The History of the Checking Account

Erin O'Neil
by Erin O'Neil, Staff Writer (@econeil)
Top hat banking

The advent of electronic and mobile banking has led many checking account holders to rarely carry cash, maintain physical check ledgers or receive paper statements. It’s easy to take the modern improvements in banking technology and convenience for granted.

But centuries ago, consumers weren’t paying for food with the swipe of a debit card. They were lugging around sacks of heavy coins, or commodities like silk or wine, and rarely had physical records of transactions. Left with limited banking options, for centuries prosperous European merchants often deposited money in the King’s vault for safekeeping, a situation that was only partially secure. For example, Murray N. Rothbard’s “Economic Thought Before Adam Smith” describes a scenario in 1638 where King Charles of England forcibly borrowed gold stashed in the royal coffers as a “loan” to offset the country’s economic problems. Perhaps motivated by this turn of events, merchants began looking for other options for storing gold.

As trade and commerce increased globally, so did the evolution of the checking account. The metamorphosis from ancient Rome to modern times was largely driven by convenience and the need for a secure way to move funds. Below is a brief history of the checking account as we know it today.

100 B.C.

The Roman argentarii, the modern equivalent of private bankers, issued praescriptiones to clients, an early form of checks.

9th Century

To transport money more securely, traders in the Middle East used a form of check called a sakk, a piece of paper drawn against the merchant’s account. The sakk could then be cashed in another country.

13th Century

Around the end of the middle ages, merchants became wary of traveling long distances with heavy valuables like gold and silver and bulky commodities like cloth. Instead, they began to carry letters of exchange or bills of exchange, predecessors to the modern check.

1397-1494

The Medici Bank was established in Italy and quickly became the most powerful banking entity in Europe. As personal bankers for the Pope and brilliant businessmen, the Medici created a policy requiring that 10% of all deposits to be set aside as tithes to the church. Patrons were advised to comply with the policy or be excommunicated (or in the context of the Italian Renaissance, the equivalent of being told to go to hell).

1609

Wisselbank is founded in Amsterdam. The Dutch bank functioned by using a large scale book-entry payment system. Through bank cashiers, Wisselbank customers could deposit and withdraw funds, transfer money between accounts and instruct the bank to pay bills to creditors.

1853

The first fully printed banknotes, a precursor to the modern printed check, are issued by the Bank of England.

1862

California passes legislation which allowed women to establish financial independence regardless of marital status, allowing women to open their own individual checking accounts for the first time.

1863-1865

US Congress passes the National Banking Acts, which greatly restricted the issuance and use of banknotes in the United States. As a result, the use of checks surged. At this point, checks as a form of payment were still largely restricted to local use. The National Banking Acts are also largely credited for laying the groundwork of the national check clearing system.

1890-1914

The use of checks in the United States increases to a national level. Due to rapidly improving technology, banks in other states could now communicate with each other more efficiently.

Early 1900s

In an effort to encourage female customers to open checking accounts, US banks began creating and widely advertising “stocking rooms”. Women of the era largely regarded banks as “masculine” and untrustworthy, and chose to carry cash and valuables in their stockings instead. A “stocking room” was meant to provide a safe haven for women doing business at the bank, away from the masculine element and presumably, spitoons.

1913

The Federal Reserve Act creates the Federal Reserve, which was the most successful attempt at creating a central bank in the US. The Act also allowed the Fed to create a nationwide clearinghouse for checks, although the system was not widely embraced until the 1920s. By 1920, over 26,000 banks in the United States were clearing checks through the Federal Reserve.

1939-1952

During this time period, the amount of checking accounts in the United States doubled.

1950s

In an effort to lure new customers and remain compliant with Regulation Q, also called “the Toaster Rule”, banks begin offering free gifts to customers for opening accounts. In addition to the ubiquitous toaster, other popular freebies included coffee makers, crockpots and blankets.

1959

The first ATM in the United States is installed at a shopping center in a suburb of Columbus, Ohio.

1972

Northwestern National Bank opened “Future Bank”, a futuristic banking center based on what banking might be like in the space age. Amenities included video tellers and “picture phones” (which were closed circuit televisions attached to a rotary phone), a Total Teller Machine which allowed customers to withdraw up to $100 per day in cash, and bank tellers wore modern uniforms, complete with silver go-go boots.

1978

Congress signs the Electronic Funds Transfer act.

1980s

In the advent of deregulation in the finance industry, banks begin offering free checking accounts to customers. For the first time, US banks are able to offer interest on checking accounts.

1988

A new era of banking ushers in a new security hazard- cybercrime. In 1988, 7 people were arrested for hacking into the First National Bank of Chicago and attempting to transfer $70million in funds from corporate bank accounts.

1994

Stanford Federal Credit Union becomes the first institution to offer online banking to all of its members.

Today

Checking accounts are used by almost nine in ten US households.