What is a Chequing Account?
If you feel mystified by the happenings of the banking world, you’re not alone. In fact, we are not even hinting at the more complicated services that a bank can offer, like Registered Retirement Savings Plans (RRSPs) or mutual funds. If you’re like the majority of Canadians, even something that seems as simple as a chequing account can lead to questions with ever-so-fleeting answers.
There is something about the phrase “chequing account” that sounds rather old-timey and sophisticated. Still, chequing accounts actually play a very important role in our day-to-day lives. Whether or not we sink a lot of thought into it, the majority of us rely on our chequing accounts on a daily basis.
In this article, we will explore the question that you were afraid to ask, but that will enhance the way you approach banking: what is a chequing account?
Table of Contents
What is a Chequing Account?
A chequing account is the easiest way to store and access your money. It is the only banking account designed for frequent transactions.
That said, it should come as no surprise that it’s the most popular kind of bank account in the world. After all, why have money at all if not to access it?
While chequing accounts are most often associated with brick and mortar banks, you can open a chequing account with any financial institution, including credit unions, small lenders, and online banks.
Canadians can have chequing accounts with more than one financial institution.
For example, many customers take advantage of other products offered by banks and credit unions while keeping their chequing account open with a traditional bank.
Through a chequing account, a customer can make a deposit and withdraw money, pay bills, make pre-authorized payments, and make purchases through the use of a debit card.
Chequing accounts are also an important part of budgeting. Many budgeting accounts can sync with chequing accounts to provide users with an accurate, real-time view of their finances. Some chequing accounts provide a built-in budget tracker, too.
Chequing accounts also tend to be economical, as they often offer unlimited transactions and money transfers.
However, to access these services, a bank will often require the payment of a monthly fee.
Banks waive chequing account fees if the chequing account maintains a minimum required balance, though it’s worth noting that this minimum balance is often quite high, often within the range of $3,000 or $4,000.
Since money loses value over time due to inflation, it is often better stored in a savings account with a high interest rate.
How Do Chequing Accounts Work?
Now that you understand what a chequing is, we’ll now dissect the precise ways in which chequing accounts work.
If there were one word synonymous with a chequing account, it would be “transactions.”
While chequing accounts are the most common destinations for most people’s paycheques (hence the account’s namesake), it would make sense to come with an easy assessment.
Chequing accounts work through a pattern of both deposits (the money that you add to a chequing account) and withdrawals (the money that you take out from a chequing account).
For many of us, our money is most commonly accessed online. Of course, any chequing account holder can also access their money at any time through an ATM.
Financial institutions make money off of chequing accounts through monthly account fees, or through fees charged for insufficient funds.
Chequing accounts also act as a loss leader to attract customers to additional financial products.
Customers do not usually make interest on chequing account balances, so banks also save money in that regard. There are, however, exceptions to this rule.
In Canada, hybrid accounts pay a modest percentage of interest for holding cash in your chequing account. However, it’s worth noting that these interest rates generally pale compared to what is offered by high-interest savings accounts.
How Do I Choose Which Chequing Account is Right for Me?
Choosing a chequing account is a personal decision and not a matter of "right" or "wrong."
While this thought is comforting in some ways, it can also make it harder to choose an account for storing your hard-earned cash.
Here are some important questions that can help guide you in choosing the right chequing account for you:
How often do I use my bank card?
Unless you use your credit card for the majority of purchases you make, then the chances are that it might be worthwhile for you to seek out a chequing account that offers unlimited transactions.
If you underestimate the number of transactions you do monthly, the service fees can add up quickly. You can avoid this with a chequing account that offers unlimited free transactions.
Do I need overdraft protection?
Do I need overdraft protection? Overdraft protection is a common offering among chequing accounts, but the specifics will vary depending on the specific chequing account.
In brief, overdraft protection charges interest but does not affect your credit score. If you already have a credit card, you likely won't need it.
However, if you like to avoid payments and avoid credit cards, overdraft protection is certainly worth looking into.
What are my personal banking habits
Are you using a chequing account to pay bills or send money to friends online? Does that mean that you are totally ready to give up access to quick cash? If you still use ATMs, you will want to make sure that your bank has accessible machines in your area.
Do I prefer to have in-person support available to me?
While many consumers are becoming more comfortable with the idea of a bank existing only in an online form, some folks prefer to have the opportunity to approach a teller, if necessary.
Some banks keep open hours longer than others, so if branch availability is important to you, it may be worth choosing a chequing account based on this.
If you haven't been inside a branch in a while, it might be time to switch to an online bank account.
Our Final Thoughts
So there you have it — next time you're at a dinner party where somebody asks you, "what is a chequing account?" you will have your answer.
Okay, so maybe that question isn't likely to come up, but hopefully you can use this knowledge to help you feel more comfortable in your financial journey nonetheless. Happy chequing!
Frequently Asked Questions
The minimum amount required to open a chequing account will depend on the institution, but it is generally anywhere between $25 and $100.
Depending on your institution, it is often possible to close a bank account either over the telephone, online, or in-person at a branch.
Before you close a bank account, it’s important that you have another bank account opened, and that you have the information for all of your direct deposits switched.
The usual services provided through a chequing account include deposits, withdrawals, bill payments (one time or repeating), and pre-authorized payments. It is also possible to send money through e-transfers.