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A transaction account, also called a checking account, chequing account, current account,
demand deposit Demand deposits or checkbook money are funds held in demand accounts in commercial banks. These account balances are usually considered money and form the greater part of the narrowly defined money supply of a country. Simply put, these are depo ...
account, or share draft account at
credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including deposit accounts, provis ...
s, is a deposit account held at a
bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
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 card A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but ...
s,
cheque A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The pers ...
s (checks) and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In
accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...
terms, they are considered as
cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...
. Transaction accounts are known by a variety of descriptions, including a current account (British English), chequing account or checking account when held by a
bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
, share draft account when held by a
credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including deposit accounts, provis ...
in
North America North America is a continent in the Northern Hemisphere and almost entirely within the Western Hemisphere. It is bordered to the north by the Arctic Ocean, to the east by the Atlantic Ocean, to the southeast by South America and th ...
. In the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
,
Hong Kong Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a List of cities in China, city and Special administrative regions of China, special ...
,
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
and a number of other countries, they are commonly called current or 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 local demand economics earning from interest rates varies. Again depending on the country 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 An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
.


History

In
Holland Holland is a geographical regionG. Geerts & H. Heestermans, 1981, ''Groot Woordenboek der Nederlandse Taal. Deel I'', Van Dale Lexicografie, Utrecht, p 1105 and former Provinces of the Netherlands, province on the western coast of the Netherland ...
in the early 1500s,
Amsterdam Amsterdam ( , , , lit. ''The Dam on the River Amstel'') is the capital and most populous city of the Netherlands, with The Hague being the seat of government. It has a population of 907,976 within the city proper, 1,558,755 in the urban ar ...
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 England is a country that is part of the United Kingdom. It shares land borders with Wales to its west and Scotland to its north. The Irish Sea lies northwest and the Celtic Sea to the southwest. It is separated from continental Europe ...
and its colonies in North America, where land owners in
Boston Boston (), officially the City of Boston, is the state capital and most populous city of the Commonwealth of Massachusetts, as well as the cultural and financial center of the New England region of the United States. It is the 24th- mo ...
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 A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The pers ...
" 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 of clearing houses.


Features and access

All transaction accounts offer itemised lists of all financial transactions, either through a
bank statement A bank statement is an official summary of financial transactions occurring within a given period for each bank account held by a person or business with a financial institution. Such statements are prepared by the financial institution, are ...
or a
passbook A passbook or bankbook is a paper book used to record bank or building society transactions on a deposit account. Traditionally, a passbook was used for accounts with a low transaction volume, such as savings accounts. A bank teller or postma ...
. A transaction account allows the account holder to make or receive payments by: * ATM cards (withdraw cash at any
Automated Teller Machine An automated teller machine (ATM) or cash machine (in British English) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, fund ...
) *
Debit card A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but ...
(cashless direct payment at a store or merchant) *
Cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...
(deposit and withdrawal of
coin A coin is a small, flat (usually depending on the country or value), round piece of metal or plastic used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order ...
s and
banknote A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes w ...
s at a branch) *
Cheque A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The pers ...
and
money order A money order is a directive to pay a pre-specified amount of money from prepaid funds, making it a more trusted method of payment than a cheque. History The money order system was established by a private firm in Great Britain in 1792 and was ...
(paper instruction to pay) * Direct debit (pre-authorized debit) * Standing order (automatic regular funds transfers) *
Electronic funds transfer Electronic funds transfer (EFT) is the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of b ...
s (transfer funds electronically to another account) *
Online banking Online banking, also known as internet banking, web banking or home banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial ins ...
(transfer funds directly to another person via internet banking facility) Banks offering transactional accounts may allow an account to go into
overdraft An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
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 The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
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
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
,
Faster Payments Service The Faster Payments Service (FPS) is a United Kingdom banking initiative to reduce payment times between different banks' customer accounts to typically a few seconds, from the three working days that transfers usually take using the long-estab ...
offers near immediate transfer, BACS offers giros that clear in a matter of days while
CHAPS Chaps ( or ) are sturdy coverings for the legs consisting of leggings and a belt. They are buckled on over trousers with the chaps' integrated belt, but unlike trousers, they have no seat (the term "assless chaps" is a tautology) and are not jo ...
is done on the same day. *
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by to ...
has an
Interac e-Transfer Interac e-Transfer (formerly Interac Email Money Transfer or EMT) is a Canadian funds transfer service between personal and business accounts in participating Canadian banks and other financial institutions, offered through Interac Corporation ...
service *In
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
, 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."


Access


Branch access

Customers may need to attend a bank branch for a wide range of banking transactions including cash withdrawals and
financial advice A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory ...
. 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

Cheque A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The pers ...
s were the traditional method of making withdrawals from a transaction account.


Automated teller machines

Automated teller machine An automated teller machine (ATM) or cash machine (in British English) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, fund ...
s (ATMs) enable customers of a
financial institution Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial inst ...
to perform
financial transaction A financial transaction is an Contract, agreement, or communication, between a buyer and seller to exchange goods, Service (economics), services, or Asset, assets for payment. Any transaction involves a change in the status of the finances of two ...
s 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 to perform banking transactions and payments, to view balances and statements, and various other facilities using their
mobile phone A mobile phone, cellular phone, cell phone, cellphone, handphone, hand phone or pocket phone, sometimes shortened to simply mobile, cell, or just phone, is a portable telephone that can make and receive calls over a radio frequency link whi ...
. 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.


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 A telephone is a telecommunications device that permits two or more users to conduct a conversation when they are too far apart to be easily heard directly. A telephone converts sound, typically and most efficiently the human voice, into e ...
. In many cases telephone banking opening times are considerably longer than branch times.


Mail banking

A financial institution may allow its customers to deposit
cheque A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The pers ...
s into their account by
mail The mail or post is a system for physically transporting postcards, letters, and parcels. A postal service can be private or public, though many governments place restrictions on private systems. Since the mid-19th century, national postal sys ...
. Mail banking can be used by customers of virtual banks (as they may not offer branches or ATMs that accept deposits) and by customers who live too far from a branch.


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.


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 A financial transaction is an Contract, agreement, or communication, between a buyer and seller to exchange goods, Service (economics), services, or Asset, assets for payment. Any transaction involves a change in the status of the finances of two ...
, 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 A direct bank (sometimes called a branch-less bank or virtual bank) is a bank that offers its services only via the Internet, email, and other electronic means, often including telephone, online chat, and mobile check deposit. A direct bank has no ...
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 Midland Bank Plc was one of the Big Four banking groups in the United Kingdom for most of the 20th century. It is now part of HSBC. The bank was founded as the Birmingham and Midland Bank in Union Street, Birmingham, England in August 1836. It ...
, in a bid to grab market share, scrapped current account charges. 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 An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
. Financial transaction fees may be charged either per item or for a
flat rate A flat fee, also referred to as a flat rate or a linear rate refers to a pricing structure that charges a single fixed fee for a service, regardless of usage. Less commonly, the term may refer to a rate that does not vary with usage or time of use ...
covering a certain number of transactions. Often,
youth Youth is the time of life when one is young. The word, youth, can also mean the time between childhood and adulthood ( maturity), but it can also refer to one's peak, in terms of health or the period of life known as being a young adult. Yo ...
s,
student A student is a person enrolled in a school or other educational institution. In the United Kingdom and most commonwealth countries, a "student" attends a secondary school or higher (e.g., college or university); those in primary or elementa ...
s, 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 for
overdraft An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
, non-sufficient funds, the use of an external
interbank network An interbank network, also known as an ATM consortium or ATM network, is a computer network that enables ATM cards issued by a financial institution that is a member of the network to be used to perform ATM transactions through ATMs that belo ...
, etc. In countries where there are no service charges for transaction fees, there are, on the other hand, other recurring service charges such as a
debit card A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but ...
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.


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 either pay no interest or pay a low level of interest on credit balances. Formerly, in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
, Regulation Q (12 CFR 217) and the Banking Acts of 1933 and 1935 (12 USC 371a) prohibited a member of the
Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
system from paying interest on demand deposit accounts. Historically, this restriction was frequently circumvented by either creating an account type such as a Negotiable 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 (no charges for transactions) as institutions 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

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,
overdraft protection An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
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-agreed
overdraft An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
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 Ad hoc is a Latin phrase meaning literally 'to this'. In English, it typically signifies a solution for a specific purpose, problem, or task rather than a generalized solution adaptable to collateral instances. (Compare with ''a priori''.) Com ...
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 A demand draft (DD) is a negotiable instrument similar to a bill of exchange. A bank issues a demand draft to a client (drawer), directing another bank (drawee) or one of its own branches to pay a certain sum to the specified party (payee). A dem ...
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.


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 A collection item (also called a noncash item) is an item presented to a bank for deposit that the bank will not, under its procedures, provisionally credit to the depositor's account or which the bank cannot (due to provisions or law or regulation ...
*
Demand draft A demand draft (DD) is a negotiable instrument similar to a bill of exchange. A bank issues a demand draft to a client (drawer), directing another bank (drawee) or one of its own branches to pay a certain sum to the specified party (payee). A dema ...
* Error account a necessity for auditing transaction accounts * Transaction deposit Account type related *
Current account mortgage The term flexible mortgage refers to a residential mortgage loan that offers ''flexibility'' in the requirements to make monthly repayments. The flexible mortgage first appeared in Australia in the early 1990s (hence the US term Australian mortga ...
* Negotiable Order of Withdrawal account *
Personal account A personal account is an account for use by an individual for that person's own needs. It is a relative term to differentiate them from those accounts for business or corporate use. References Bank account {{finance-stub ...
*
Savings account A savings account is a bank account at a retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn. Traditionally, transa ...


Notes

{{Authority control Bank account Banking terms