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.

Specific-Purpose Savings Accounts

The prime examples are the familiar “Christmas Clubs” or “Vacation Clubs.” A person joining a Christmas Club, for example, might agree to deposit $10 per week over a 40-week period; at the end of that time, he or she would have $400 plus interest to use for Christmas spending. In the meantime the bank has the use of each deposit to invest or lend as it pleases. Originally, club accounts paid no interest. They were simply regarded as a convenient way of encouraging thrift. In recent years however, some states have adopted regulations that force banks to pay interest on club accounts, at a rate usually one-quarter percent lower than the interest paid on passbook savings accounts. A depositor who fails to maintain the account with regular payments as agreed may forfeit the accumulated interest.

Statement Savings Accounts

These are much like passbook accounts, the difference being that customers keep track of their own deposits and withdrawals on a form provided by the bank. The customer, however, receives a periodic statement from the bank, which includes accrued interest as well as the bank’s own records of deposits and withdrawals. Because they involve slightly less work for a bank, a few pay a slightly higher rate of interest for statement savings than for passbook accounts.

Passbook Accounts

In this time-honored arrangement, you deposit and withdraw money in any amount and as many times as you wish, with a bank teller recording the transactions, as well as accumulated interest, in a passbook provided to you by the bank. Though the rates have been fairly standard, actual yields can vary depending on the way the interest is compounded — yearly, quarterly, monthly, daily or from day of deposit to day of withdrawal. There may, however, be a small loss of interest if funds are withdrawn before a certain time has elapsed.

Be careful to read the terms of the passbook contract and ask questions if you are uncertain about any detail. If one bank offers a quarter percent lower interest rate on passbook accounts than a competitor, but compounds interest daily, it may actually provide a higher yield than the competitor’s if the money is left on deposit for a full year.

On passbook savings accounts, as well as statement and club accounts (see below), a bank may require as much as 30-days notice before a withdrawal is made. If this is the case, a statement to that effect is included in the contract that sets up the account. As a practical matter, however, banks rarely enforce this injunction and depositors usually have total access to their cash.

Banks do, however, look askance at people who use savings accounts as if they were checking accounts; some institutions limit the number of withdrawals that can be made in a week or month. A bank may even insist that an account be closed if the depositor makes too many withdrawals within a specified period. Another method banks use to limit withdrawals is to charge a service fee for each such transaction in excess of an agreed upon number per month. In a typical situation, a bank might charge a $1 service fee per withdrawal after the customer has made five withdrawals in a two-month period. A bank may also charge a similar fee if the customer closes out the account within three months of the opening date.

Savings Accounts

Among the most familiar bank services to a majority of Americans are ordinary savings accounts, in which they can place their hard-earned money and know that it will be both safe and available on request. Savings accounts, like most other accounts, are insured by federal agencies — the Federal Deposit Insurance Corporation (FDIC) or the Federal Savings and Loan Insurance Corporation (FSLIC) — for up to $100,000 or by state insurance agencies for amounts set by state law. Traditionally, savings accounts have paid minimal interest, but this is changing, too. Savings accounts come in several forms. The main of them are:

• Passbook Accounts
• Statement Savings Accounts
• Specific-Purpose Savings Accounts

Checking Accounts

In the not so distant past, checking accounts were also thought of as a convenience to the customer and paid no interest. In return for the privilege of writing checks, a so-called “regular” checking account required a customer to maintain a minimum monthly balance in order to avoid a service charge or per-check fee. A “special” checking account did not require a minimum balance, but the bank levied both a monthly service charge and a per check fee.

Today, however, competition among banks has resulted in a variety of checking accounts, among them NOW accounts (Negotiated Orders of Withdrawal), which offer the customer an opportunity to combine the thrift advantages of a savings account with the convenience of checking. To learn more about checking account types follow the next links:

• Regular Checking Accounts
• Special Checking Accounts
• NOW Checking Accounts