Luisa Rollenhagen is a journalist and investor who writes about financial planning for Wealthsimple. She is a past winner of the David James Burrell Prize for journalistic achievement and her work has been published in GQ Magazine and BuzzFeed. Luisa earned her M.A. in Journalism at New York University and is now based in Berlin, Germany.
Unless you’re way off-the-financial-grid, you probably have a checking account for your everyday expenses. When you’re doing some ill-advised late-night online shopping, paying for groceries with your debit card, or depositing your latest pay check, you’re probably using a checking account. It’s the most popular place to store cash and also one of the easiest way to conduct cash transactions.
Because your money is easily accessible in a checking account, it’s a great place to park cash you’ll need for everyday spending and regular expenses, like bills, rent, groceries, and that large iced coffee you desperately need every morning. Since there are not many restrictions to accessing your money, it’s a convenient solution for storing money that you want to transfer, use, or withdraw almost instantaneously.
The name of the account comes from the fact that you can draw from the account by writing physical checks to people and business, although these days most people simply use their debit card and online transfers to move funds around and buy stuff. But the name stuck.
Some checking accounts allow you to earn interest on the cash you have stored in the account—but the rates will be low, even lower than they usually are with savings accounts (although there are some high-interest savings accounts that offer above-average rates). Checking accounts that offer interest may also come with more restrictions than your average checking account, as well. But since they’re usually online-only, overhead costs associated with running a brick-and-mortar bank aren’t passed along to you in the form of high fees.
Although opening a checking account is usually easy, you’ll still want to inquire about fees before choosing what bank you’ll open an account with. The most common fees you’ll encounter with a checking account are maintenance fees and overdraft fees. A brick-and-mortar bank, especially a large national one, will usually charge an annual or monthly maintenance fee for its checking accounts, although some banks will waive the fee if you maintain a certain minimum account balance or regular direct deposits. Overdraft fees can be really steep, so it’s worth inquiring whether your bank offers overdraft protection for your account.
If you’re looking to grow your money over time and earn higher interest, then an investment account might be a good choice. With an investment account, you won’t allow you to access your money as quickly and easily as you do with a regular checking account. With an investment account, the longer your money sits untouched, the better. That way, you can benefit from the magic of compounding and work toward long-term saving goals.
FS: What is an interest-bearing checking account A: An interest-bearing checking account is a checking account that allows your money to earn interest. Since these are usually online-based, they come with lower fees (or no fees) than more traditional checking accounts, though it’s possible they’ll have more restrictions.
What is an online checking account?
With the proliferation of online-only banks, the online checking account is becoming more and more common. The main draw of online checking accounts is its convenience and low cost. You can sign up for an online checking account, usually for free, from the convenience of home with nothing more than an internet connection and ID. And since there are no overhead costs, there are usually very low or no maintenance fees and overdraft fees that are less than those of brick-and-mortar banks.
Another benefit of online checking accounts? With checking accounts that are opened at a specific institution, you’;; be charged a fee if you don’t use that bank’s ATMs. With online checking accounts, since the online bank doesn’t have a physical location, you’ll usually have access to a vast—and free—ATM network that will let you withdraw money from various locations with no additional fee.
Online checking accounts will often have features like free money transfers, easily set-up automated transfers, and user-friendly apps.
What is a business checking account
Businesses need an easily accessible funds as much as people do. Just like a personal checking account, a business checking account gives specifically authorized individuals access to the funds in the account, but it belongs to the business itself and all transactions are part of a business’s financial activities. However, the requirements for opening a business checking account are a bit different from those of a personal checking account.
Business checking accounts usually come with higher fees than you’d be charged for a personal account, due to the greater amounts of money involved and the higher transaction volume. With a personal checking account, you usually just need a form of ID and a few other personal details. If you want to open a business checking account, the bank will require more official documentation to prove the existence of your business, including a business license and your business’s tax ID.
A business that has a business checking account is incredibly helpful for keeping your business expenses and other financial records all in one place. This is particularly important for tax purposes. (A business account should always be kept separate from a personal checking account in order to avoid any accounting tax headaches.) A business checking account will also let you accept payments in credit and, on a whole, add legitimacy and professionalism to your enterprise.
The corporate investing account can be a smart choice for businesses who don’t want to let their money stagnate in a regular checking account where inflation will eventually catch up with it. A corporate investing account invests in GICs, mutual funds, stocks and bonds, and ETFs in order to grow your money. Opening a corporate investing account can also be beneficial for businesses that might expect to weather some good years and bad years. Why take profit at a time you’re earning a lot when you can wait for a slow year when be charged a lower income tax rate?
The tax rate on withdrawals from corporate investment accounts is extremely high, though a good accountant will suggests ways to reduce it.
Checking account versus savings account
While checking accounts are necessary for everyday transactions, a savings account is another important financial tool.
With a savings account, you’re putting aside money you don’t immediately need so that it can accrue interest and grow as you continue adding to it. You’re gaining interest on your savings account because you’re allowing the bank to borrow that money for its own transactions. Note that interest rates are not going to be as much as they would be in an investment account, although there are some online-only savings accounts that offer above-average interest rates.
A savings account is particularly useful for short to medium-term savings goals, such as creating an emergency fund, saving up for a vacation, or building up enough capital to start investing more seriously. Unlike checking accounts, savings accounts don’t always allow unlimited transactions. Many savings accounts will limit the number of withdrawals you can make per month, and you can’t really pay bills with a savings account since there’s no debit card that goes with it. So if you want to use a savings account efficiently, we recommend doing some research on finding the highest interest rates and lowest fees and setting up regular automated deposits so that your money can grow undisturbed.
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