Managing Your Checking Account
It can be a rite of passage, a step into adulthood. Once you turn 18, you can open your own checking account. You can deposit money you've earned and use it to cover purchases or pay bills. When choosing a bank and opening a checking account, you want to consider which type of checking account would best meet your needs. Additionally, consider the rules at your bank regarding keeping a minimum balance in your account and any fees associated with the account type you have chosen.
The Different Types of Checking Accounts
- Basic—A basic checking account offers what most people need for daily transactions. You have access to your money through checks, debit cards, or ATM transactions. Different institutions may offer different packages with different limitations and fees.
- Interest bearing—This account is similar to a basic checking account. While it may come at a higher cost, it provides a higher return on interest than a more basic account. Banks may charge monthly maintenance fees or require a minimum balance to avoid these fees. This type of account may require a higher balance or have more fees associated with it than a basic account.
- Joint—Joint accounts are owned by two or more people who have equal access to the account. This type can be used by parents and legal guardians to open a checking account for a minor.
- Money market—This is similar to a savings account, but a higher minimum balance is required in order to avoid fees. The interest rate is not fixed and may offer higher returns. You can write only a limited number of checks from this type of account.
Keeping Track of Your Money
The most important part of having a checking account is making sure there are enough funds in the account at all times in order to cover any withdrawals. This is why frequently balancing your checkbook is so important. When making a purchase, most people don't reach for a checkbook anymore, so it can be easy to forget about your check register (that small notebook that comes with your checks). The register is used to track the checks you write, the debit card transactions you make, and your deposits. Tracking these events will allow you to always know how much money is in your checking account. If done consistently, this can be a very useful tool for saving yourself from overdraft fees (penalty fees charged by your bank for spending more money than you currently have in your account). Good record-keeping is a great habit to have.
Avoiding overdraft fees is easy with a balanced checkbook. Without knowing exactly how much money you have available, you may accidentally make a purchase for more money than you have in your account. When this happens, the bank charges an overdraft fee, which can be quite expensive. This may show up on your account as NSF, which means non-sufficient funds. If you do not have the funds to bring the account back above zero, the fees can continue to add up. A typical overdraft fee can be as high as $35 for each bounced check or overdraft. You pay for this fee in addition to owing the amount that you overdrew from your account.
Reconciling, or balancing, your checkbook should be an ongoing habit. If you have kept track of your transactions (noting any extra fees or paid interest), then when the math is done your total should match what is on your bank statement. If the numbers do not match, double checking your record against the bank's record makes it easy to spot where the differences occur. If you do not recognize a transaction, be sure to contact your bank right away.
Balancing your checkbook is much more than just keeping track of any checks you have written, especially when checks are no longer used for most transactions. Be sure to record debit card purchases, additional fees (such as ATM withdrawal fees), and interest paid into your account. Additionally, keep in mind your bank's cut-off and hold times. Deposited funds aren't always immediately available, and payments may take time to process and debit from your account. Not noticing or recording something like this when trying to balance your checkbook can lead to discrepancies.
Online banking has made it very simple to access your bank accounts and check on your funds at any time. Still, keeping your own, separate record of your transactions is a good idea. Keeping track of your finances in this way can help you not only avoid overdraft fees, but also detect any errors on your account. If you don't like keeping track of a physical check register, there are a variety of money management apps available in the app store of your smartphone.
The Steps to Balancing Your Checkbook
- On a daily basis, record any transactions, such as checks, debit card purchases, ATM withdrawals, online payments, and deposits.
- Review your statement (online or mailed paper copy) monthly.
- Starting with your previous month's balance, add all deposits made, and subtract any withdrawals. Make sure this number matches the current statement.
- Match your personal register to items on your statement. Be sure to make note of any transactions you didn't make or if a payment hasn't shown up on your statement yet.
- Once everything matches up, consider your checkbook balanced!
Resources
- CapitalOne. (n.d.). Balancing and budgeting: Balancing your checkbook. Retrieved May 10, 2015, from https://www.capitalone.com/
- Cambridge Credit Counseling Corporation. (n.d.). Managing your checkbook. Retrieved May 10, 2015, from http://www.cambridge-credit.org/
- Queensborough Community College. (n.d.). Top ten tips to manage your checking account. Retrieved May 10, 2015, from http://www.qcc.cuny.edu/
Gaddis, A. (Reviewed 2017). Managing your checking account (A. Moyer, Ed.). Raleigh, NC: Workplace Options.