How To Get A Checking Account And Use It To Your Advantage

Checking accounts go by various names today, including: chequing account, cheque account, transactional account, current account, demand account and demand deposit account.

It is rumored that the idea and practice of the checking account goes back to Roman days. However, the check did not come into common use in business commerce until the 16th century in Europe. Dutch - and later British and American - trading companies and landowners realized that they needed an easy and efficient way to pay and receive monies from one another. After all, sending each other bags of cash via messengers on foot, by ship or by horseback was both dangerous, costly and risky. Writing a check was a preferable means of making payments. Plus, with a check, there remained a convenient and valuable record of the transaction having taken place.

In 1762, English banker Lawrence Childs helped along the evolution of the check with a new innovation: the printed check. During the same century, the British introduced another innovation that has stood the test of time: the addition of serial numbers to checks.

Today, checking accounts are a widely available financial product from most personal and business banks. As the account owner, you receive a book of blank checks that include your name and other identifying information.

Individuals and companies trade checks as if they were common currency. They differ from savings accounts in that checking accounts do not bear interest. Rather, these accounts are specifically designed to make it easy to pay creditors such as mortgage companies, auto companies, personal lenders, and utilities companies. Of course, checks can also be used to make product purchases, gift gifts of money to individuals or charities, and to pay for services rendered.

Relatively recent innovations in checking accounts include free checking, overdraft protection, and the ability to issue checks online.

When you receive a checking account, you also receive one or more books of pre-printed checks. In most cases, your checks will display identifying information about you such as your name, address, telephone number, and driver's license number.

In the case of United States-issued checks, each check features at least 3 types of identifying numbers: your bank's routing number, your checking account number, and the sequential check number. Each of these pieces of information is essential in helping all members of the transaction (payer, payee, issuing bank and receiving bank) to identify, track and process individual payments made via check.

The routing number is a nine-digit bank code that uniquely identifies the check as having been issued by your bank. It can be found along the bottom portion of your check, running horizontally from left to right. The routing number makes it easy for the individual or institution who is cashing the check you have written to sort, bundle, and ship paper checks to the check-writer's checking account.

Next, each check displays the checking account number. Like the routing number, this number can also be found running horizontally along the bottom portion of the check. The checking account number must be a maximum of 17 digits, as dictated by ACH (Automated Clearing House). In most cases, checking account numbers are 8-10 digits in length.

Finally, you will find a check number on each check. This number will be different on every check that you issued. Usually a 4-digit number, check numbers are sequentially-numbered to make it easy to track them. Inclusion of such numbers in checks make it easy for both payer and payee to identify which individual checks have been written, received and cashed.

If you currently have a checking account or have had one in the past, you already understand many of the advantages that having one offers - but there may be advantages that you are not yet leveraging.

On the other hand, if you are yet to have a checking account of your own, you may be wondering, "What are the benefits of having a checking account?" In either case, the following information can help you understand some of the advantages and disadvantages of having a checking account.

Advantages:

The advantages to bank customers of checking accounts are many. There are a number of important features that these accounts can offer you. The most obvious advantage to having a checking account is that it makes it very easy for you to pay the people to whom you owe money (creditors), as well as to make purchases for goods or services and to give money to friends, family or charity.

With a checking account, you do not need to worry about sending cash through the mail or carrying it with you every time you make a purchase. And, most checking accounts can be linked to combination debit/credit cards, which usually double up as ATM cards for making quick cash withdrawals. This type of card provides you with yet another way to make purchases without having to carry cash around. Debit and credit cards featuring the Visa or MasterCard symbol can be used at millions of locations around the world to make purchases.

But, the advantages of having a checking account do not stop there. With a checking account, you can also make and receive payments via a number of other methods, including:

* cash
* money order
* giro (funds transfer)
* direct debit
* standing order (automatic transfer)
* international account-to-account transfer

One final, important advantage to having an account: online bill pay. With a checking account, you can logon to your bank's website at any time - day or night - and issue payments to anyone you wish.

Disadvantages:

The main disadvantage of having a checking account is the fees involved. Until about 10 years ago, most banks charged customers a monthly or per-check fee in order to be able to have a checking account. Then, the idea of "free checking" was invented by banks. This innovation initially made banking customers quite happy, until the advent of overdraft protection.

Which brings us to another disadvantage: overdraft protection. This service is sold to banking customers as a benefit. However, given the very high overdraft fees that are usually charged - even for tiny overdrafts - these programs are very unpopular among many banking customers and are now seen by many as a disadvantage or drawback (see more on this topic below).

Another disadvantage of checking accounts (as compared to savings accounts) is that checking accounts do not pay you interest on monies deposited. However, you can balance out this negative effect by only keeping money in the checking account that is needed to pay your pending bills - plus a bit of padding to avoid overdrawing the account. Then, you can put the rest of your money into the savings account where it can earn interest.

One of the best things about having your own checking account is having the ability to conduct your banking via the Internet, from the comfort of your own home, office, local coffees shop . . . wherever!

Online banking is quickly replacing telephone banking as the most convenient and quick way to conduct your banking business from just about anywhere. With just an Internet connection and a computer, you can almost instantly conduct many types of transactions, including:

* making bill payments to third parties

* issuing wire transfers to other banks - either to either your own accounts at another bank or to someone else's

* making transfers among your own accounts at your bank, such as from checking to savings

* complete and submit a loan application

* viewing your transaction history

* downloading historical bank statements

* viewing images of paid checks

Before the advent of online banking, you could not do almost any of these things without visiting your bank in person.

Overdraft protection programs have been in effect for several years at many national banks. The premise is that, for those customers who enroll in such programs, the bank will step in and cover any payments you have made via check, debit card or credit card that result in your overdrawing your account (i.e., that would cause you to have a negative account balance).

The drawback for this service, of course, is the fees. And, oh those fees are something to take seriously at $35/event in many cases. In fact, in the U.S. alone, banks have been making over $25 billion per year in overdraft fee-derived income each year. That is a huge chunk of change going right into the pockets of banks. In most cases, the banks are only covering said overdrafts for a matter of days - meaning that the profit margins on these micro-loans are enormous.

In response, U.S. Congress passed a bill in 2009 (which went into effect in 2010) which forces banks to make customers aware of their choice to enroll in such programs, rather than just automatically enrolling those customers as they had done in the past.

Still, most customers are projected to continue to enroll in such programs. The result: customers of most banks will still be paying overdraft fees for years to come.

The solution? To find a checking account with a bank that does not charge overdraft fees - even when you overdraw your account.

Many people are looking for a checking account merely because they believe that doing so will help them to qualify for a loan. This is partially true, but it is misguided.

It is true that some payday loan companies may be willing to give you a personal loan without your having a checking account. Another alternative, of course, is to find a pawn shop to loan you money in exchange for their holding onto one of your items of value as collateral.

However, a better use of your time may be to ask yourself why have you not been approved for a checking account. It starts by understanding why some people find it hard to qualify for an account.

The reason why you may be having trouble qualifying for a checking account is due to something called ChexSystems. This is a national database of banking customers that is maintained by banks.

This database holds the names of checking and savings account holders - past and present - who have had some glitches show up in their personal banking history. For example, maybe the person left a bank while still owing it money for overdrafts that the bank covered. Or, maybe the person was suspected of having written bad checks.

In any event, if your name shows up in ChexSystems, it is not a good thing. That is because, the majority of banks actually refer to ChexSystems before approving a person's banking application. And, most will reject a checking account application on the spot if a name does show up there.

In essence, your rejection for checking accounts has nothing to do with your traditional credit (FICO) score, but rather whether your name shows upon in this database.

ChexSystems is meant for banks' eyes only; however, individuals can request a ChexSystems report.

If you have decided that the best way for you to take out a loan (or to enjoy the other benefits of a checking account) is to actually get a checking account of your own, look for the following features in a new bank:

* it is non-ChexSystems, a.k.a., a second chance checking, bank

* FDIC-insured

* has branches near you

* offers online banking

* free checking

* does not charge overdraft fees

The bank you choose may not have all of these features, but make sure it at least offers the features that matter to you most.