Joseph B. Wirthlin advised, “Spend less than you earn.”
What is a checking account?
A checking account is an account that you can withdraw funds from by writing checks or using a checking or debit card. Unlike savings accounts, checking accounts typically do not accumulate interest.
How to write a check:
Checks represent money. But checks are ONLY good when you have equal or more money in your checking account than the amount written on your check. If you write a check without sufficient funds in your account, your check will “bounce.”
When I was very young, I didn't understand this concept. I wondered why my father didn't just write some checks to himself for very large amounts of money and make us rich! Unfortunately, it doesn't work that way.
I got my first checking account when I was a teenager. My father taught me the importance of managing it properly. He taught me how to use a check register so I always knew exactly how much money I had left. He also helped me learn to balance my checking account each month. If you understand how to do these things, a checking account is a great convenience. If you don't, it can be a nightmare!
When you write a check for more money than you have in your account, your financial institution has the choice to pay the amount of the check and charge you an “overdraft” fee (Overdraft means you have “overdrawn” your account, or withdrawn more money than you have in your account) or they will return ("bounce") the check due to “insufficient funds”. Both the bank and the company that received the check may charge fees as high as $50.00. This is where a $5 bounced check could turn into a $50 painful learning experience.
If the institution returns your check without paying it, you may be charged an “insufficient funds” fee. On top of this fee, you could also be charged a “returned-check” fee by the person or company to whom the check was written. These fees can be as high as $50.00.
The fees aren't the only problem. If you bounce checks, people will be less likely to trust you and accept your checks in the future. It will also be harder to get institutions to let you open a checking account with them down the road.
Words to the Wise
- Always keep track of how much money you have in your checking account by keeping your check register current. Record all checks when you write them and keep a running total of your balance.
- Review your monthly account statements. You will receive a monthly account statement documenting all of your transactions. It’s important to review these statements very carefully to make sure your records match with your institutions records. Institutions can make mistakes. It’s your responsibility to bring these to a representative’s attention if it should happen.
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- Always have money in your account to cover a check before you write it. Don't count on being able to make a deposit before the check comes through. Checks often clear very quickly.
- Keep only what you need for upcoming expenditures in your checking account, put the rest in savings.
Quick Facts
From the American Bankers Association
Banks process about 42.5 billion checks per year.
Some institutions process more than a million checks per day.
Approximately 251 million checks are returned or bounced every year according to the Federal Reserve.
Financial institutions use special magnetic ink on the numbers at the bottom of checks to speed processing and prevent fraud.
The check became popular in Holland in the early 1500s. In 1681, the first U.S. checks were used by Boston businessmen that mortgaged their land to a “fund” against which they would write checks.
About the Author:
Susan Parry has been with Deseret First for over 25 years, and is our Vice President of Service & Sales. She enjoys school, music, and golf.
