Understanding and Managing Your Checking Account

A checking account is a very liquid source of money that is commonly used to pay bills and take care of daily household needs. People, especially young people who don't have much experience with banking yet, can easily fall victim to problems, including overdraft fees and unexpected withdrawals. If you understand your checking account and anticipate potential issues you will be able to better manage it and your money.

Types of Checking Accounts

There are basic, business, interest-bearing, student, express (for people who don't plan to see a teller often), low income (lifeline), and money market checking accounts available. Most everyday people use basic and express accounts.

EFTA

The Federal Electronic Fund Transfer Act (EFTA) regulates checking account activity, including EFT transactions, debits, and both written and online checks. Click here to view information about regulations regarding EFT, ATM, and standard withdrawal transactions.

Joint Accounts

Having a joint bank account with another party puts your money at risk. The other party, whether it is a spouse, child, friend, or representative has a legal right to withdraw money at any time without your permission. You cannot remove the person from the account unless you have his permission and he is present at the bank to sign paperwork. Your only recourse is to remove your own name and open a new checking account.

Overdraft Fees

Because you use a checking account so often, there is a higher risk of having trouble with overdraft fees as compared to other types of accounts. You can be charged a fee of about $20 to $35 if you make a card purchase, ATM withdrawal, or write a check that takes you over your balance. Banks collect billions of dollars in overdraft fees each year this way; $38 billion to be precise according to the government (see Source 2 below)

Preventing Problems

You can set a restraint on a checking account that requires two or more parties who are listed on the account to sign a check or withdrawal slip for it to be valid if you are worried about the other person on a joint account making unauthorized withdrawals. You can also opt-out of overdraft protection--where a bank processes a transaction even if you do not have the funds available, then charges you a fee--to avoid overdraft issues (this will take effect in the summer of 2010). See Source 2 below for more information.

Sources:

Bankrate.com; Types of checking accounts

http://www.bankrate.com/finance/checking/types-of-checking-accounts-1.aspx

Chicago Sun Times; You can opt out of overdraft fees; Nov. 13, 2009

http://www.suntimes.com/business/1882000,CST-FIN-moverdraft13.article

Legal Services for the Elderly; The Hidden Dangers of Joint Bank Accounts

http://www.mejp.org/Home/lse/kyr/client%20ed/bankaccount.htm

5 Tips for Protecting Your Checking Account

http://www.federalreserve.gov/pubs/checkingaccount/