The SPOT.ph Guide to a Checking Account

(SPOT.ph) Before online banking, there was the checking account for cashless payments.

With fintech in the picture, people no longer see the need to create a checking account—which means they also don't see what they could be missing out on. We’re here to tell you that there are still clear benefits to maintaining this type of bank account, especially for people with who have big or frequent expenses to manage.

Let's see if you should open a checking account through this comprehensive guide.

What is a checking account?

A checking account is a type of bank account that allows you to make cashless payments or purchases using checks or a debit card. Two edges that a checking account has over fintech is that it has no daily transaction limit and it can issue future payments through post-dated checks with ease and convenience.

Interbank deposits are also possible with checks—and it’ll only take one business day for the Philippine Clearing House Corporation to cash in a check from one bank to another. What this means is that BDO checks can be received in Metrobank branches and vice versa. This applies for every banking institution.

However, not everyone will accept checks as payment for obvious reasons: accounts from which the check is issuing money can't be verified on the spot with the lack of a third party (bank), so the issued check has the potential of bouncing later on. The account holder will also be charged an overdraft fee if there are insufficient funds in the account to cover the payment.

Checking Account versus Savings Account

Checking account and savings account each serve a different purpose.

You should open a checking account if you need a place to deposit and withdraw money for day-to-day expenses. It’s also ideal for expected future transactions, like loan obligations for a house or a car, since post-dated checks can ensure the borrower that payment will be received on time.

In contrast, a savings account is designed to help you save money over time and earn interest on your balance. Savings accounts often have higher interest rates but have restrictions on the number of withdrawals you can make per month. Savings accounts are ideal for long-term savings goals like building an emergency fund.

That said, a checking account is best for those who make frequent transactions, while a savings account is best for those who want to save money over time with interest. Having both will enable you to cover short-term and long-term financial needs.

Types of Checking Accounts

Entry-level Checking Account

An entry-level checking account is best for those who might not have a lot of finances or have limited banking needs. Entry-level checking accounts will usually offer lower minimum balance requirements and lower fees than most checking accounts.

Of course, this comes with limitations as well: Entry-level checking accounts might have lower monthly transaction limits, fewer free checks, and no interest earnings. Opening an entry-level checking account allows individuals to establish a banking history and build a financial foundation with a lower barrier of entry.

Joint Checking Account

A joint checking account is as straightforward as it can get. It is a type of bank account that is owned by two or more people, which is commonly used by couples, families, and business partners who want to share expenses. Any one of them can make a deposit or withdraw money.

However, there are drawbacks to opening joint checking accounts. You will be twice or thrice at risk for debts or overdrafts on the account as one person's financial mistakes could impact everyone in the account. This makes shared budgeting a must for those who are planning to set up a joint checking account.

Interest-bearing Checking Account

An interest-bearing checking account earns interest on the balance of the account. It’s a way for account holders to earn a little extra money on the funds they use for day-to-day expenses. Interest rates on will vary on the bank and account type, but expect them to be lower than those offered on savings accounts or other investment options.

You will need to be a bit more active in the management of this account given its perks. Besides maintaining a minimum balance, other requirements like having a minimum number of transactions each month is essential to earn interest. Some interest-bearing checking accounts can also have fees, so it's important to read the terms and conditions before opening an account.

Also read:
GUIDE: Banks That Allow You to Open a Savings Account Online
It's High Time to Open Another Bank Account, Here's Why

How to Open a Checking Account

Here’s what you will need at the minimum to open a checking account: at least two valid IDs, a checking account opening form, 1x1 picture, your tax identification number, and an initial deposit (value of which will depend per bank). Other banks might also ask for proof of latest billing or an existing savings account with the bank.

Checking accounts will typically come with a free checkbook and access to online banking services. Personal checkbooks will usually have 50 checks. Buying a new one will cost P175 to P300.

There is a special kind of checking account that has the complete package: the all-in-one checking account is like a combination of a savings account and a checking account. It will come with a checkbook, a debit card, and a passbook. Like interest-bearing checking accounts, all-in-one will usually have interest—as well a high initial deposit and maintaining balance.

Going below the maintaining balance will result in bank charges as well.

Best Practices to Manage a Checking Account

Avoid overdraft fees

Balancing your checkbook can help you avoid overdrafts by ensuring that you have enough money in your account to cover your expenses. 

Overdraft fees can add up quickly, so it's important to keep a buffer in your account or sign up for overdraft protection. You can also link your checking account to a savings account or credit card to shoulder for overdrafts.

Balance your checkbook regularly

This is the most important tip for every checking account holder. Not only will it help you avoid overdraft fees, but it will also allow you to stop fraudulent activity. Reconciling your account will allow you to identify errors or unauthorized transactions and take the necessary actions to correct them.

Lost a check? Call the bank immediately to have a payment order put on hold. You can only do this if you have listed the checking number on the checkbook, otherwise that check amount is gone for anyone to deposit. Do take note that stop payment orders will have a fee of P100 to P200 for every cancelled check.

Maintain one checking account

Having a number of savings accounts is good, but the same can’t be said of checking accounts.

Having just one checking account can simplify the management of your finances (i.e. transactions, balances, and fees). It will avoid future confusion that comes with multiple accounts that can lead to overdrafts or missed payments. You can also build a positive credit history with your bank with just one checking account.

Comparing interest rates

Interest-bearing checking accounts are great, but take note that some of them will have fees that can eat into your interest earnings through monthly maintenance fees or ATM fees.

With that said, make sure to do comparison shopping before diving into the first checking account with an interest rate. You can compare the interest rates of multiple checking accounts to find the best option using online comparison tools or talking to a financial advisor.

Conclusion

Not everyone will need a checking account in an era of GCash and other online banking services. It might just end up more of a bane than a boon to maintain this type of bank account, but this cashless method of sending and receiving payment shouldn’t be overlooked for adults with regular amortization. However, only open one if you can responsibly keep track of balances and transactions since it will expose you to maintenance fees and overdraft fees.

Ultimately, it’s important to weigh the pros and cons of checking accounts depending on the kind of financial situation you're in and the kind of financial habits you have.

Also read:
The SPOT.ph Guide to Credit Cards
Adulting 101: How to Apply for Your First Credit Card