The Backup Checking Account

50/365: Hanging in the balance by Betsssssy on Flickr!Not too long ago, my wife and I combined our checking and savings accounts, mostly in an effort to make our personal finance management simpler.

However, instead of simply closing out our old checking accounts, we made the active decision to leave both of these open as free basic checking accounts. We left a couple hundred dollars in each account, put the checkbooks from these accounts into storage, and moved on with things.

Why would we leave these old accounts open? It’s simple – they’re backups.

The Purpose of a Backup Checking Account A backup checking account is exactly what it sounds like – it provides an easy solution in the event of an emergency. Here are some situations where it might come in handy.

Identity theft Let’s say your identity is stolen and someone drains all of the money from your primary checking account. During the interim period where you’re trying to get that situation resolved, you’re likely going to continue to need to carry on many banking activities – writing checks, using online banking, hitting the ATM, and so on. This is where your backup account can be useful. Just simply re-route many of your automatic deposits to this backup account for a while and use it as your primary account for a month or two until the situation is resolved.

Emergency money needs Another useful purpose for a backup checking account is for emergency money needs – the balance in the account can act as something of an emergency fund. In a true pinch, you can utilize the balance of this otherwise untouched account to help you make ends meet.

Teller access As more and more people move to using online banking services such as ING Direct (which is the bank I use), they’re often losing some of the convenience that comes with having a live teller available. For simple services such as cashing checks, exchanging currency (turning pennies into dollars, for example), and so on, a live teller can be invaluable. Thus, maintaining a checking account at a brick-and-mortar bank in your community can not only provide a great backup account, but it can leave the door open to many services one might otherwise lose out on.

Getting One Yourself (Without Switching Banks) It isn’t necessary to switch banks to get a backup checking account, although a bank switch is a great opportunity to get one (by leaving your old account in place).

My suggestion? Simply open a very basic free checking account at your local credit union. Get a checkbook for the account, then put those checks in a safe place and then forget about the account unless you have a specific need for it (teller usage, emergencies, or so on).

In effect, this is exactly what I’ve done with my old checking account. It’s now a very basic free checking account, with no maintenance fees or anything else. The account holds a small balance, and the checkbook for the account now resides in a hidden spot in our home. If there’s ever a reason for needing the account, I can simply go grab the checkbook and conduct business as usual, almost seamlessly.

A backup checking account is a personal security measure worth considering. It offers several little advantages at virtually no cost to you, and those advantages tend to shine when you need them the most. Think of it as a bit of security in the face of identity theft risk.

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44 thoughts on “The Backup Checking Account

  1. CreditShout says:

    Trent,
    Great idea.. funny thing is I actually just opened up another checking account, not as a backup one but because a local bank was giving away $100 if you open a new account and make a few deposits. So in a way, I’m already set and have a back up account ready to go. I’m sure you could find deals like this in most places when opening up a new account.

  2. jdp says:

    Ok, I usually love all your ideas but this one, mmmm, not so much. You simply can’t ignore any account. In this day and age of changing policies to collect more fees and make more money its really not wise. Unless that isn’t what you meant. In which case IGNORE FROM HERE LOL. Hide the checks yes, but still pay attention to that fine print in all the correspondence, on the back of statements, etc. from that account.

    Story to make the case:

    Man signs up for a FREE account. Puts money in it, collects the money offered as incentive, puts it in the account and lets it sit because he usually uses a different bank. He knows the money is there. He keeps the checks in a file. Doesn’t even open the stuff from the bank every month, just once in a while to check the balance real quick making sure nothing is disappearing suddenly. Then after a move he doesn’t bother to get that file box out for a while, even though he updated his address with the bank AND had switched to almost entirely ebanking on that account he never saw the thing saying they were changing their policy and accounts inactive for so many months were going to be charged $12 a statement cycle (not even a month). So by the time he gets around to checking on this thing the $100 in there has disappeared, he now owes MORE for fees and such for having a negative balance DUE to fees.

    Needless to say the fella is someone I know and I should be nice but I can’t get over telling him how dippy he is now that he’s having to go to WalMart to cash his paychecks and can only get a savings account at the local credit union because he’s in CheckSystems over the above debacle.

  3. I’m with JDP, but only sort of. There are ways to have these emergency accounts and still stay on top of them, if you use an aggregator like Mint or Thrive to keep an eye on the balances and get warned in advance about fees that you may be accruing. Thrive, for example, will warn you if you are getting charged fees and the account balance is updated daily on your dashboard so you know if it heading south.

    What I would suggest is both a backup checking and savings account at a separate institution from the one you usually use. This allows you to establish a relationship with a bank other than your primary one, so that you have a secondary source for loan rates and mortgages when you are at that life stage, and so that in an emergency where your first bank is available, you’ve got a secondary route.

    For my part, I keep most of my savings and checking with major banks (ING and Chase) but also have a credit union account that I’ve had open since essentially birth back in Oregon – they’ve known me forever and they are the people I’ll go to if I want to take a loan, based on our long relationship.

  4. Dave Stinner says:

    I actually opened a second account for the same reason as the first commenter. One word of caution though, some banks will close an account if it lays dormant for too long. I would suggest making small deposits or withdrawals at least once a year to keep the account active.

  5. Ryan McLean says:

    This is a great idea. Having a backup plan is perfect in the case of an emegency.
    In order to have a backup checking account I first need to get one checking account :)
    But you could use the same principle to have a backup account with another bank, or maybe you could store money online….like in paypal

  6. Chris says:

    This is a great idea Trent. I actually signed up for an ING account a few years ago just to earn some interest on my money. I didn’t really think of it as a backup, but since signing up is free and you can almost guarantee their interest rates are better than the bank you’re at, this is a great way to earn a little extra on your money. Also, you can transfer money so quickly from savings to checking so you can store your money in a savings account literally until minutes before you need it. Good article Trent

  7. Curt says:

    Interesting idea. Although you don’t actually need a backup checking account to have a backup plan. All you need is another savings account at another bank. If your primary bank is in trouble or your need the money, you can quickly open a checking account to replace your primary bank.

  8. Rachel says:

    Your advice is great. Some time ago, I opened a Capital One Online High-Yield Savings Account as my emergency fund. The account comes with a free checkbook, which I’ve just kept stored away and have never intended to use.

    Last week, my direct deposit was late (that has never happened before) and I needed to pay my student loans. (I was distraught because I’m close to making the two years of on-time payments so that my student loan company will lower my interest rate.) I grabbed my Cap One checkbook, entered the info as an electronic check, and held my breath. Everything worked perfectly.

    I was very pleased with Capital One. I have an ING savings for short-term goals and I have really liked them so far, but I really do appreciate Capital’s One checkbook feature.

  9. Emily says:

    This came in really handy for me over the Thanksgiving break. Because ING needs two bank business days to transfer money, money I transferred before the Thanksgiving break wasn’t going to show up until Dec. 2, after I needed it.

    Luckily, I have a car loan at a local credit union, and I keep enough in that savings account to cover one monthly payment, as a backup. That meant I could take out $300 cash in person to cover the delay until my ING money arrived.

  10. Susy says:

    I also have 2 backup checking accounts at a local bank. I use them to deposit money and transfer to my ING Account. I also use them to pay for small items I need a check for. I keep a few hundred bucks in each of them just in case!

    I have also started keeping a few hundred bucks in an envelope in the house. When we didn’t have electric for a few days none of the local atm’s were working, so I decided having a few hundred around the house was also a great emergency stash.

  11. SP says:

    My only checking account is so rarely used with less than $1k in it. It makes little sense for me to have another one–it basically is the back up, used for cashing checks and occasionally ATM. However, I do have check writing privileges on my vanguard money market mutual fund account, so I guess that gives me access to some money in an emergency.

  12. Stacey says:

    We just closed our backup accounts, because we got notice that we would be charged $12 per month. They’ve been inactive since last year when we got married and opened a joint account – but we still had lots of checks, and I thought (like you) that it would be a good idea to have “extra” checks if we had to close an account due to identity theft.

    Get in the habit of writing very few checks now, and you won’t need a backup account. In the event of an emergency, you can open a new account 6 days a week and receive starter checks. :)

  13. CathyG says:

    One other thing to think about is that in some states there are laws about money in “abandoned” accounts. I had some savings accounts set up for my kids and one of them didn’t get used for a while – 6 months or a year, I think. By law, the bank put a “hold” on the account and sent us a letter stating that they had done so, with instructions for how to remove the hold. It wasn’t very difficult – we either had to go to the bank and make a transaction (deposit or withdrawal) in person, or we had to mail back a letter stating that we were still the owners of the account and to please remove the hold. If we didn’t do that, the balance would (eventually) be turned over to the state as part of their “lost or unclaimed money” process. Do you see those ads on TV sometimes reminding you to check if you have some lost money? This is one place where it comes from.

    My point for this post is that the money was no longer available IN AN EMERGENCY since we had to take physical steps to reinstate it.

    Moral of the story is just like the first commenter on this article: a backup acct is a great idea, but you can’t just abandon it completely. In our case, we made a calendar reminder to deposit a few dollars every quarter just to keep the acct active.

  14. I’m considering moving our primary checking to ING, and if I do that, I’ll probably keep our brick and mortar checking account open. Of course, if I end up having to pay for it once I move my direct depost, I’ll rethink that. lol

  15. Dave Stinner says:

    I did the same thing a few months ago for the same reason as the first commenter. One word of caution though, some banks will close accounts if there hasn’t been any activity for a while. To save your backup account from becoming dormant, make small transactions on it at least once a year.

  16. Jamie says:

    I have to agree with jdp (Comment #2). Although I like the idea of a backup account, there are some complications to watch out for. I did almost the exact same thing that the article describes, I kept a free checking account with about $100 in it just in case I ever needed it. After 1 year of inactivity I got a letter from the bank saying that my account had been inactive and that unless I used it or closed it in the next 30 days they would charge me an account maintenance fee of $50. If I had been away, or just not read the statement closely enough, it would have cost me $50. I closed the account immediately and said goodbye to that bank. If you are going to do have a backup acount, I would suggest using the account to pay one small bill each month to keep it active. Personally, I’m happy to keep just one checking account.

  17. K says:

    This is a great idea. I recently had to change my name on one of my brokerage accounts (several years after getting married) and they needed to see a signature guarantee from a bank that had accounts from me under both names to prove I was the same person. Luckily I had kept my old checking account open so I was able to get this. If I had closed it, I don’t know what we would have done since all my new banks only know me under my new name. Although not procrastinating in the first place might have helped!

  18. Walt says:

    Jamie is correct…check your bank’s policies on Dormant accounts.

    Typically, after 1 year of no use your account will go dormant and you’ll start getting a monthly fee.

    Your bank will send you a letter ahead of time, and you can usually just sign that letter and mail it back to extend it another year.

    The best thing to do is set up automatic monthly transfers of $1 from the backup account into your regular checking, and auto transfer $1 back the next day. That way you can truly forget all about it.

  19. prodgod says:

    @ Ryan McLean: How do you survive without a checking account? Just curious.

  20. Elisabeth says:

    I agree that’s a good idea, but like others have said, you need to be aware that they might start charging fees after a while.

    Also, why not keep the actual money in a savings account at that bank. I don’t know of any banks now where you couldn’t transfer the money from savings to checking either online, in person, over the phone, or at an ATM at a moment’s notice. So might as well be getting a little interest, right?

  21. Dan says:

    In my country, there is another very important reason to have a backup account in your own name if your main account is a joint account. If your partner dies, your joint account will be frozen until the estate has been settled. It is good to have one or two months expenses in the backup account.

    This could be your emergency fund account.

    In case of death, their half of the estate is distributed to the children. If no children, then the partner gets their half.

    In your country, you might want to consider having a backup account in your own name in case of separation or divorce.

  22. liv says:

    Having an online checking account sounds like a pain with the mailing in of physical checks (I know some people doing that), but if your service is better, then go for it…but that is why it helps to retain a checking account for an actual physical bank so that you can do transfers in addition to your online bank. transferring money may be a small extra step, but i completely dislike the idea of having to mail in physical checks to a banks i’ve never been in.

  23. Lisa says:

    Also, be aware of your state’s “unclaimed property” laws. If your account is inactive (i.e. no deposits, or other activity) for a certain amount of time – 2 – 5 years I think, then the bank can turn the entire balance over to the state. The bank is supposed to contact you, but that doesn’t always happen. The state is also supposed to look for you, but that doesn’t happen either – why give away free money?

  24. gillprogger says:

    I recently opened a backup checking account. I did it because I was worried that my main bank might go under, and all of my money would be tied up until the FDIC insurance paid me back. I wanted to have some flexibility with another bank being ready to accept my payroll deposits.

  25. Marsha says:

    I also recommend having a separate checking account for people who trade regularly on eBay.

    I used to do a lot at eBay, but then someone hacked into my PayPal account, which was attached to my regular checking account. I ended up getting it all straightened out, but it could have been disastrous.

  26. Christine says:

    This is almost exactly what I do.

    I resurrected an “abandoned” high school checking account as my emergency fund about a year ago (it’s with my mom’s credit union; she had been keeping online tabs on it in the interim).

    I direct-deposit $100/paycheck into it, and pretend the money doesn’t exist (not very much since I’m concurrently debt-snowballing against credit cards and student loans as well as funding a 401k). When that account hits a magic number, my emergency fund is complete! I may continue feeding it beyond that point (in order to roll some into CDs), but in the meantime it’s reassuring to know it’s there. I don’t have checks attached to it at the moment, just an emergency-only debit card.

  27. Ian says:

    Great idea… particularly if, as Trent mentioned, the majority of your banking is online with someone like ING or PCFinancial. We kept a no-fee savings account open at our “old” bank so that we have access to currency exchanges, money orders and the like. We use the account just enough to avoid the dormancy issues and any complications that might bring.

  28. Kim says:

    I can think of a great argument against additional checking accounts – SIMPLICITY.

  29. This is a good idea – I know when I get married I’m going to want to merge most of our finances, but also keep some separate either for emergency or to establish our own money trail. With the ability to track all of our accounts online, we can transfer money and pay bills all without having to write separate checks, which does make banking in today’s world a lot easier.

  30. Tyler says:

    @jdp: So I add that account to my Quicken auto-updater and watch the account balance as closely as I watch my other accounts. I don’t want that account compromised any more than I want my primary account attacked. But, this idea (and most on this blog) certainly don’t apply to everybody.

  31. Sean says:

    I find most of your tips that you give very useful but I have to agree with others, the disadvantages of this one seem to outweigh any advantages.

    Disadvantages:

    1. Now you have money in an emergency fund doing almost nothing for you as far as earning interest (I will admit I am not a supporter of emergency funds if I still have debt), and you have money in a “hidden” checking account doing nothing for you.

    2. By hiding the check book is it really an emergency fund? I would think you would want quick access to a fund like this, ie. hide a check in your glovebox so you can at least access it in a pinch. If it is hidden at home it just doesn’t seem useful.

    3. The possible bank charges have been mentioned.

    Advantages

    I really can’t think of any. I would see hiding $200 in cash somewhere my house as more useful than a hidden check. Some stores don’t take personal checks, but they all take cash (in Canada I can’t think of any stores that take personal checks anymore other than in a small town).

    The site is great, but I might rethink this one.

  32. partgypsy says:

    Sorry I don’t agree with this one. Having multiple checking accounts I feel makes you more vulnerable to identity theft, not less, especially if it is one you are not checking regularly. Two you don’t make any interest in money sitting in checking. Three as already mentioned banks are always creating more fees, especially for “inactive accounts”, so yet another thing to be getting paperwork about and having to worry about. The minimal amount of assurance a secondary checking gives you does not compensate for the downsides.

    I do like the idea of having a backup account, so we have our regular checkings and savings at our neighborhood bank, and also an online savings account not to be touched except for emergency.

  33. NYC reader says:

    I speak from experience on this, I am a victim of identity theft.

    You absolutely NEED a secondary checking account with a DIFFERENT bank (BRICK AND MORTAR BANK WITH REAL PEOPLE), You also need an ATM card to go with the checking account.

    My primary checking account was compromised earlier this year by thieves who printed up phony payroll checks with my bank routing and checking account numbers, and cashed them at WalMart using phony drivers licenses.

    You cannot imagine the huge hassle it was to get everything straightened out and get my money credited back to my checking account.

    I had to file fraud affidavits in person with the bank when this happened, file police reports, file identity theft reports, and notify credit bureaus.

    Fortunately, I caught the fraud the day the checks hit my account, nothing bounced because I had enough money in the account, AND I had a secondary checking account with sufficient funds to provide living expenses for two months.

    The secondary checking account (and money market account) are part of my emergency fund. The secondary checking account is a free interest-bearing account, so no fees, I get interest added to the account every month. I make sure to have a few transactions a year (the interest doesn’t count when considering an account dormant), so the state doesn’t try to grab the account as inactive. Often, the transacation is a deposit of the proceeds of the loose change I’ve just tallied up in their free coin-counting machine.

    I only had the checking account compromised, none of my other accounts with this bank were hit. The rationale for having the secondary accounts at a different bank is as contingency in the event that ALL accounts at a particular institution are compromised. I have secondary checking, money market, ATM card, and credit card with a separate bank.

    I had to open a new checking account and wait for new checks (and NO, they don’t give starter checks anymore).

    The old checking account had to remain open but blocked until all the pending transactions cleared. Every day I had to verify and give authorization to the bank to pay whatever came in.

    Also part of the royal pain was having to stop all the automatic fund transfers to/from the old account and get them started up in the new account. Mutual funds, direct payroll deposit, Y membership, Paypal, you name it. I found out that direct payroll deposit can only go into a checking account, not a savings account (money market is considered a savings account). Same thing for mutual fund ACH transfers.

    Getting all the mutual fund automatic transfers started up again required a Medallion Signature Guarantee (also done in person at a brick-and-mortar bank) because there was fraud on my checking account.

    It took two weeks for the funds to be restored to my checking account. I was told that two weeks was a short turnaround for the bank’s investigation, because the checks were clearly fraudulent. I was told that if someone had stolen checks from my checkbook and forged my name to them (or had altered a check’s dollar amount), it could take months to get my money back, because now that banks no longer have to return the physical check to customers, they really don’t have physical evidence other than the image of the check to investigate. And guess what, the bank isn’t REQUIRED to restore the funds if they feel their investigation indicates that you are trying to defraud the bank. Good luck trying to straighten that out.

    So, the moral of the story is to always have a set of secondary accounts at a financial institution separate from your primary accounts. The more complete you can make the secondary set of accounts (checking, money market, credit card, CDs), the better, but at a minimum you need a checking account with ATM card.

    End of story.

  34. Momma says:

    I recommend having a backup checking account to use for online purchases or for online selling (such as on online auction sites, etc.).

    That way if your account number gets stolen, it is only the “backup” account, which hopefully has very little money in it.

    It works well for us!

  35. Nancy says:

    Lisa is correct in mentioning “unclaimed property” laws. Working at a credit union we are required to contact members whose accounts have not had activity for 12 months. They can make a small deposit or withdrawal to avoid dormency. If a responce is not received after 3 years state law requires that the funds be turned over to the state. This is more proof that you need to pay attention to your accounts and know what is happening with them. It amazes me the number of people that will freely admit they do not open their mail. This is exactly what thieves are counting on and if you do not discover fraudulent activite right away your financial is only required to help with errors that have occured within 60 days of the discovery. So pay attention!

  36. doctor S says:

    I have been trying to save up for this emergency fund/backup checking account for two years now. A great premise but only reasonable for those that can get it done.

  37. Tim says:

    we keep a joint and individual accts for a variety of reasons: first, it’s important to maintain individual accts in case one of you get assassinated. second, if you have high deposits, you can maintain more money at one bank and still be covered by FDIC limits of $250k per person on individual accounts and $500k for joint acct.

  38. Brock says:

    Sorry if its been said already – I used to work at a bank, so just a word of caution: if an account is inactive for a period of time, the bank will close it.

    A shorter period of inactivity results in a freeze on the account that takes some paperwork (usually) to get removed.

    Talk to your bank(s) and check the fine print before “forgetting” about these accounts until you need them …

  39. Aaron says:

    I’m surprised you skipped mentioning that ING pays at least 1% on your checking account. I figure, if you’re going to keep a backup somewhere, at least get paid for it.

  40. Monica says:

    If you have direct deposit of your paycheck which most companies require – you have also given the company authorization to withdraw money too.

    If there is a dispute of some kind they could actually withdraw an amount they think you owe.

    For example a contracted travelling nurse who is provided with housing and a travel allowance could be charged for monies owed and it could be taken out of her checking account, no matter who broke the contract. In a situation such as this a backup checking account would be an absolute necessity for a contractual employee.

  41. Bill in NC says:

    With free online aggregators like Wesabe, Mint, and Yodlee, you can monitor all your accounts daily (as I do)

    Simply push (via online billpay) a small deposit from your main account to your backup account(s) once or twice a year to ensure they don’t go inactive.

    I never close old accounts – opening a new account almost requires giving a DNA sample nowadays.

  42. Stacey says:

    Weird. I got a second checking account the day before you published this post. My main two motivations were a) I was always using this bank’s ATM anyway because it was WAY more convenient than my credit union’s, and b) I’m thinking about buying stock in this bank and wanted to check them out as a customer. Glad to hear there are so many other reasons this is a good idea! I plan to only transfer my “spending money” into this account each time payday rolls around. Kinda like an envelope system but with ATM access.

  43. Jacqui says:

    I personally have a back up checking account only because I travel so much. That way (A) I’ll still safely have access to some money if there’s a problem with one of the banks or debit cards (problems can take a lot longer to resolve when you’re in China) and (B) I can access more cash quickly in an emergency (foreign ATM limits can be very low).

    Just make sure every account you have has no fees, earns interest – and don’t forget to check your statements!

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