Understanding the various concepts associated with checking account

A checking account is a deposit account offered by different financial institutes that allows consumers to transact money through their account without any hassles. The funds deposited in a checking account are easy to access and offer liquidity. Checks, debit cards and ESI systems can be used to withdraw and deposit money in these accounts.  

Checking account Vs Savings accounts 

  1. A checking account allows numerous transactions and unlimited deposits while savings accounts have limited free transactions and an account holder can deposit only a limited amount of money per transaction.
  2. The liquidity of the checking account is balanced by the very low interest rates offered on the checking account funds. 

Demand and transactional accounts are the other two names of checking account. 

Types of checking account

Basic checking account 

This type of checking account is used to pay the daily common expenses incurred by an individual. Household bills, telephone and electric bills and other utility payments are made through these accounts. To prevent a monthly maintenance fee, some banks require the customers to maintain a minimum balance in their basic checking accounts. The number of checks that can be used per month is limited. An excessive use will call for extra charges for each extra check that is written. These accounts have very low denominations as the interest rates paid are almost zero.  

Free checking account 

This type of checking accounts is most popular among customers. Free checking accounts allow the customers to keep the lowest balance required and the transactions are free irrespective of the balance maintained. The usage of cheques is also unlimited.

Free checking accounts have some limitations. These are not meant for all. A majority of the free checking accounts do not pay interests. Some accounts also have transactional limitations. There are other banks that make it a policy to ensure that the account holder makes regular payments. Sometimes these free accounts are also made as salary account. Although these accounts are known to have no charges, there are penalties attached to the account that are very high. Lack of sufficient funds or check returns, stop payment, inactive accounts incur charges. Some banks also charge fees for availing check books and debit cards.

Checking accounts alone are a loss to the commercial financial institutions. Because the earning probability of the bank from these accounts are very low therefore checking accounts are used as financial tools to attract customers towards the bank and make them use more profitable features like house or personal loans.

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