A CHECKING ACCOUNT is a bank account from which the account holder can take money at any time - by withdrawal, check, or debit card.
Checking accounts are very useful, but they pay a low rate of interest or no interest at all.
Jeff is using a check to pay for his new hard drive. He must be very careful not spend more than he has in his account!
The key idea to remember about checking accounts is that the holder of a checking account can withdraw – or demand – his or her assets at any time. This is why checking accounts are referred to as “demand deposits.” Funds can be withdrawn in a variety of ways – such as by check, ATM machine, debit card, or wire transfers.
Banks often charge a fee each month for a checking account, although “free checking” is often available if you keep a certain minimum balance in the account, fit an age category (such as senior citizen or youth), use a debit card, have direct deposits coming into the account, etc. Typically, checking accounts pay a low rate of interest, or maybe no interest at all, so don’t use a checking account as a savings account!
Be careful not to withdraw more than you have in your checking account. This can result in fees and will hurt your credit rating. Banks and credit unions often offer “overdraft protection” to cover an overdrawn account, however, there is typically a fee for this service.
For the Checking Account do these practical lessons found in the Pint-Size Economics curriculum.
Create or copy some checks, and have students practice writing checks. Have them write several checks and keep a record in a check register.
Have students investigate different types of checking accounts at local banks or credit unions. They should look for different features such as fees, overdraft protection, minimum balances to receive free checking, interest rates, etc.
Discuss what it means to “overdraft” an account. (withdrawing, usually via a check, more money than is in an account. If the bank refuses to honor the check, it is said to have “bounced.” Discuss why it is important not to overdraft an account. (Businesses often charge a fee for bounced checks. If you bounce a check to pay off a credit card, you could suffer even more serious consequences, such as an increased credit card rate, a lower credit rating, etc.) This is why it is important to balance a checkbook each month so that a person knows exactly how much there is in the account.
Discuss why checking accounts are considered “money” in the M1 definition. (Deposits in a checking account can be withdrawn and spent at any time.)
Discuss how a debit card works to withdraw money from a checking account. (It has the same function as a check, but is typically easier – and less costly - to use. However, a check may be needed to pay a certain bill or obligation if a debit card can’t be accepted. So while debit cards are becoming more popular, checks still are useful and often needed.)
LITERATURE
CONNECTION
Banking (How Economics Works series), by Barbara Allman, 48 pages
Learn all about banking, checking accounts, interest, and other services offered by banks and credit unions.
Money Sense for Kids, by Hollis Page Harman, 192 pages
This easy-to-read book for pre-teens focuses on a lot more besides debt. It helps students understand a whole range of money issues, including saving and investing, history of money, banking, saving, checking accounts, ATM machines, and investing in the stock market. There are also “money games” adults can play with students. Easy to do activities follow each chapter.
