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Atransaction account (also called achecking account,cheque account,chequing account,current account,demand deposit account, orshare account atcredit unions) is a deposit account orbank account held at abank 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 ofdebit cards,cheques and electronic transfer. In economic terms, the funds held in a transaction account are regarded asliquid funds. Inaccounting terms, they are considered ascash.
Transaction accounts are known by a variety of descriptions, including a current account (British English), chequing account or checking account when held by abank, share draft account when held by acredit union inNorth America.[1] In theCommonwealth of Nations,United Kingdom,Hong Kong,India,Ireland,Australia,New Zealand,Singapore,Malaysia,South Africa and a number of other countries they are commonly called current or, before the demise of cheques, cheque accounts. Because money is available on demand they are also sometimes known as demand accounts or demand deposit accounts. In the United States,NOW accounts operate as transaction accounts.
Transaction accounts are operated by both businesses and personal users. Depending on the country and localdemand 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 anoverdraft.[4]
InHolland 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 withcashiers 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 includingEngland and its colonies in North America, where land owners inBoston 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 "cheque" appeared. By the late 18th century, the difficulty of clearing checks (sending them from one bank to another for collection) gave rise to the development ofclearing houses.
All transaction accounts offer itemised lists of all financial transactions, either through abank statement or apassbook. A transaction account allows the account holder to make or receive payments by:
Banks offering transactional accounts may allow an account to go intooverdraft 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.
In theUnited 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.
Certain modes of payment are country-specific:
TheRegulation (EU) n. 655/2014 has introduced the European Account Preservation Order, a new procedure ofasset freezing in order "to facilitate cross-border debt recovery in civil and commercial matters."[5]
Customers may need to attend a bank branch for a wide range of banking transactions including cash withdrawals andfinancial advice. There may be restrictions on cash withdrawals, even at a branch. For example, withdrawals of cash above a threshold figure may require notice.
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 were the traditional method of making withdrawals from a transaction account.
Automated teller machines (ATMs) enable customers of afinancial institution to performfinancial 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.
With the introduction of mobile banking; a customer may perform banking transactions and payments, view balances and statements, and use various other services using theirmobile 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 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 provides access to banking transactions over thetelephone. In many cases telephone banking opening times are considerably longer than branch times.
A financial institution may allow its customers to depositcheques into theiraccount bymail. Mail banking can be used by customers ofvirtual banks (as they may not offer branches or ATMs that accept deposits) and by customers who live too far from a branch.
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]
Any cost or fees charged by the financial institution that maintains the account, whether as a single monthly maintenance charge or for eachfinancial 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 adirect 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 thenMidland 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 anoverdraft.[4]
Financial transaction fees may be charged either per item or for aflat rate covering a certain number of transactions. Often,youths,students,senior citizens or high-valued customers do not pay fees for basic financial transactions. Some offer free transactions for maintaining a very high average balance in their account. Other service charges are applicable foroverdraft,non-sufficient funds, the use of an externalinterbank network, etc. In countries where there are no service charges for transaction fees, there are, on the other hand, other recurring service charges such as adebit card annual fee. In the United States, there are checking account options that do not require monthly maintenance fees and this can keep costs down. While a majority of U.S. checking accounts do charge monthly maintenance fees, about one-third of accounts do not charge those fees. A survey of monthly checking account maintenance fees shows the average cost to be $13.47 per month or $161.64 per year.[9]
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 theUnited States,Regulation Q (12 CFR 217) and the Banking Acts of 1933 and 1935 (12 USC 371a) prohibited a member of theFederal Reserve system from paying interest on demand deposit accounts. Historically, this restriction was frequently circumvented by either creating an account type such as aNegotiable Order of Withdrawal account (NOW account), which is legally not a demand deposit account or by offering interest-paying chequing through a bank that is not a member of the Federal Reserve system.The Dodd-Frank Wall Street Reform and Consumer Protection Act, however, passed by Congress and signed into law by President Obama on July 21, 2010, repealed the statutes that prohibit interest-bearing demand deposit accounts, effectively repealing Regulation Q (Pub. L. 111-203, Section 627). The repeal took effect on July 21, 2011. Since that date, financial institutions have been permitted, but not required, to offer interest-bearing demand deposit accounts.
In the United Kingdom, some online banks offer rates higher as many savings accounts, along with free banking[2] (no charges for transactions) asinstitutions that offer centralised services (telephone, internet or postal based) tend to pay higher levels of interest. The same holds true for banks within the EURO currency zone.
High-yield accounts pay a higher interest rate than typical NOW accounts and frequently function as loss-leaders to drive relationship banking.
Accounts can lend money in two ways: overdraft and offset mortgage.
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,overdraft protection is an optional feature of a chequing account. An account holder may either apply for a permanent one, or the financial institution may, at its discretion, provide a temporary overdraft on an ad hoc basis.
In the UK, virtually all current accounts offer a pre-agreedoverdraft 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 toad 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.
In the United States, some consumer reporting agencies such asChexSystems, Early Warning Services, andTeleCheck 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]
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.
Transaction related
Account type related
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