Transaction account
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A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account or bank account held at a bank or other financial institution. It is available to the account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms, they are considered as cash.
Transaction accounts are known by a variety of descriptions, including a current account (British English), chequing account or checking account when held by a
Transaction accounts are operated by both businesses and personal users. Depending on the country and local demand economics earning from interest rates varies.[2] Again depending on the country[3] the financial institution that maintains the account may charge the account holder maintenance or transaction fees or offer the service free to the holder and charge only if the holder uses an add-on service such as an overdraft.[4]
History
In Holland in the early 1500s, Amsterdam was a major trading and shipping city. People who had acquired large accumulations of cash began to deposit their money with cashiers to protect their wealth. These cashiers held the money for a fee. Competition drove cashiers to offer additional services, including paying out money to any person bearing a written order from a depositor to do so. They kept the note as proof of payment.
This concept spread to other countries including England and its colonies in North America, where land owners in Boston in 1681 mortgaged their land to cashiers who provided an account against which they could write checks.
In the 18th century in England, preprinted checks, serial numbers, and the word "
Features and access
All transaction accounts offer itemised lists of all financial transactions, either through a bank statement or a passbook. A transaction account allows the account holder to make or receive payments by:
- Automated Teller Machine)
- Debit card (cashless direct payment at a store or merchant)
- Cash (deposit and withdrawal of coins and banknotes at a branch)
- Cheque and money order (paper instruction to pay)
- Direct debit (pre-authorized debit)
- Standing order (automatic regular funds transfers)
- Electronic funds transfers (transfer funds electronically to another account)
- Online banking (transfer funds directly to another person via internet banking facility)
Banks offering transactional accounts may allow an account to go into overdraft if that has been previously arranged. If an account has a negative balance, money is being borrowed from the bank and interest and overdraft fees as normally charged.
Country specific differences
In the United Kingdom and other countries with a UK banking heritage, transaction accounts are known as current accounts. These offer various flexible payment methods to allow customers to distribute money directly. One of the main differences between a UK current account and an American checking account is that they earn considerable interest, sometimes comparable to a savings account, and there is generally no charge for withdrawals at cashpoints (ATMs), other than charges by third party owners of such machines.
Transfer systems
Certain modes of payment are country-specific:
- Giro (funds transfer, direct deposit in European countries)
- In the is done on the same day.
- Canada has an Interac e-Transfer service
- In India, NEFT and RTGS services are available to clear funds in a day.
In the European Union
The Regulation (EU) n. 655/2014 has introduced the European Account Preservation Order, a new procedure of asset freezing in order "to facilitate cross-border debt recovery in civil and commercial matters."[5]
Access
Branch access
Customers may need to attend a bank branch for a wide range of banking transactions including cash withdrawals and
Many transactions that previously could only be performed at a branch can now be done in others ways, such as use of ATMs, online, mobile and telephone banking.
Cheques
Cheques were the traditional method of making withdrawals from a transaction account.
Automated teller machines
Automated teller machines (ATMs) enable customers of a financial institution to perform financial transactions without attending a branch. This enables, for example, cash to be withdrawn from an account outside normal branch trading hours. However, ATMs usually have quite low limits for cash withdrawals, and there may be daily limits to cash withdrawals other than at a branch.
Mobile banking
With the introduction of mobile banking; a customer may perform banking transactions and payments, view balances and statements, and use various other services using their mobile phone. In the UK this has become the leading way people manage their finances, as mobile banking has overtaken internet banking as the most popular way to bank.[6]
Internet banking
Internet or online banking enables a customer to perform banking transactions and payments, to view balances and statements, and various other facilities. This can be convenient especially when a bank is not open and enables banking transactions to be effected from anywhere Internet access is available. Online banking avoids the time spent travelling to a branch and standing in queues there. However, there are usually limits on the value of funds that can be transferred electronically on any day, making it necessary to use a cheque to effect such transfers when those limits are being reached.
Telephone banking
Telephone banking provides access to banking transactions over the telephone. In many cases telephone banking opening times are considerably longer than branch times.
Mail banking
A financial institution may allow its customers to deposit
Stores and merchants providing debit card access
Most stores and merchants now have to accept debit card access for purchasing goods if they want to continue operating, especially now that some people only use electronic means of purchase.[citation needed]
Cost
Any cost or fees charged by the financial institution that maintains the account, whether as a single monthly maintenance charge or for each financial transaction, will depend on a variety of factors, including the country's regulations and overall interest rates for lending and saving, as well as the financial institution's size and number of channels of access offered. This is why a direct bank can afford to offer low-cost or free banking, as well as why in some countries, transaction fees do not exist but extremely high lending rates are the norm. This is the case in the United Kingdom, where they have had free banking since 1984 when the then Midland Bank, in a bid to grab market share, scrapped current account charges.[7][8] It was so successful that all other banks had no choice but offer the same or continue losing customers. Free banking account holders are now charged only if they use an add-on service such as an overdraft.[4]
Financial transaction fees may be charged either per item or for a
Interest
Unlike savings accounts, for which the primary reason for depositing money is to generate interest, the main function of a transactional account is transactional. Therefore, most providers pay little or no interest on credit balances.
Formerly, in the
In the United Kingdom, some online banks offer rates higher as many savings accounts, along with free banking
High-yield accounts
High-yield accounts pay a higher interest rate than typical NOW accounts and frequently function as loss-leaders to drive relationship banking.
Lending
Accounts can lend money in two ways: overdraft and offset mortgage.
Overdraft
An overdraft occurs when withdrawals from a bank account exceed the available balance. This gives the account a negative balance and in effect means the account provider is providing credit. If there is a prior agreement with the account provider for an overdraft facility, and the amount overdrawn is within this authorised overdraft, then interest is normally charged at the agreed rate. If the balance exceeds the agreed facility then fees may be charged and a higher interest rate might apply.
In North America,
In the UK, virtually all current accounts offer a pre-agreed overdraft facility the size of which is based upon affordability and credit history. This overdraft facility can be used at any time without consulting the bank and can be maintained indefinitely (subject to ad hoc reviews). Although an overdraft facility may be authorised, technically the money is repayable on demand by the bank. In reality this is a rare occurrence as the overdrafts are profitable for the bank and expensive for the customer.
Consumer reporting
In the United States, some consumer reporting agencies such as ChexSystems, Early Warning Services, and TeleCheck track how people manage their checking accounts. Banks use the agencies to screen checking account applicants. Those with low debit scores are denied checking accounts because a bank cannot afford an account to be overdrawn.[10][11][12]
Offset mortgage
An offset mortgage was a type of mortgage common in the United Kingdom used for the purchase of domestic property. The key principle is the reduction of interest charged by "offsetting" a credit balance against the mortgage debt. This can be achieved via one of two methods: either lenders provide a single account for all transactions (often referred to as a current account mortgage) or they make multiple accounts available, which let the borrower notionally split money according to purpose, whilst all accounts are offset each day against the mortgage debt.
See also
Transaction related
- Collection item
- Demand draft
- Error account a necessity for auditing transaction accounts
- Transaction deposit
Account type related
- Current account mortgage
- Negotiable Order of Withdrawal account
- Personal account
- Savings account
Notes
- ^ U.S. and Canadian spelling, respectively; see further at Etymology and spelling.
- ^ a b "High interest current accounts". moneysupermarket.com. Money Supermarket. Archived from the original on 12 November 2016. Retrieved 12 November 2016.
- ^ "Do other countries offer better banking than the UK?". bbc.co.uk. BBC. 24 May 2012. Retrieved 12 November 2016.
- ^ a b "Free banking a dangerous myth, says Bank official". bbc.co.uk. BBC. 24 May 2012. Retrieved 12 November 2016.
- ^ "Regulation (EU) No 655/2014 of the European Parliament and of the Council of 15 May 2014 establishing a European Account Preservation Order procedure to facilitate cross-border debt recovery in civil and commercial matters". EUR-Lex.
- ^ "Mobile phone apps become the UK's number one way to bank". bba.org.uk. BBA. 14 June 2015. Retrieved 12 November 2016.
- ^ Philip Aldrick (24 May 2012). "Free banking should end Bank official says". telegraph.co.uk. telegraph. Archived from the original on 2022-01-12. Retrieved 12 November 2016.
- ^ James Titcomb (3 January 2015). "You may not know it, but you are paying for your bank". telegraph.co.uk. telegraph. Archived from the original on 2022-01-12. Retrieved 12 November 2016.
- ^ "Cost of sloppy banking habits | MoneyRates.com". money-rates.com. Retrieved 2020-02-13.
- ^ Tugend, Alina (2006-06-24). "New York Times". Retrieved 2013-11-23.
- ^ Ellis, Blake (2012-08-16). "Bank Account History, cnn.com". Money.cnn.com. Retrieved 2013-11-23.
- ^ Ellis, Blake (2012-07-16). "CFPB Credit Reporting". Money.cnn.com. Retrieved 2013-11-23.