All checking accounts are not created equal

People often take checking accounts for granted. They don't look hard or analyze the terms that are available to get the best deal. They assume that all checking accounts are alike. While it's true that all checking accounts work alike, the terms offered by different banks and credit unions can vary.

Sometimes people, in their assumption that all checking accounts are equal, open accounts that are not the best options for them. A little thought about how you would like your checking account to operate and what features you'd like to have may eliminate a future annoyance factor.

Having a small checklist (wish list?) of features you'd like to have might save you both money and aggravation in the future. Here are some checking account features and conditions you might want to consider and, sometimes, avoid.

Some features of a checking account to look for (or be wary of)

Is your "free" checking account really free?

The single most effective word in marketing a product or service for all of recorded history: Free. Has there ever been anyone that didn't want something free? Not likely.

Banks can use the word without fear of rebuke if the "free" item is part of a larger package. Carefully read your checking account agreement to learn if your account is "totally free" or has some free components along with others for which there is a fee.

How are check "holds" managed?

There are common practices regarding all financial institutions' imposition of check holds. For example, you deposit a "local" check and your institution "holds" the amount (or part of the amount) for up to three days. The next day you deposit a "foreign" check (even if just from one of your bordering states) and your bank holds the amount for up to seven days.

These common procedures may or may not pose a problem for you. But, suppose your payroll check comes from your company's home office which is three states away? You don't want to wait – nor could you often afford to – seven days for those funds to be "good."

Before opening a checking account, learn what the bank's policies are regarding check holds and arrange for "no hold" checks from employers, investment accounts, pension payments, etc. Should your bank refuse to guarantee these accommodations, it might be time to consider finding a new financial institution.

Are there minimum balance requirements?

You might earn some interest if you opt for a minimum balance checking account, but try to be sure this product is best for you and your specific needs.

For example, you open a $500 minimum balance checking account that earns 2% interest on your "average daily balance" as long as it equals $500. Should it drop below $500 for one day or should the average daily balance for a month go under $500 for the month, you earn no interest and incur a $5 "low balance fee".

For a month that you keep your balance around or slightly above $500, you might earn a dollar or two, depending on the computed size of your balance. The next month your average daily balance is $490 (not much less than the prior month), but you are charged a $5 fee. The numbers simply don't work in your favor.

Can you get overdraft protection?

This feature usually means that should you present a check to someone that is larger than your available balance, your bank will create a short-term unsecured loan for the difference.

Your check will clear, the bank will generate a loan, and charge interest on the balance until you pay it. You might even have "free" overdraft protection wherein the bank sets up the loan but charges no interest if you pay it back in a few days.

Can you "link" two or more accounts together to cover overdrafts?

As an alternative to creating an unsecured loan, you may be able to link your checking account to one or more other savings or checking accounts at your bank or credit union.

Should you try to clear a check for more than your available balance, your institution's computer system simply transfers the remaining funds you need to cover the check.

Are your "bad boy" fees reasonable?

Bad boy fees include NSF (not sufficient funds), overdraft, returned deposit (when someone gives you a check that bounces), low balance, or other fees that apply to actions that violate your checking account terms.

You cannot blame your bank for having these fees, but check the competition to ensure that these charges are similar to other institutions in your area.

Don't make assumptions

Never assume that all checking accounts are created equal. Become comfortable with your account terms or seek out better arrangements.

See also: Compare checking accounts