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How to Choose Bank Accounts to Meet Your Needs

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How to Choose Bank Accounts to Meet Your Needs

Account types

The most frequently used types of accounts at financial institutions are checking and savings accounts. Let’s talk about each one of them to describe how they will help you manage your day-to-day financial life.

Things To Know

  • Most of the transactions you will make in a checking account are to pay for your day-to-day and week-to-week expenses.
  • The purpose of a savings account is to save money for a specific short- or intermediate-term need or goal.

Checking accounts

A checking account is used to manage your incoming pay and outgoing day-to-day expenses. Perhaps a better term for this account is "spending account." Many consumers have their paychecks deposited directly to their checking account. This eliminates the need to take a physical check received from your employer and deposit it in your account. Your pay is simply electronically transferred to your checking account on the day you are paid.

Be sure to keep enough money in your account to cover your day-to-day expenses. But it’s a good idea not to load up this account with money you don’t need to spend. You should set up a savings account or other investment account to put money away for reaching future goals. Keeping too much money in your checking account makes it too tempting to spend.

Most of the transactions you will make in a checking account are to pay for your day-to-day and week-to-week expenses. These transactions can be made in a variety of methods. A summary of the most common ways to withdraw money and make a payment to someone or a business include:


You can write a check to pay for something or to pay someone. If you are paying for something by check, it creates a permanent record of the payment you have made so no one can dispute that you made the payment. Also, it avoids having to carry a large sum of cash. Only write a check if you have enough money in your account to cover the amount of the check.

Detailed below is an example of how to write a check. Each part of the check is labeled with a definition. Become familiar with the ABA routing number in the bottom left corner of your check. The routing number is a unique code assigned by the American Bankers Association (ABA) that identifies a particular bank or finance institution issuing the check.

The routing number is often required to be input if you are paying a bill online and using your checking account to transfer funds to the payor.

Sample check

Store your checkbook in a safe place. Don’t leave it out in the open, as it is easy for someone to get your account number.

Check cards

Check cards offer a convenient way to pay for products and services. Your check card is connected to your checking account and acts as a paperless check. When you swipe your check card at a point-of-sale terminal, it will automatically communicate with your bank account to determine if your balance is sufficient to pay for the items. If it is, the purchase will be approved and the funds will be withdrawn from your account immediately.

When you open your checking account and obtain a check card, in most cases you should tell the professional opening your account that you do not want to be able to purchase items if there are not enough funds in your account to pay for them. In other words, you don’t want overdraft protection for your debit card because you don’t want to overdraw your account. This is referred to as "opting out." If you don’t opt out you may be able to purchase items that will bring your balance negative or below zero dollars. When this occurs, you will encounter an overdraft fee ranging from $25 to $35 for every transaction you make while your account is overdrawn. This is a very expensive cost to incur for being able to pay for something that you may not be able to afford. Check cards are convenient but need to be used responsibly. Stick to your budget and always know how much you have in your account before conducting a transaction.

You can also use your check card to withdraw money from your account via an ATM.

ACH withdrawals

Many of the companies that provide you with services on a monthly basis (for example, your Internet company) will allow you to have your bills automatically deducted from your checking account each month. This is very convenient and ensures that your bill gets paid. However, it’s very important that you understand and be aware of the date and amount that will be deducted from your account each month so that you have sufficient funds to cover the payment. If you don’t, your account will end up overdrawn and you will incur expensive overdraft fees.

Online banking

Transfers can be made between your checking and savings accounts with ease using online banking. As you deposit funds to your checking account from work, gifts or other forms of payment, transfer a portion to your savings account to save for your goals. You can even set up an automatic dollar amount to transfer each paycheck or each month. This is the best way to ensure you pay yourself first before spending additional dollars.

Bill pay

If you receive a bill from a company for a service they provide (e.g., internet, cable, cell phone) you can have the bank send a check to the company on your behalf by utilizing the bill pay functionality. You simply enter the company you need to pay (name, address, and your account or invoice number) and ask the bank to take funds from your checking account and send a check to the company. This is normally a free service.

Mobile banking

Mobile banking offers you the opportunity to perform many of the same functions available with online banking and more. In fact, you can deposit a paper check by taking a picture of it with your smart phone. This makes banking simple and efficient. Simply download your financial institution’s app and follow the instructions.

Deposits and withdrawals

To deposit checks and or cash, you will need to complete a deposit slip for your savings or checking account. These are provided to you when you open the accounts. If you don’t have one, you can use a generic one at the bank, but you will need to know your account number.

To make a withdrawal from your checking account, you can use an ATM to obtain money or go to the bank and write a check.

Savings accounts

Savings accounts are easily described through their name. The purpose of a savings account is to save money for a specific short- or intermediate-term need or goal. They usually pay an interest rate on the funds in your account, which gives your dollars a chance to grow. The interest rate paid is based on economic conditions. Generally speaking, savings accounts do not provide a high rate of interest. Investors should consider other investment options for long-term goals greater than 10 years.

Savings accounts limit the number of transactions you can perform each month too. Federal Regulation D states that you may make no more than six (6) automatic or preauthorized transfers (e.g. ACH payments, bill pay) from your savings account per calendar month or statement cycle.

Note: Regulation D is currently suspended due to the COVID-19 situation, and no plans to reinstate it have yet been made.

Common uses for a savings account include:

  • Emergency funds—maintaining a balance to cover unexpected emergencies or cover expenses in the event of a loss of income.
  • Short and intermediate-term savings goals—many people use a savings account to accumulate money for a down payment on a car or home. Their money is safe and can be easily accessed when needed.
  • Gift account—some people like to accumulate money every month so they have funds available to buy gifts for holidays and birthdays.

For both checking and savings accounts, it’s important to understand the terms of the account. Most accounts have a minimum deposit required to be made at the time the account is opened. Most of the time these requirements are relatively low. Checking and savings accounts also generally have a minimum balance requirement that needs to be maintained. For example, you may be required to keep a balance of $500 in your account at all times to avoid being charged a monthly maintenance fee on your account. Shop around for accounts with low minimum balance requirements.

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