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A checking account, also spelled chequing, is a bank account designed for everyday use and spending. Because checking accounts are meant for daily use, they tend to have very little limitations. There is a catch as these benefits are not free, a checking account typically comes with monthly fees. A checking account is primarily used for things such as paying bills, direct deposits from your employer, grocery shopping and cash withdrawals.
As with all things, there are pros and cons associated with checking accounts. If you use a checking account for its intended purpose, you can make the most of the advantages and offset the disadvantages. Let’s explore the advantages and disadvantages below.
There is no “one fits all” checking account solution. The reality is, everyone’s everyday banking needs are different and unique. The checking account that works for you may not work for someone else. To help navigate through your options and find the best account for your individual needs, ask yourself the below list of questions.
Now that you’ve decided you want a checking account and have found the right fit, it’s time to actually open the account you want. Every financial institution varies slightly in their procedures, but below are some general requirements and documentation you can expect to incur when opening an account.
Once you’ve provided all the necessary information and documentation to open an account, your account will be ready to use. Depending on the bank, the account could be open the same day you apply or you may need to wait a few business days. When the account is ready, you’ll get a confirmation package in the mail along with your debit card. Debit cards usually require activation, instructions to do so will be included in the package you receive. After all that, you can start using your checking account as you wish!
A checking account is merely one type of bank account you will use in your lifetime. You will likely want to do other things with your money, such as save for a big purchase or start a retirement fund. Below are different bank account types, their purpose, and corresponding benefits and drawbacks.
Arguably the second most common type of account after a checking account, a savings account is used to save money, just as the name implies. A savings account is an excellent place to store an emergency fund or save for a big ticket purchase. Savings accounts have low fees and earn interest on the balance. This means you can make money on your idle savings. Lastly, savings accounts do not come with a debit card and withdrawals are quite limited.
A joint account is the exact same thing as a checking account but you share access to the account with one or more persons. Joint accounts are commonly used by individuals who live together and share a lot of expenses. Unfortunately, you are responsible for the spending of the other people who have access to the account. If they over spend, that becomes your obligation too.
Set up by the Government of Canada, a registered retirement savings plan allows you to put money into a special account for retirement purposes while also reaping tax benefits annually. The money in the account is tax free until you withdraw from it.
Also set up by the Government of Canada, a tax free savings account allows individuals over 18 years old to set aside money, tax free, throughout their lifetime. Similarly to an RRSP, once money is withdrawn from a TFSA, it is considered income that will be taxed. Unlike an RRSP, there are no annual tax benefits to using a TFSA.
If you have some extra money saved up, you may want to invest it somewhere to make money on your money. There are ample investment accounts available, be prepared to do some research before selecting one that works best for you. Investment accounts will likely have fees just like checking accounts do.
Checking accounts, among other bank accounts, are supposed to compliment your lifestyle and make everyday banking easy. Choosing the right account will make banking a part of your life, not your whole life. If you choose the wrong account, it can become extraordinarily difficult to manage your finances and cause unnecessary stress. Before making any bank account decisions, consider your options, financial goals and current spending lifestyle. That way, you’ll pick the most ideal account for you!
Mohamed Konate is a personal finance expert, blogger, and marketing consultant based out of Toronto. He is a former financial services professional who worked for many years at major Canadian financial institutions where he managed the marketing strategy around various financial products ranging from credit cards to lines of credit. Mohamed is passionate about personal finance and holds a Bachelor in Business Administration from the University of Quebec (Montreal) and a Master in International Business from the University of Sherbrooke (Quebec).He is also the author of the Canadian Credit Card Guidebook.
