Are you thinking of opening a checking or current account? In case you’re planning to do so, here’s a simple guide to walk you through the steps — including how checking accounts work, what to consider before opening one, and its advantages and disadvantages.
What is a checking account and how does it work?
Primarily, a checking account is for spending money and managing transactions. It’s one of the most convenient ways to send or settle payments to people, establishments, and institutions that accept checks as a payment mode.
As a checking account holder, you issue a check with the total amount, date, and your signature, authorizing your bank to release the funds to the recipient or institution to whom you have issued the check.
You can use your checking account to settle payments and pay for loans by issuing post-dated checks. But more on this later.
How do you open a checking account in the Philippines?
Opening a checking account is the same as opening a regular Peso savings account. But some banks may require you to submit additional documents, like business permits, barangay clearance, notarized documents, and ITRs (especially for those who are self-employed).
Submit the required documents together with a Philippine-issued ID and supplemental IDs as a proof of identity.
Some banks may also require you to open a savings account to establish your credit standing.
Others let you fill out a form on their website and then send you a reference number so you can schedule a branch visit to complete the registration and verification process.
Things to consider when opening a checking account in the Philippines
Before visiting your preferred bank, make sure you read these considerations. As of writing, you can only open a checking account through a branch visit.
Minimum Initial Deposit
Banks require a minimum initial deposit from P1,000 to P25,000, depending on which bank you open your checking account.
UCPB (United Coconut Planters Bank) and EastWest Bank offer the lowest initial deposit of P1,000 for their CheckStarter Peso Account and Basic Checking respectively.
On the other hand, commercial banks like Security Bank, BPI, and BDO have a minimum initial deposit ranging from P5,000 to P10,000.
Minimum Average Daily Balance
The minimum monthly average daily balance (MADB) varies for local banks. The lowest so far is UCPB’s CheckStarter and EastWest Bank’s Basic Checking with a MADB of P1,000 only.
AUB requires a minimum maintaining balance of P15,000, while Security Bank requires P25,000.
As an account holder, you must agree to meet the required average daily balance. Failure to do so will result in penalty fees.
Interest Earned, Fees, and Other Charges
Most checking accounts have an average interest rate per annum of 0.125%. However, each bank’s rate may differ.
On top of that, other banks require you to meet a certain maintaining balance, aside from the average daily balance, to earn interest.
For example, Security Bank’s All Access account requires you to have an average daily balance of P25,000. If you want to earn interest, you must maintain a minimum of P100,000 in your checking account.
AUB and Union Bank have checking accounts that require P500,000 as maintaining balance to earn interest, one of the highest amounts so far as of writing.
In contrast, some banks like BPI and BDO don’t offer this feature. Even if you maintain the minimum balance, you don’t earn interest.
There are also fees when you order checkbooks, but prices vary per bank.
And if you fail to maintain your balance in two consecutive months (or depending on the bank’s terms and conditions), you also pay penalty fees.
Other fees you may also need to take note of include passbook or ATM cards, replacement card fee, and early closures.
Access to online banking
Most checking accounts in the Philippines support online banking, allowing you to check your balance, transfer funds, and pay bills online.
If you prefer a passbook to manage and update your account, a branch visit is required.
It’s really up to you if you want to have full control of your checking account through online banking or simply keep a passbook.
Add-on Services
You may also check additional services that your checking account has to maximize its features.
For example, some banks offer savings and current accounts with free life and personal accident insurance.
Other banks offer premium checking accounts with a higher initial deposit and maintaining balance and higher interest rates per annum.
There are also checking accounts that offer rewards. You can earn points when you increase your average daily balance, and then you can use the points to redeem gift certificates.
What are the advantages of opening a checking account?
First, you can pay directly just by issuing a check to the receiver. It’s a useful payment mode as you don’t need to carry around a stack of money in your bag.
Second, your cleared checks also reflect check proof of payments. Aside from maintaining your account, it’s an excellent way to build a good credit standing. Recipients, such as your creditors and suppliers, will also see your consistent payment habits, resulting in a good business relationship.
As you manage your transactions, you will be able to keep track of your money. Some checking accounts also have ATMs and passbooks, ensuring that you have all the financial records that you’ll need.
What are the disadvantages of a checking account?
If you issue a check, make sure that you have sufficient funds in your checking account, otherwise, the check will bounce. Not only will it affect your credit standing, but it can also result in fines or imprisonment.
Another disadvantage is that opening a checking account isn’t as easy as opening a regular savings account these days. Banks are strict when it comes to assessing qualifications and verifying documents. This is to ensure that the checking account will only be used for the purpose of business or for your disclosed intention.
Lastly, some checking accounts are not interest-bearing, whereas others will only earn you about 0.0125% per annum. This is just a fraction of the rates offered by digital banks in their high-interest savings accounts.
Final Thoughts
A checking account offers convenience when you need to pay a large amount. You don’t need to carry stacks of cash with you. Simply issue a check, and you’re done.
However, if you’re going to issue a check as payment, be sure you have sufficient funds in your account.
There are pros and cons when maintaining a checking account. If you feel that a regular savings account is enough for you, you might want to read about them further in these Moneysmart articles:
- Your Savings Account Sucks, Here Are Some That Don’t – 2020 Edition
- First Jobbers, Which Savings Account Should You Save With? — 3 Factors To Consider
- Choosing the Best Kids’ Savings Account to Grow Your Child’s Money in 2019
Does having a checking account help you in managing your spending? Let us know what you think in the comments below.