Checking Account – Meaning & How Does it Work?

What is a Checking Account?

A checking account is a type of bank account that allows you to deposit and withdraw money, write checks or use a debit card to make purchases or pay bills.

This type of account is sometimes called a transactional account, as an individual can draw money from it for day-to-day needs, making it easy to access. 

Generally, account holders use these accounts on a short-term basis for paying daily expenses like food bills. However, some fees are associated with checking accounts, such as monthly service fees and overdraft fees. 

How Does Checking Account Work? 

Checking accounts are highly liquid bank accounts where money is stored to make or receive payments. They are similar to savings accounts or current accounts.

While savings accounts have limits on how many transactions and deposits the account holder can make in a day, checking accounts do not have this limit – making them very useful to businesses, due to the volume of transactions that businesses engage in daily.

They are also useful to individuals who make frequent and high volume transactions.

Due to the highly liquid nature of checking accounts, banks and financial institutions typically do not offer interest on them. Banks also offer other features for checking accounts, like overdraft facilities, direct deposits, and more.

Checking Account vs Current Account

Checking account and current account can be used interchangeably. There is no significant difference between the two terms in terms of the basic functions of the account.

“Current Account” is more commonly used in the United Kingdom, while “Checking Account” is more commonly used in the United States. In India, current account is more popular.

Both types of accounts typically offer similar features, such as the ability to deposit and withdraw money, write checks or use a debit card for purchases, and possibly earn interest or incur fees based on certain conditions.

Types of Checking Account

Standard Checking Account

A standard checking account offers basic functionality and features like debit and credit cards, online banking, chequebook, etc. They come with a minimum balance requirement and do not earn interest. These accounts are best suited for small businesses or individuals without complex financial needs.

Premium Checking Account

A basic checking account cannot keep up with fast-growing businesses, or large corporations.

A premium checking account or current account comes with features that solve medium or large-size businesses’ complex financial needs. For example, RazorpayX’s premium offering, Business Banking+ offers features like payroll, vendor management, bulk payout services, etc – in addition to the traditional features offered in a basic checking account.

Check out RazorpayX

How to Choose a Checking Account?

The first step to managing your financing better is picking the right checking account or current account with the right provider.

Start by choosing between a traditional bank like ICICI or HDFC or a more new-age digital offering like RazorpayX, which partners with traditional banks like Yes Bank and RBL Bank. Digital solutions offer more flexibility, agility while maintaining the robust nature of traditional banking.

The next few things to keep in mind are:

• Monthly fees like maintenance fees, overdraft fees or other charges.
• Minimum balance is a requirement by most current account providers. Make sure you know the minimum requirement across banks.Read more: Why are MAB accounts better than zero balance accounts?
• Account access through various portals like a mobile app, website or in-person branches, based on your requirements.
• Extra features like accounts managers, bulk payout features, POS, etc

How to Open a Checking Account?

A founder can open a checking account offline and online. Various financial institutions offer the quick opening of this type of account with limited documentation and processing time. The process is as follows:

Step 1: Documentation
The process of opening a checking account will first require personal and professional information of the business or individual who will be the account holder. 

Step 2: Initial Deposit
Upon completion of providing the necessary information and documents, the owner will need to make the initial deposit. 

Step 3: Account Opening
Once done, the representative of the concerned financial institution will assist the entrepreneur in opening the account seamlessly. 

For those looking to open a Checking Account, RazorpayX offers business banking services that are even better than traditional checking accounts! 

RazorpayX-powered current accounts come with a plethora of features like automated payroll, effortless payment of TDS, etc. 

Benefits of Checking Account for Businesses

Checking accounts are especially useful for businesses for a number of reasons. 

1. Payment processing: A checking account makes it easy to process payments from customers, vendors, and employees, whether by check, online transfer, or debit card.
2. Record keeping: A checking account allows businesses to keep track of their financial transactions, which is essential for accounting and tax purposes.
3. Access to credit: Having a checking account with a good standing can help businesses qualify for loans and other forms of credit from financial institutions.
4. Convenience: A checking account makes it easy to manage cash flow, pay bills, and track expenses, which can save time and reduce administrative costs.
5. Security: Keeping business funds in a separate checking account can help protect against fraud and other financial risks, and can also provide a clear separation between personal and business finances.

Service Charges for Checking Accounts

Banks and financial institutions offer different types of checking accounts based on the requirements of the account holder.

The differences lie in the Minimum Average Balance and charges per transaction above the given number of free transactions.

Generally, a higher MAB gives the account holder more benefits, like a dedicated account manager, lower service charges and a higher overdraft limit. There might also be more features offered by the bank or financial institution, like payroll processing, tax payments and corporate credit cards.

Checking Account Effect on Credit

Checking Accounts can help founders get credit or funding for their businesses since banks and other financial institutions pull information from checking accounts or current accounts to determine creditworthiness.

Ensuring that there is no pending overdraft and that the account maintains the minimum account balance is a good way to maintain a healthy credit score.

RazorpayX-powered current accounts offer a great replacement for the manual financial operations of a conventional current account. Here are the following beneficial features that an individual can unlock by opting for RazorpayX: 

• Hassle-free addition of new beneficiaries with zero transfer limits
• Speedy money transfer without the requirement of multiple details 
• Facilities to schedule payments and receive reminders of payments

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