According to the U.S. Census Bureau, Americans submitted nearly 5.5 million new business applications in 2023 — a record high that indicates booming entrepreneurship. Whether you’re building your side hustle from scratch or scaling up and hiring employees, handling your finances properly is critical, and opening a business bank account is an essential first step. As a freelancer who runs my own business, I’ve found that the benefits of a business bank account are numerous for companies of all sizes….Continue reading….
By Kat Tretina
Source: FinanceBuzz
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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:
- ATM cards (withdraw cash at any 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. 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. Certain modes of payment are country-specific:
- Giro (funds transfer, direct deposit in European countries)
- In the United Kingdom, Faster Payments Service offers near immediate transfer, BACS offers giros that clear in a matter of days while CHAPS 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.
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.”Customers may need to attend a bank branch for a wide range of banking transactions including cash withdrawals and financial 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 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. 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.
n 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 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 the telephone. In many cases telephone banking opening times are considerably longer than branch times.
A financial institution may allow its customers to deposit cheques into their account by mail. 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. 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.
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. 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. Financial transaction fees may be charged either per item or for a flat 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 for overdraft, non-sufficient funds, the use of an external interbank 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 a debit 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. 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 United States, Regulation Q (12 CFR 217) and the Banking Acts of 1933 and 1935 (12 USC 371a) prohibited a member of the Federal Reserve system from paying interest on 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 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-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. 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.
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