A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals. Short of using cash, a checking account is the most basic, liquid way to use money.
There are different types of checking accounts. A commercial checking account is used by businesses and is the property of the business. The business’s officers and managers have signing authority on the account as authorized by the business’s governing documents.
A joint checking account is one where two or more people, usually marital partners, are both able to write checks on the account.
Due to their high liquidity, checking accounts pay very little, if any, interest. For accounts with large balances, however, banks often provide a service to “sweep” the checking account. This involves withdrawing most of the excess cash in the account and investing it in overnight interest-bearing funds. At the beginning of the next business day, the funds are deposited back into the checking account along with the interest earned overnight.
Electronic banking has made checking accounts even more convenient to use. Customers can now pay their bills via electronic transfers, thus eliminating the need for writing and mailing a paper check.
Banks that offer checking accounts do so as a basic service. Banks make very little revenue from checking account services and use them as a loss leader to entice customers to use other, more profitable, banking services, although some banks do charge monthly fees on checking accounts.