Banking 101

Checking Accounts

This is where your bank keeps up with your money. A checking account is a service provided by financial institutions (banks, savings and loans, credit unions, etc.) which allows individuals and businesses to deposit money and withdraw funds from a federally-protected account. The terms of a checking account may vary from bank to bank, but in general a checking account holder can use personal checks in place of cash to pay debts. He or she can also use electronic debit cards or ATM cards to access individual accounts or make cash withdrawals.

Virtually every bank offers some form of checking account service for their customers. Some may require a minimal initial deposit before establishing a new account, along with proof of identification and address. A student or other low-income applicant may opt for a no-frills checking account which does not charge fees for the use of personal checks and other services. Others may benefit from interest payments by maintaining a high minimum balance each month. Some states are required by law to provide a 'lifeline' checking account option for senior citizens and low-income customers. This type of checking account waives many of the fees banks may charge, such as monthly service fees for low balances and surcharges for ATM usage.

A typical checking account is handled through careful posting of deposits and withdrawals. The account holder has a supply of official checks which contain all of the essential routing and mailing information. When a check is filled out correctly, the recipient treats it the same as cash and completes the transaction. After this check has been deposited into the recipient's own bank account, a bank worker files the check electronically and the check writer's bank receives the cancelled check and amount to be debited (withdrawn) from the check . This process continues for every check written against an individual checking account.

Owners of a checking account are ultimately responsible for keeping track of their available funds, even though the bank will routinely issue its own accounting statements. Checks must represent an actual amount of money contained in the checking account itself. If a check is written for an amount higher than the available balance, the check writer faces numerous fees and possible legal action. The recipient of the bad check can demand immediate cash payment for the original debt as well as a substantial fee for the returned check. Some banks will protect checking account holders by making the proper payments and notifying the check writer that an overdraft has taken place. Most often the bank will recoup their losses through substantial service charges, so it pays to avoid writing checks when the balance is unknown.

Most banks have several different methods which allow checking account customers to check their balances and reconcile their records. Printed monthly statements of debits and credits (deposits) are mailed to individual account holders. ATM machines offer an option to check the current balance, while online or phone-in accounts can provide real time updates on which checks have been processed and which are still outstanding. This information can be compared with the entries recorded in a journal called a check register.

As long as the account holder maintains accurate financial records, a checking account provides a safe and efficient way to pay bills and deposit money from payroll checks and other income sources. A savings account may pay more interest over time, but a checking account replaces the need for large amounts of cash to satisfy routine debts such as rent or mortgage payments, credit card bills, and utility bills.


This is how you put your money into your account. A deposit in transit is cash (currency, coins, checks, electronic transfers) that a company has received and is rightfully reported as Cash on its balance sheet, but does not appear on the bank statement until a later date.

For example, a retailer might receive $5,000 on Saturday (June 29) and $3,000 on Sunday (June 30). The money is deposited each evening in the bank’s night depository. The store’s Cash should be debited on each of those days for the respective amounts. However, the bank statement will report the $8,000 as a deposit on Monday, July 1, when the bank processes the items from the night depository.

When reconciling the bank statement dated June 30, the store will have to increase the balance on the bank statement by $8,000 for the deposits in transit. (Recall that the $8,000 is rightfully reported on the company’s books as of June 30, but the $8,000 is not recorded on the bank statement as of June 30.)


This is how you get money out of your account. To withdraw money, you can write a check made out to "Cash" and then date and sign it like a check you would deposit. Endorse the check and give it to the bank teller, who will give you the cash. To withdraw money from an ATM, put your ATM card into the machine, enter your Personal Identification Number (PIN), and specify the amount of cash you'd like back.