1. Chapter 9
Checking Accounts

2. Purpose of a Checking Account
A check is a written order to a bank to pay the stated amount to the person named on it.
A checking account is commonly called a demand deposit, because money can be withdrawn at any time.

3. The Check Process You write the check to the payee.
The payee cashes your check.
The bank that cashed your check returns it to your bank.
To reimburse the payment, your bank withdraws the money from your account and sends it to the other bank.
Your bank then stamps the back of your check, indicating that it has cleared
A canceled check bears the bank’s stamp, indicating that it has cleared.

4. Advantages of a Checking Account
A convenient way to pay your bills
Writing a check is safer than paying with cash
Has a built-in record keeping system
You will have access to other bank services
You may be able to use a check card instead of writing checks

5. Responsibilities of a Checking Account
You must write checks carefully and keep good records
You must verify the accuracy of your bank statement each month
You must keep canceled checks amount your records
You must maintain sufficient funds in your account at all times

6. Overdrafts
An overdraft is a check written for more money than your account contains
This is referred to as a “bounced” check.
Floating a check is realizing that the account contains insufficient funds, but writing a check anyway, hoping that a deposit will clear before the check is cashed.

7. Reconciliation
The process of matching your checkbook register with the bank statement (balancing your checkbook)
Why might your bank statement not match your register?
May have written a check or made a deposit since the bank created the statement
May have fees or charges imposed by the bank
May have earned interest that the bank calculates
Payee on checks may not have cashed them yet

8. How to Reconcile Your Account
Write the ending balance shown on your statement
Total your deposits that you have made that are not on the statement, and add them to the bank’s balance
List the debits that have been made that do not appear on the statement, and subtract those from the bank’s balance
Subtract any charges or fees from the bank
If the totals do not match, check for any mathematical errors

9. Types of Accounts Individual account Joint account Special account
Service charge/month, fee/check
Standard account
Set monthly service, no check fee
Interest-bearing account
The balance in your account can earn interest, but it cannot fall below a certain minimum average or you will have a charge
Share account
Checking account at a credit union

10. Guaranteed-Payment Checks
Certified check
A personal check that the bank guarantees to be good.
This reduces the risk of cashing a stranger’s check and the possibility of it bouncing
To get a check certified, write your personal check out, bring it to the bank, and the bank will immediately deduct the amount from your account, stamp “certified” on the check and initial it.
The bank is putting a hold on that money so that it is there when the payee cashes it.
There will be a small fee for this service

11. Guaranteed-Payment Checks
Cashier’s check
A check written by the bank on its own funds.
You pay for it through a withdrawal from your savings or checking account, or with cash
After the bank receives your payment, they write out the check to the payee specified, for that amount
Generally used when the payee requires a guaranteed payment and cash is not wanted.
If you have questionable credit, a payee may want to be paid with a cashier’s check
It is also good if you want to make an anonymous payment– the bank’s name is on the check, not yours

12. Guaranteed-payment Checks
Traveler’s checks
Check forms in specific denominations that are used instead of cash when traveling.
Many businesses that will not accept an out of state personal check will accept a traveler’s check for payment.
When traveler’s checks are purchased, money is taken from your bank account to cover them.
You sign each traveler’s check in one place immediately upon purchase. When cashed, you present ID and sign in another place.
Traveler’s checks are safer than carrying cash and are payable only upon comparison of endorsements.

13. Guaranteed-payment Checks
Money order
Used when people do not want to use cash or do not have a checking account.
It is like a check, except that it can never bounce because it is pre-paid for.
There is a charge for a money order
You can also purchase one at a post office or possibly a local store.

14. Other Banking Services
Debit card
Allows immediate deduction from the checking account when used, and you do not have to write out a check for the purchase.
You still need to record the transactions made with a debit card in your checkbook register!

15. Other Banking Services
Bank credit card
Banks offer credit cards, like Visa and Mastercard.
When you use a credit card, the transactions add up and you receive a total at the end of the month that you have to pay. More on this in future chapters.

16. Other Banking Services
ATMs
Many banking transactions can be made through electronic funds transfer (EFT)
You can make withdrawals and deposits to your account through an ATM
For many banks, if you use an ATM other than their own, you will have a service fee from the ATM and from your bank– these can add up!

17. Online and Telephone Banking
Banks offer this service so that you can access you accounts from a computer or telephone in the event you need to transfer money from one account to another or to authorize the bank to pay bills

18. Stop Payment Order A request that the bank not cash a check
Usually happens if the check has been lost or stolen
The bank charges a significant fee for this service, but the check will not be able to be cashed if it is brought to the bank

19. Other Banking Services
Safe Deposit Boxes
Allows customers to store valuable items or documents in the bank vault.
A yearly fee is charged for use
Birth certificates, marriage and death certificates, deeds and mortgages, stocks and bonds, jewelry, coin collections, small valuables are common things people keep in safe deposit boxes.
You fill out a signature form when you rent the box and each time you go you must sign the form, preventing others from accessing your box

20. Other Banking Services
Loans and Trusts
Banks also make loans to finance purchases of cars, homes, vacations, home improvements, etc.

21. Notary Public
Verifies a person’s identity, witnesses the person’s signature on a legal document, and then “notarizes” the signature as valid.

22. Banking Fees Banks charge fees to help cover their operating costs.
Loan fees, check fees, overdraft fee, NSF checks, using tellers, cashier’s and certified checks, ATMS, monthly service charges, etc.
Try to avoid fees!!