Definition: A checking account is a variety of deposit accounts held by a bank or credit union (financial institution) that allows a customer to deposit and/or withdrawal funds on a normal basis. Checking accounts are considered to be the most liquidvariety of deposit accounts in that the funds are available immediately and are accessible through a variety of withdrawal methods. Withdrawal methods include cash withdrawals from tellers or Automatic Teller Machines (ATMs), checks paid to the order of a recipient, or payment via a debit or credit card associated with the account.
What Does Checking Account Mean?
What is the definition of checking account? A checking account is the most prominent variety of deposit account provided by banks, credit unions, or other financial institutions. These accounts are leveraged by customers of the financial institution to hold cash deposits for the purpose of performing daily cash transactions. When linked to an associated debit or credit card, the account backs all point of sale transactions processed on the card, and cash funds are transmitted from the account to the business processing the sale on the debit or credit card.
What is a checking account and how can I use it? Checking accounts are also used for automatic withdrawal and deposit methods. Often times, a account will be used to establish an automatic payment method to an entity who periodically bills a customer on a regular basis, such as a monthly cable television bill. Holders of the account may also establish automatic direct deposits into the account upon receipt of the direct deposit paycheck.
While there are a number of different checking account varieties available, depending on your situation (personal, joint, business, etc…), they all serve a similar purpose. Let’s review how a simple personal checking account is utilized:
Example
Let’s say you were just offered your first job, and after two weeks you receive your first paycheck. Since it’s not always easy to just cash the paycheck, you decide to open an account a local bank. The bank has a great offer of a free checking and savings account, linked for your convenience. After establishing the account, and depositing your paycheck, the bank will typically issue you a debit card, linked to the checking account you just established.
Assuming you have adequate funds within the checking account, you can use this card to make your daily purchases at any business that accepts the variety of card you received (i.e. Visa). You may also receive checks that you can use to manually issue to a payee. It’s critical to understand that funds in the checking account, while extremely liquid, do not earn a lot of interest, while funds in the savings account may earn at a slightly higher interest rate. No matter how you setup your accounts with any financial institution, it’s important to read and understand the terms of your deposit so you can manage your cash deposits in the most advantageous manner possible.
Summary Definition
Define Checking Accounts: A checking account means an extremely liquid deposit account held at a financial institution.
