Opening a checking account is your first step to reaching your financial goals. You’ll deposit your paycheck and other earnings in it and use it to pay your bills using either checks or a debit card. You can also withdraw cash from it at the bank or an ATM.
You may have heard about balancing your checking account. But if you’re new to banking, you probably have many questions about choosing and balancing a checking account. What is the purpose of balancing your checking account? How do you balance a checking account with a bank statement? Get your answers here.
Checking Accounts Today
Checking accounts in 2020 are used differently than they were 20 to 30 years ago. It used to be much more commonplace to pay for groceries, clothing, bills, services, and more with cash and hand-written checks. But today, many transactions are made with debit and credit cards or electronic transfer services such as PayPal and Venmo.
Although their name might feel outdated, checking accounts are still the most common type of bank account in the United States. While you may use yours differently than your parents did—debit cards instead of checks, and ApplePay instead of cash—you will still use a checking account for day-to-day banking, such as making purchases, paying bills, and receiving payments.
Choosing a Checking Account
A checking account is almost required in a society that uses cash less and less. So how do you know when you’ve found a good checking account? Look for these essential features when opening yours:
Minimal Fees
You won’t want to pay a bank to hold your money, so look for an account that doesn’t charge a monthly fee. Many banks offer no-fee or low-fee options. Other accounts don’t charge fees if you meet certain conditions, such as a minimum balance and regular deposits. Or if you are a student, you may find accounts that waive fees while you are in school.
Most banks will charge you if you try to withdraw more cash than you have in your account. Look up the amount of this “overdraft” fee, and keep tabs on your balance so you don’t have to worry about ever paying it. Also, choose a bank that doesn’t charge you to use other banks’ ATMs.
Online Services
In a digital world, it’s essential to be able to access your money from your phone and other devices. Look for a bank that has a simple platform for online banking that allows you to pay your bills, make deposits, check your balance, send cash to friends, and move money between accounts. Read reviews online, and take a tour of your bank’s online and mobile banking options.
Interest Rate
Did you know you can earn money on the cash in your checking account? It may not seem like much, but it is a benefit of having a checking account. Some banks don’t offer these interest payments, while others do. If it is important to you—especially if you will have a large sum of cash in your account—shop around and ask about different banks’ interest rates.
Insurance & Fraud Protection
What happens if someone steals your debit card and makes fraudulent purchases under your name? Most banks offer insurance on their checking accounts to protect you in these cases or in case a recession causes the bank to fail. Understand the insurance offerings at your bank, along with any safeguards they have against fraud.
How to Set Up a Checking Account
Once you’ve chosen a bank, setting up your checking account there is simple. Follow these steps:
- Gather identifying information. When you apply for a bank account in person, you will likely need two forms of identification, which may include a driver’s license, passport, Social Security number, or birth certificate. If you’re not a US citizen, you can use an ID card or document from your home country. When applying online, you will often need to provide your Social Security number, birth date, and driver’s license or state ID number. You’ll also need proof of address, such as a recent utility bill. For joint accounts, both account owners need to provide identifying information.
- Complete the application online or in person. Head to your bank or credit union—or to their website—to fill out an application. The bank will run a check on your credit and banking history, and if you qualify, they will set up your checking account that day.
- Provide your signature. The bank will ask you to sign a signature card, which will be matched against your signature on every check you write and deposit. If you’re applying online, you may need to visit the physical branch to provide your signature.
- Make your first deposit. These funds should be available to you immediately or within a few days.
After these steps, you’re done! Your account is set up by your bank or credit union, which will give you your routing and account number and set you up with a debit card (and paper checks, if you want them).
How to Balance Your Checking Account
Once you set up your account, you might still wonder, “What is the purpose of balancing your checking account?” Balancing a checkbook—comparing your personal record of payments and deposits to your bank statement—is a key way to keep track of your money.
Balancing your checkbook can help you track down your funds when you’re wondering, “Why am I missing money from my bank account?” It will keep you aware of how you’re spending your money and how much you’re earning.
You should also watch for any extra fees your bank may be charging you, which will show up on your bank statement. What are some examples of fees that can be seen on a bank statement? Account maintenance fees, ATM fees, overdraft fees, and minimum balance fees are the most common.
How do you balance a checking account with a bank statement? Follow these steps:
- Keep records of money you deposit into your bank account and cash you withdraw.
- Find your bank statement. It will come in the mail every month, or you may have digital-only access to it on your bank’s website.
- Look through your personal records, and compare them to each transaction on your bank statement. The deposits and withdrawals in each record should match up.
- Note your outstanding checks, which are checks you have written and used for payments but that haven’t appeared on your bank statement yet.
- Look for bank fees and potential bank errors. If you find a problem, report it to your bank immediately.
- Add up all the money your records say you’ve deposited, and all the money you’ve withdrawn. Subtract withdrawn money from deposited, and the total should match up with your balance in your checking account.
Now that you understand choosing and balancing a checking account, how often should you balance your checkbook? Look over your account at least weekly, if not more often. Know how much you’re earning and spending, and be on the lookout for mistakes and fees.
Keep your checking account balanced to keep track of your hard-earned cash. Being a great money manager means first knowing your cash position as often as possible. Stay on track, and reach your goals. We’re rooting for you, so contact us for help at any time.
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