You’ve probably seen checks before when your parents have written them, or maybe your grandma gave you one for your last birthday. A check acts as a substitute for cash. It means that in your grandma’s bank account there is an amount of money equal to or greater than the amount she wrote on the check. The check allows the money from your grandma’s bank to be transferred to you, the payee.
When it comes time to open your first checking account, you will find there is more than one type of account to pick from.
The first kind is the personal checking account. These accounts do not pay interest on the money you keep in the bank, and you are usually charged a fee for the bank to process your checks.
A second type of checking account does pay interest. In most cases you will have to maintain a minimum balance. The bank specifies an amount of money—it could be $500 or more—that must remain in the account at all times. If you write a check that lowers your balance below the minimum, then you will not receive interest, and you will have to pay a monthly service charge.
Check Out How Checks Move
How do checks work? Let’s say your mom’s birthday is coming up. Your dad sees an interesting book in a Bart’s Better Books catalog that he knows your mom will like. He fills out the order form. He must include payment, but it is unsafe (and illegal!) to send cash through the mail, so he writes a check. He sends the $25 check to Bart’s Better Books.
Bart’s Better Books brings your dad’s check to Bank A to deposit. The money from the check is to be taken out of your dad’s bank account in Bank Z. Bart’s account is credited with the amount of your dad’s check (+ $25). Your dad’s check is then encoded with the amount to be drawn on your dad’s bank account (– $25).
When your dad’s check reaches Bank Z, the amount of his check is deducted from his account. When the next statement is mailed to him, he will receive the canceled check. Some banks now do this electronically. Instead of getting the actual check back, your dad can go online to see scanned copies of all of the checks he has written.
A person who receives a check and wishes to cash it or deposit it in their account must first endorse it. To endorse is to sign your name on the back of the check. By signing it, you are letting the bank know that you are the person in the “pay to the order of” line on the check.
The endorsement is important because it proves you received the check and that you are the person the check was written out to.
Excerpted from THE EVERYTHING KIDS' MONEY BOOK, 2ND EDITION: Earn It, Save It, and Watch It Grow, by Brette McWhorter Sembler, J.D. © 2008 by F+W Publications, Inc.
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