Checking Account

A deposit account which is held at bank or financial institution by individuals/business entities (account holders), offering them secured and swift access to funds on demand, through a variety of different channels, is called as transactional account or checking account.

Transactional accounts are not meant for savings’ purposes or earning interest, but for providing convenience to business or personal clients and therefore such accounts do not bear interests. As a matter of fact, a transactional account holder can deposit or transfer any amount of money from banks, depending on the availability of funds.

A transactional account is also referred to as a checking account (or chequing account), mainly in North America. In the United Kingdom as well as in Hong Kong, India and some other countries, this account is called as a current account or cheque/check account.

Since the money deposited under this account can be withdrawn at anytime, it is therefore sometimes called as demand account or demand deposit account (DDA), except for “NOW accounts” in the U.S.- which are technically different.

How It Started

During early 1500’s, The Netherlands used to be major trading and shipping center of the world. Those institutions or individuals who had acquired large amount of cash through businesses used to deposit their money with “cashiers” in order to safeguard their wealth. These cashiers held cash for fees. However, the number of cashiers increased, so did the competition. As a result, cashiers started providing hosts of other services to attract clients, including the paying out services to any person bearing a written order from a depositor to allow withdrawing money. Cashier kept a note as payment proof.

Gradually, the idea spread in other countries such as England and some English colonies in North America. In Boston, land owners started mortgaging their lands to cahiers who in turn provided a account against which they (land owners) could write checks.

Later in the eighteenth century, the word “cheque” appeared for the first time that were preprinted and carried serial numbers on the. At the end of the eighteenth century, problems arising out of clearing checks, (sending them from one bank to another for collection) paved the way for the development of clearing houses.

Features And Access

A transactional account holder is able to make or receive payments through following channels:

• ATM cards (Take out cash at any Automated Teller Machine)
• Debit card (which facilitates cashless direct payment at a store or merchant )
• Cash money (coins and banknotes)
• Checks and money order (paper instruction on behalf of transactional account holder to pay the bearer if check)
• Direct debit (pre-authorized debit)
• Electronic funds transfers (transfer funds electronically to a different account)
• giro (funds transfer, direct deposit)
• Standing order (automatic funds transfer)
• SWIFT: International account to account transfer.
• Online banking (transfer funds directly to another person via internet banking facility)

However there are certain services that are only country specific. For Instance;

• In the United Kingdom, BACS (Bankers’ account clearing services) offers giros that clear payment in few days while with CHAPS it’s just a matter of a day
• In Canada an Email Money Transfer service is available
•  e-checks service is offered in the United States
• In India services such as NEFT (National Electronic Fund Transfer) and RTGS (Real Time Gross Settlement), are available to clear payment in a day.

Most Commonly Used Means BY Transactional Account Holders

Branch Networks:  These are physical locations where customers are offered numerous banking and financial services, such locations are called as branches.  Usually a branch will offer its clients’ a combination of cash machines (Automatic Tailoring Machines), telephone banking, counter services and financial advice.

Internet banking

Internet or Online banking helps viewing balances and statements through bank’s secure website, in addition performing transactions and payments, and various other facilities. Online banking is extremely useful, particularly for banking outside bank hours and banking from wherever internet connection is available. As the use of internet penetrated more and more with the passage of time, most retail banking institutions started offering access to current accounts via online banking.

Overdrafts: In North America, overdraft facility is available to checking account holders (It is an optional service). Account holder can either apply for an overdraft facility or the bank its own discretion can decide to offer this service temporarily at an ad hoc basis, including the maximum amount which can be withdrawn.

Interest

Earlier in the United States, Regulation Q (12 CFR 217) and the Banking Acts of 1933 and 1935 (12 USC 371a) barred a member of the Federal Reserve system from paying interest on demand deposit accounts.

Previously, this ceiling was often circumvented by either creating an account type such as a Negotiable Order of Withdrawal account (NOW account) which is legally not a demand deposit account or by offering interest-paying checking through a bank which is not a member of the Federal Reserve System. Later, the Dodd-Frank Wall Street Reform and Consumer Protection Act,  both of them legislated by the Congress and signed into law by President Obama on July 21, 2010, revoked the statutes that forbids interest-bearing demand deposit accounts, effectively repealing Regulation Q (Pub. L. 111-203, Section 627). The abolishment of these accounts took effect on July 21, 2011. Since that date, financial institutions have been allowed, but not obligated, to provide interest-bearing demand deposit accounts.

High-yield checking accounts

High-interest NOW accounts are widespread throughout the industry, currently. They offer a higher interest rate than typical NOW accounts and often act as loss-leaders to drive relationship banking.

In 2003, banks and credit unions started creating maximum balance accounts, which give a premium rate up to a certain limit and a lower rate on balances above that limit. This new trend (banks had typically established minimum account balances rather than maximum account balances) developed very quickly as it made possible for financial institutions to attract multiple customer relationships at the same time as limiting the interest expense associated with each account.

The first maximum balance or high-interest checking account was accessible in 2003 through a small community bank in New Mexico, Pioneer Bank. Later in 2004 and 2005, several community banks in West Texas implemented the idea, and a 3rd party vendor, BancVue, combined the maximum-balance concept with the notion of a higher yield for customers who opt for specific cost-savings behaviors, as a “Reward” Checking account.

Looking at success, other banks also followed. By 2010, over 1.5 million REWARD Checking(r) accounts had been opened at BancVue’s clients alone.

The abolishment of Regulation Q, which earlier barred the payment of interest on standard transactional accounts, took effect too recently for it to have shown major changes on banking practices. It is possible, however, that as time passes by, the popularity of these alternative “checking” accounts will fall as clients choose for the less restraining rules governing standard transactional accounts.