Checking Account 101: Everything You Need to Know

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Everything you need to know about checking accounts.
All things checking.

If you’ve had one before, a checking account probably seems like no big deal. But for folks new to the world of checking there’s a ton of things to discover. Even seasoned checking account owners often learn about new and easier ways of managing their money considering new technology. Here is a thorough guide to everything you need to know about opening and using a checking account.

Start at the beginning: my life before a checking account

I’m 30-something now but thinking back to one of my first jobs as a teenager– long before I had direct deposit– I remember the excitement of receiving my first few paychecks. As exciting as it was to see them collect in a desk drawer, I had no idea how to properly manage them.

two girls thinking about a checking account
New to checking accounts

Paper payroll checks – now what?

At that time, I did not have a checking account. And since I couldn’t make a purchase with a paper paycheck, I needed a way to convert it to cash. My only options were:

  1. Use a check cashing service and pay the exorbitant fees
  2. Trek to the closest physical branch of the issuing financial institution to cash them

Neither choice seemed very smart or convenient but that’s all I had available, so I chose option 2. Instead of collecting paychecks in my desk drawer, I was now collecting cash in my desk drawer. Better, but still less than ideal!

My first checking account

Luckily, early on I was encouraged to open a checking account at my local credit union. Once I established my own checking account, I had a safe and secure place to keep my money. I could deposit my (paper) checks at the local branch and also withdraw money when I needed.  I finally had easy access to my money.

I could now write checks for anything from food at the grocery store, my monthly rent, car insurance or student loan. The money was seamlessly withdrawn from my account. I could also use my debit card to withdraw cash from an ATM and the funds were also immediately deducted from my account. This system worked well for me for many years.

Checking accounts have been around for a LONG time but over the last 20 yeas have come to offer so much more in terms of tools and services. Today’s checking accounts are still the main hub for managing your personal finances.

Man writing a check.
Many people still write checks.

But why do people still write out checks?

Electronic transactions may be the norm now but there are many times a personal check is the way to go. It’s like a slow-motion electronic transaction, a personal check is a piece of paper issued by your financial institution and linked to your account. Akin to an IOU, you are promising the funds will be available when that check is cashed. There are some pros and cons to be aware of when using checks as the main part of your money management plan.

Pros of writing checks:

  • Personal checks are extremely affordable and can last as long as the account is open. A starter set is typically less than $20 per box of 500 checks. Depending on your checking writing habits this may last you years.
  • Paying bills with a personal check is an efficient way to avoid convenience fees usually charged for paying by debit or credit card. (This convenience fee is what the vendor is charged by their financial institution for processing the transaction. Vendors will many times simply pass along the additional charge to customers.)
  • Some businesses do not accept debit or credit cards because of the processing fees involved, or because they are not set-up for electronic transactions.
  • The process of writing checks by hand requires more discipline which is helpful to those who need more control over free-spending. Handing over plastic at the register can be too easy and quick for those prone to splurges. Paying by check or cash is an effective strategy to make the purchase feel more “real,” and encourage some needed restraint.

Cons of check writing:

  • While electronic transactions are processed almost immediately, checks can  take more time. Checks are typically not posted against your account until the recipient cashes the check, which can be days, weeks, or whenever they get around to it. If you forget to log a check/payment or make the slightest miscalculation, you can imagine how easy it is to overdraw your account.
  • When traveling, paying by personal check may be more challenging. Some businesses accept local checks only, and with a local ID. As you can imagine, not travel-friendly.
  • Writing checks for bills is more time consuming than online bill pay (eBills) and can cost more because of postage.

At the end of the day, having that first box of checks is a good failsafe. The checks are there if you need them, and won’t expire as long as the account remains open.

There are many factors to consider when opening a checking account.
Choose the right checking account for you!

Which is the right checking account for me?

When choosing which checking account to open, make sure to follow these steps to choose the one that meets your needs.

Look at your day-to-day transactions and ask yourself questions like:

  • How many checks will I write each week or month?
  • Do I need a steady source of cash?
  • Do I want a debit card?
  • Does my employer offer to deposit my payroll into my account electronically or do I need to physically deposit a paper check?
  • How do I want to keep track of my spending and deposits?
  • What will my average balance typically be?

Keeping your answers to these questions in mind, it’s important to investigate available checking accounts and choose the one that suits your needs best.

Here are some common features you’ll want for sure: 

  • No monthly service fee
  • No minimum balance
  • Unlimited debit card transacations
  • Unlimited check writing
  • Overdraft protection

A few extras worth looking for:

  • Dividends paid on any balance
  • A rewards debit card (Earn points on eligible debit card signature purchases that can be redeemed for merchandise, gift cards and more.)

Rewards Debit Cards

It’s getting harder and harder to find a debit card that earns it’s user rewards since the financial crisis and enactment of new laws but if you look, you will still find a few good ones.

  • cash back – usually a percentage of your purchases is deposited back into your account
  • points – used towards rewards like merchandise, travel and gift cards and
  • relationship rewards – discounts at specific merchants when you use your card.

Think about how you plan to use the card and the reward offered. Be sure to factor in the cost of any annual fees and make note of any balance requirements in your checking account. As you can imagine, there are always restrictions and limits on these programs so make sure you read the fine print to see if the rewards are worth it.

The more you use your rewards debit card, the faster you’ll reap the benefits.

There are many types of debit cards.
Pick the right debit card.

Debit or Credit?

It seems like an obvious answer because you have a credit card and a debit card, right? But you this question is often asked when you use your debit card. How can one use a debit card as credit? Similar to checks, your debit card is always linked directly to your checking account. Debit or credit is referring on how you choose to have the transaction processed which can determine how quickly it’s posted against your account. 

Imagine you are at the grocery store or convenience market picking up a few items. You present your debit card and are asked if you want to run it as debit or credit. If you select credit, you will next be asked to sign for your purchase. At Dane County Credit Union choosing credit makes most purchases eligible for reward points with the UChoose Rewards Debit Card. 

Alternatively, imagine you select debit in which case you will be asked to use your four-digit PIN. Your PIN number was issued by an EFT (Electronic Funds Transfer) system and is accepted anywhere debit cards are. Never share your PIN to keep your card safe and secure. Some folks feel safer with this option because the PIN needs to be entered correctly for the purchase to complete. 

Checking Account 101: Next Step

Once you find and open the checking account that suits your needs, continue reading this series. In the next segment, Checking Account 101.2, you’ll learn how to use special account tools to manage your money.

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Hillary W.

Hillary is a 2008 graduate of UW-Madison. She is a proud Badger all the way, but her strong love of travelling led her to a graduate program out in Phoenix, AZ, which she absolutely adored. Now, back in Madison, Hillary is once again connected to her Wisconsin roots. In the winter, you can find her on the ski slopes whenever she has time. In summer, she's on the bike path or enjoying a good book along any stretch of lakefront. Also a passionate Mallards fan, look for her at Warner Park whenever a game is in town!