Checking Account

What is Checking Account?

Checking Account, also known as a transactional account, can be defined as a kind of deposits account held by a financial institution or non-banking financial institution which allows the holder of the account to deposit and withdraw money. This is one of the most liquid forms of money. It differs from a normal bank savings account since it allows multiple deposits and withdrawal in a particular period.

Types of Checking Account

Checking Account

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Examples of Checking Account

Let us understand this concept with the help of some examples: –

You can download this Checking Account Excel Template here – Checking Account Excel Template

Example #1

Calculate the closing balance of Mr. David’s account with the following mentioned details:

  • David Opened interest-bearing checking account with $ 1,00,000 on 01-01-2016,
  • David further invested in 01-01-2019 $50,000.
  • Rate of Interest is 12% p.a. Yearly compounded.
  • Calculate the closing balance, which will accrue to Mr. David on 31-12-2019.

Solution –

Closing balance accruing at 31-12-2019 will be calculated as follows:

Checking Account Example 1

Closing balance as on 31-12-2019 is $2,13,352.

Example #2

With the help of the below-mentioned transactions, ascertain balance in checking account of Mr. David as on 31/03/2019.

Checking Account Example 2

Solution – 

Balance in an account as on 31-03-2019 will be calculated as follows:

Example 2.1png

Advantages

Disadvantages

Important Points

  • One of the most important changes is the mobility of cash in hand. It had changed the concept of money.
  • With increased technology, more innovations are being bought in Checking accounts like ATM card facilities, online purchases, etc.
  • Repayments of dues can be used by credit rating agencies to monitor and assign credit ratings.
  • With the increase in competition among financial institutions, the cost of opening and maintaining the checking account is considerably getting reduced.
  • One can use this account to make payments, which reduced the safety threat of cash theft.
  • Monitoring by taxing authorities and other financial institutions may help government organizations to cross-check income reported and tax paid.

Conclusion

A checking account is a kind of deposits account that allows the holder to make a withdrawal and deposit money. It is also known as a demand account or transactional account. There are various types of checking account which caters the need of different individuals like personal, Business, Interest-bearing, student account. Depending on the need and eligibility, one can choose any of them.

It helps the holder to make online purchases or use the ATM debit card for making purchases without carrying cash. It offers convenience and safety to the holder, and it also increases cash mobility. Sometimes financial institutions may reflect only a negative part of the account holder. Also, sometimes FI may place restrictions on cash withdrawals, which may be dissatisfying.

Recommended Articles

This has been a guide to what is Checking Account and its definition. Here we discuss the types of checking accounts along with examples, advantages, and disadvantages. You can learn more about Finance from the following articles –