person. Businesses may require you to go through a specific process depending on banking and state regulations. The checking account is one of the most practical solutions to keep your cash available for all transactions such as paying your bills, shopping for goods online and paying with credit or debit card in a store. The demand account is the simplest banking service and is used by almost every bank customer worldwide. This account gives you the freedom and convenience of instant access to your funds with no additional fees, with the exception of transaction fees in some cases.

Some banks offer checking accounts with a certain credit limit that you can use in an emergency. If this is the case with your transactional account, you can rest assured that you will always have extra cash at your disposal. In the meantime, you should be more careful not to run over your balance without good cause. Typically, this short-term loan is associated with high interest rates. For some people who like to spend all of their cash on hand, a checking account with a line of credit may not be the best option.

Advantages & disadvantages of checking account

Although checking accounts in terms of liquidity are close to cash, it is considered that keeping your money in a bank and accessing it over your transactional account may reduce unnecessary spending. It is also a good alternative to cash in case of a robbery, wallet loss or other accidents. Instead of losing all your cash, your funds would safely be held in your bank account.

Advantages

Nowadays, it may be hard to imagine receiving your paychecks in cash, which include physical reception after depositing cash in your account. It is hard to imagine going and paying for your utilities and other bills. Checking accounts even allow you to set up regular payments for mortgage or other payments that occur on a regular basis easily.

Most of the banks also offer debit or credit cards tied to your transactional account, which allows you to debit funds from the account by going to your closest ATM instead of visiting the branch, standing in queues and paying transactional fees. In addition, credit and debit cards allow you to do online shopping, purchase plane tickets and rent a car. Your credit or debit card information can also be used as a personal identification method for different sites online.

Disadvantages

Overdraft fees and huge interest payments are the biggest disadvantages when using a checking account. Many people do not notice when the negative balance is reached and due to the interest payments that may be up to 20%, the credit is growing at a high speed. Luckily, credit line, as the name implies, goes only with a credit card, while it’s impossible to open a credit line for a debit card. Therefore, when deciding what type of card you should chose with your demand account, evaluate your ability to control your spending.

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