Checking Account

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DEFINITION of 'Checking Account'

A transactional deposit account held at a financial institution that allows for withdrawals and deposits. Money held in a checking account is very liquid, and can be withdrawn using checks, automated cash machines and electronic debits, among other methods.

A checking account differs from other bank accounts in that it often allows for numerous withdrawals and unlimited deposits, whereas savings accounts sometimes limit both. Checking accounts can include business accounts, student accounts and joint accounts along with many other types of accounts which offer similar features.

In exchange for the liquidity, checking accounts typically do not offer a high interest rate, but if held at a chartered banking institution will be FDIC guaranteed up to $100,000 per individual depositor.

A checking account may also be called a "demand account" or "transactional account".

BREAKING DOWN 'Checking Account'

Checking accounts are offered by most banking institutions for a minimal fee or no fee at all. Thanks to advances in electronic banking, many people can now use checking accounts to set up automatic payment of routine monthly expenses with a one-time setup.

For the large commercial banks, checking accounts are considered loss leaders because they have become highly commoditized (hence the low fees for their use). The goal of most banks is to entice the customer to use more profitable features such as personal loans, mortgages and certificates of deposit (CDs).

Because money held in checking accounts is so liquid, aggregate balances nationwide are used in the calculation of the M1 money supply.

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