Sep 11

Checking Accounts

Regular Checking Accounts

This type of bank accounts requires you to maintain a minimum balance at all times. The amount of the balance varies, depending on the bank, but typically it ranges from $300 to $1,000. In exchange, the bank offers “free” checking: you can write as many checks as you like each month and will not be charged a per-check or a monthly service fee. When you open a regular checking account, you place at the bank’s disposal a certain amount of money it can lend or invest to offset the cost of its services to you. A minimum balance account may be a good arrangement for you if you can afford to maintain the amount, and if you write a fairly large number of checks each month. It may not be a good arrangement if you cannot easily maintain the balance or if you write few checks.

Even if you write a great many checks, it pays to shop around among the banks in your community for the best possible deal, not only in terms of the required minimum balance but also of the way the balance is figured. For example, Bank A may require an average balance of $500 each month: this permits you to have less than the minimum on deposit at various times as long as your average daily balance for the whole month is $500 or more. Bank B, on the other hand, may require a minimum balance of $500 at all times. All other factors being equal, Bank A offers a better arrangement for the consumer.

Another factor to think about is whether the bank you are considering offers automatic transfer privileges for regular checking customers who also maintain passbook or statement savings accounts with the institution. Banks offering this privilege will transfer funds from your savings to your regular checking account whenever the checking balance falls below the minimum, thus maintaining your balance so that you will not have to pay service or per-check charges.

Finally, and most important, you should consider whether a regular checking account makes sense for you at all. If the account requires you to maintain a $500 minimum balance and you write an average of only four checks a month, you are losing the $27.50 in interest per year the money would earn at 5½ percent in a passbook savings account. However, if you open a special checking account at the same bank, which demands no minimum balance but charges 15 cents a check, you would spend $7.20 for your 48 checks annually, and you would earn the $27.50 in annual interest on the $500 in the savings account.

If, on the other hand, you write an average of 25 checks per month, a regular checking account makes a great deal of sense, because a per check charge of 15 cents would bring your total yearly outlay to $45, considerably more than the $27.50 you would earn in yearly interest on a $500 savings account.

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