Checking accounts are an easy way for people to pay for goods and services. Money can be instantly accessed by check, debit card, or through electronic transaction authorizations. They are linked to a local bank in many circumstances and allow for cash access through ATMs in most circumstances. As with any monetary product, however, there is always a risk of theft present that could ultimately limit a person’s access to their cash. Should you be using a checking account for your finances? Here are the pros and cons of checking accounts to consider today.
The Pros of Checking Accounts
1. There is always a record of your spending.
Even if you write checks only on your account, there is always a record of your spending. It might be through the carbon copy of a check, through an electronic or paper statement from the bank, or through check copies that have been paid out by the bank. This makes it a lot easier to create a personal budget and manage spending.
2. Many checking accounts generate interest on the balance.
Although most financial institutions require a minimum amount to be present in a checking account for this benefit, the current interest rate for savings will be applied to the checking account as well. This might not amount to much right now with most interest rates below 1%, but something is better than nothing.
3. Maintenance costs are often low or non-existent.
Many financial institutions offer a no-fee method of checking. As long as overdrafts don’t occur or protections are in place, it doesn’t have to cost anything to access your cash. This is especially true for those accounts that have free ATM access or will recompense ATM fees that occur.
4. There is no need to carry cash around with you.
Cash is untraceable. If it gets stolen, there is no real way to recover from that loss. With a checking account, you can block access to your debit card or instruct your financial institution to stop accepting checks from your account so that the money can be protected. Even if the cash is accessed, losses are often limited with prompt reporting.
The Cons of Checking Accounts
1. Financial institutions can block access to your cash.
If spending seems like it isn’t coming from you, then a financial institution reserves the right to be able to cancel or restrict a purchase. They do this by blocking the account so no one can access it. If this happens on a Friday and there are no Saturday hours, you may not have access to your cash until Monday when you can speak with a representative. If you’re traveling at the time, this can be particularly disadvantageous.
2. Spending activities are not generally reported to credit reporting agencies.
Although financial institutions will definitely report negative account behavior, like overdrafts or actions that are deemed to be contrary to the benefit of the bank or credit union, they very rarely report positive activities that happen in your checking account. Even if you’re the most responsible person in the world with your checking account, there’s a good chance your credit report won’t reflect this.
3. Your spending habits can be tracked by organizations.
Your checking account creates transactions which can be stored for future access. Although your payment information is only stored with your permission, the spending habits allow organizations to create targeted advertising that can follow you everywhere. At best, this can be annoying. At worst, it means that you wind up spending more money than you may want because of the constant barrage of advertising that comes your way.
4. Not every checking account is free.
Sometimes there are costs to setup a checking account. There may be fees assigned to your account if a minimum balance is not maintained. Even if you do everything perfectly and remain fee free, you’ll still wind up paying for new checks to be printed and potentially up to 1.5% of a transaction cost in the US for using your debit card. Those costs don’t happen at all if you’re just spending cash instead.
The pros and cons of checking accounts show that they are useful, but maybe not for everyone. A checking account can easily be replaced by prepaid credit cards and cash in certain situations. That’s why it is important to evaluate all of these key points and the terms and conditions a financial institution offers before starting your own checking account.