What Is a Transaction Account?

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Small businesses, contract workers, and account holders set up and use transaction accounts for the daily business transactions of a business or venture. Like a business or individual checking account, services include withdrawals, direct deposit, and transfers. Depending on the financial institution account fees and service charges may apply.


Transaction accounts are a safe and easy way for contract and freelance workers as well as small businesses to create an account specifically for employee wages, inventory purchases, office equipment and other business related expenses. For example, a freelance professional can use a transaction account to receive payments for goods and/or services without ever blending his primary checking account with his business venture. All businesses operating under an employer identification number must create a separate account for business transactions. Not only does this protect the assets of the contract or freelance employer, but it also allows the accounting department to better organize business receipts and employee salaries.


Most transaction accounts are low to no fee-based accounts that are set up and used for daily banking transactions. Unlike a saving account that draws an annual percentage rate for the monthly balance held in the account, a transaction account does not draw interest. Internet transaction account fees can range from $3 or more. A transaction account with a local bank can range from $5 or more. In most cases, these fees are waived and checks are provided free of charge.


Intended for the day-to-day transactions associated with a business or venture, and in some cases, a partnership, transaction accounts simplify the banking process for the account holder in several ways. Let's use the following scenario to illustrate the benefits of a transaction account when the account holder(s) are responsible for shared expenses. A husband and a wife, for example, set up a transaction account and then use it for bill paying and other household expenses. Both Jim, the husband, and Jill, the wife, have 20 percent of their bi-weekly adjusted income deposited into the account. Because Jim and Jill have set up automatic payments for their automobile insurance payments, cable TV and phone bills as well as the mortgage payment for their family home, both can track and follow these payments as they are made by viewing the account online or contacting the financial institution. The added benefit of using the separate transaction account is that Jim and Jill know exactly how much money is being deposited as well as how much is being debited from the account each month. Neither has to guess or question the other about miscellaneous or unexpected purchases. This lessens confusions and makes record keeping simple and easy.


You can set up a transaction account at your local bank or online. Financial institutions like Pacific Continental Bank, City Wide Banks and Bank West as well as online banking services like Bank Direct and Intuit Merchant Services all offer transaction accounts with check writing services, direct deposit and ATM services. Although a transaction account does not build interest, it is recommended that the account holder maintain the minimum balance required for his particular account.


Make sure that your transaction account is insured. The FDIC will reimburse all non-interest bearing transaction accounts for loses that occur at FDIC-insured institutions. Ask the bank manager at your local office if your bank participates in the FDIC Transaction Account Guarantee Program. If no such program is in place, consider opening a transaction account at a different, but federally insured, financial institution.