Share Draft Definition - Checking Accounts

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Key Takeaways:

  • A share draft is a type of check that is issued by credit unions instead of banks.
  • Share drafts in checking accounts come with important benefits such as low fees, high interest rates, and no minimum balance requirements.
  • Share drafts work in a similar way to regular checks, but are typically cheaper and more convenient to use, making them ideal for many types of transactions.

Are you curious to know more about share draft checking accounts? With this article, you'll have a clearer understanding of share draft accounts, the benefits they provide, and more. Get the essential information you need and make the best financial decision for you.

Share Draft Definition

A Definition of Share Drafts for Checking Accounts

Share drafts are checks that individuals can write from their checking account, allowing them to make purchases or payments. These checks are a type of share account, primarily used in credit unions as an alternative to traditional checking accounts. Share drafts offer features such as electronic bill payment, mobile banking, and overdraft protection.

Share drafts are similar to regular checks, but they differ in that they are drawn against a credit union's share account, rather than against a personal or business account. Holders of a share draft account can access funds using a debit card or checkbook, making it easy to manage everyday expenses. Unlike traditional checking accounts, credit unions typically do not charge monthly fees for share draft accounts.

It is worth noting that credit unions began offering share drafts in the 1970s, after the Credit Union Share Insurance Fund enabled them to expand their services. Since then, share drafts have become a popular alternative to traditional checking accounts, providing individuals with the convenience and flexibility they need to manage their finances.

Importance of Share Drafts in Checking Accounts

Share drafts, also known as checking accounts, are an indispensable financial tool for individuals and businesses alike. They provide a secure and convenient method for managing cash flow, paying bills, and making purchases. Share drafts help to ensure that funds are readily available when needed, reducing the risk of bounced checks and overdraft fees. Additionally, they offer easy access to account information and statement records, making it simple to monitor spending and manage finances effectively. Overall, checking accounts are a crucial aspect of financial management for anyone seeking to establish a stable and reliable financial foundation.

One key benefit of share drafts is their versatility. They can be used for a wide range of transactions, from personal purchases to recurring billing. Share drafts can also be linked to other financial accounts, such as savings or investment accounts, enabling funds to be transferred quickly and easily. Furthermore, many share drafts offer overdraft protection, ensuring that payments are covered when funds are low.

It is worth noting that checking accounts have evolved significantly over time. In the past, account holders had limited access to account information and relied heavily on paper checks and statements. However, advances in technology have transformed the way we manage our finances, and now, share drafts can be accessed and managed online, on mobile devices, or through ATMs. Such technology has also enabled the creation of online bill pay and other innovative features, making checking accounts even more convenient and secure.

Interestingly, checking accounts were not always as ubiquitous as they are today. In fact, the concept of a checking account was not introduced until the early 20th century when banks began to offer personal checking accounts as an alternative to traditional savings accounts. Since then, share drafts have become increasingly popular, and today, they are a fundamental component of our financial infrastructure.

How Share Drafts Work in Checking Accounts

Share drafts are a type of checking account feature that enables people to make payments electronically or by check. This feature can aid people in managing their finances effectively. When a share draft is written for payment, it is taken from a person's checking account and used to process the payment. The purpose of this feature is to provide convenience and flexibility to people who need to make regular payments.

A share draft works as a type of negotiable instrument that can be used to pay bills, purchase goods and services, and transfer money from one account to another. This feature allows individuals to write checks or authorize electronic payments from their checking account. They can then track and monitor their payments via their account balance and transaction history.

It is important to note that share drafts have some limitations, such as bounced checks, insufficient funds, and overdraft fees. Thus, it is essential for individuals to balance their checkbook regularly and keep an eye on their account balance to avoid any fees or penalties.

Moreover, it is crucial to check the banking institution's policies on share drafts before opening a checking account and utilizing the share draft feature. Different banks have different fees, policies, and procedures regarding share drafts, so it is necessary to research and compare various institutions.

Features and Benefits of Share Drafts in Checking Accounts

In this article, we will discuss the advantages and features of share drafts in checking accounts. Share drafts provide multiple benefits to the account holders. These drafts can be used to withdraw money from your checking account and make payments.

  • Convenience: Share drafts are considered as a convenient option for the account holder as they can be used for withdrawals and payments. Unlike paper checks, share drafts don't require manual signatures for transactions.
  • No Fees: Many financial institutions do not charge any fees for using share drafts in checking accounts. These drafts offer account holders a cost-effective option to withdraw money or make payments.
  • Flexibility: Share drafts offer account holders the flexibility to set monthly payment amounts and apply them towards varying loans. They can be used for different purposes, such as bill payments, transferring money, and more.

It's crucial to note that share drafts in checking accounts have additional features that are unique and beneficial. Account holders can utilize share drafts for overdraft protection, allowing them to avoid expensive fees from overdrafts.

Finally, it's worth mentioning that share drafts in checking accounts have been around for decades, with the first share draft introduced by the Credit Union in the 1960s. Since then, share drafts have become increasingly popular among financial institutions, offering account holders another simple and reliable payment option.

Types of Share Drafts Available in Checking Accounts

Share drafts are an essential component of checking accounts. To better understand the numerous types of Share drafts available, let's explore this topic in detail.

Types of drafts available in checking accounts can broadly be described as follows:

  1. Basic Share Drafts
  2. Interest-Bearing Share Drafts
  3. High-Yield Share Drafts

The table below further illustrates the fundamental differences between these types.

Basic Share DraftsInterest-Bearing Share DraftsHigh-Yield Share Drafts Minimum Balance Requirement Low Higher Significantly higher Interest Rate N/A Low to moderate High Other Perks N/A Free checks, ATM rebates, and more Customized dividends, higher insurance coverage, and more

It is pertinent to note that Share Drafts may be subject to additional fees for services such as overdraft protection, stop payments, and wire transfers. Be sure to carefully read the fine print before signing up for any of the available options.

A 2018 report by the Federal Deposit Insurance Corporation (FDIC) concluded that nearly 93% of US households had access to a transaction account, with the majority opting for checking accounts.

Comparison of Share Drafts with Other Forms of Payment in Checking Accounts

Share Drafts vs Other Payment Forms in Checking Accounts:

When comparing Share Drafts with other payment options in checking accounts, it is important to consider several factors such as cost, accessibility, and convenience. Share Drafts offer a cost-effective payment method that allows customers to access their funds easily through checks or debit cards.

Comparison Table:

Payment TypeAccessibilityCostConvenienceSecurityShare DraftsHighLowHighHighDebit CardsHighHighHighHighChecksLowLowLowHigh

Share Drafts, as compared to debit cards and checks, offer a higher level of security due to the need for signature verification. Additionally, they provide a greater degree of convenience and accessibility to customers as they can be easily accessed both online and in-person without needing to carry cash.

If you are looking to make the most of your checking account, consider opting for Share Drafts as your primary payment method. This will not only save you money on transaction costs but also provide you with greater control over your finances. To make the most of this payment option, be sure to avoid overdrafts and keep track of your spending habits to ensure that you are staying within your budget.

How to Apply for a Share Draft in Checking Accounts

The process of obtaining a Share Draft in a Checking Account typically involves filling out an application form at a financial institution. The form requires personal information such as name, address, and social security number, as well as the desired account details. After submitting the application, the institution will review it and verify the information provided.

Once approved, the applicant will be notified, and the account will be set up, providing access to checks and other services. It is important to keep in mind that some institutions may require a credit check or a minimum balance requirement. These details should be discussed with the institution before submitting the application, to prevent any unforeseen issues with the account.

One interesting fact about the Share Draft in a Checking Account is that the name "draft" is derived from the earlier practice of writing a draft, or a written order, for payment from one bank to another. This practice dates back to the early days of banking and continues to be a foundational service of modern-day financial institutions.

Some Facts About Share Draft Definition - Checking Accounts

  • ✅ A share draft is a check drawn on a credit union account. (Source: NCUA)
  • ✅ Share draft accounts are non-interest-bearing accounts. (Source: Investopedia)
  • ✅ If a share draft account has overdraft protection, the credit union will cover the overdraft with funds from another account of the member. (Source: The Balance)
  • ✅ Share draft accounts often have lower fees and better interest rates than traditional checking accounts at banks. (Source: The Motley Fool)
  • ✅ Share draft accounts may have restrictions on the number of checks that can be written per month to qualify for better interest rates or avoid fees. (Source: Credit Union Times)

FAQs about Share Draft Definition - Checking Accounts

What is a Share Draft Definition in Checking Accounts?

A share draft is a check drawn on a credit union account rather than a commercial bank account. Unlike regular drafts, the term "share draft" emphasizes that credit union members have ownership in the financial institution.

How are Share Drafts Different from Regular Checks?

Share drafts are similar to regular checks, but because they are drawn on a credit union account, they often have different terms and fees associated with them. For example, share drafts may have lower fees than regular checks, and they may require that the check writer maintain a minimum balance in their account.

What are the Advantages of Share Drafts?

Some advantages of share drafts include lower fees and better rates on deposits. Additionally, because credit unions are not-for-profit, the profits generated by share drafts are often returned to members in the form of better rates, lower fees, and improved services.

How Can I Open a Share Draft Account?

To open a share draft account, you must first become a member of a credit union. Membership requirements vary by institution, but typically involve living or working in a certain geographic area or being employed by a particular organization. Once you become a member, you can open a share draft account with the credit union.

What are Some Common Fees Associated with Share Drafts?

Common fees associated with share drafts include overdraft fees, insufficient funds fees, and stop payment fees. These fees vary by institution, so it is important to review the terms of your account carefully before opening a share draft account.

Can I Use a Share Draft Like a Regular Check?

Yes, you can use a share draft just like a regular check. However, because they are drawn on a credit union account, there may be different terms and fees associated with them. It is important to review the terms of your account carefully before writing and using share drafts.

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