BackPocket Finances Volume 1

Setting up a personal checking account

A personal checking account is a service provided by financial institutions (banks, credit unions, etc.) which allows individuals to deposit money and withdraw funds from their established account. The terms of a checking account may vary from bank to bank, but in general, checking account holders can use personal checks in place of cash to pay debts.

To open a checking account, you will need

1. Proof of identification, e.g. your driver’s license, passport, National Insurance Card

2. Proof of residence, e.g. a utility bill or lease

3. The required deposit or more

At the bank, ensure that you have sufficient information on the type of checking account and its characteristics. Shop around till you find a bank with the service which satisfies your needs.

Getting familiar with your checking account

Some questions that you can pose to your customer service representative at the bank.

1. What is the cost to order checks?

2. Is there a minimum balance required on your checking account?

3. Is there a monthly service fee or other charges?

4. Is there a limit to the number of checks that I can write on a monthly basis?

5. Are canceled checks returned or photocopied?

6. Is overdraft protection available?

7. Does the account pay interest?

Once you’ve made a deposit, the bank provides you with a checkbook and debit card used for obtaining cash and purchasing. You may have to pay for your checkbooks.

How a checking account works: Benefits of having a checking account

As you make money, you deposit into your checking account, write checks for payments or use your debit card to obtain cash. In some cases check holders inscribe on the payee line “Cash” writing a check for oneself. Careful tracking is required as you deposit cash, write checks or withdraw monies to effectively maintain your checking account. If ever you have written a check, and the cash is unavailable in your account, you may be charged overdraft fees if the service applies or your check is filed as NSF (non-sufficient fund) commonly called a bounced check.

Obtaining your checkbooks may take a few days. Depending on your frequency writing checks you should order replacements when you still have a healthy number of leaves left in your pad. You do not want to run out of check leaves.

Having a checking account can be very beneficial. How?

1. It is safer to carry checks than money

2. A check is proof of payment

3. One is able to receive and spend money without carrying cash

4. A check holder is able to pay bills through the mail

5. Using your checking account effectively helps establish good credit standing

6. Writing checks makes budgeting easier

Writing Checks

Practice safety when writing checks. This ensures that the check is legible and protects you from check swindlers. When writing a check, if you make any errors, cross out the mistake, inscribe the correction above, then, initial that correction. Correcting fluid or similar is not allowed on checks, all errors must be apparent. To write a check:

1. Insert the complete date of the check, current or post dated

2. Make sure that you have the correct spelling of your payee’s name, inscribe on the line which follows “pay to” or “make payable to”

3. In the space provided with an initial dollar sign, inscribe the numerical check amount e.g. $23.54

4. On the following lines inscribe the amount in words and any coins will be written over one hundred or one dollar e.g. Twenty three and …………………….54/100. The continuous dots here represent a blockade of any space left on the provided line/s. Such must be filled to avoid any swindling e.g. without the dots one may easily inscribe ‘hundred’ in the space provided and get additional money from your account.

5. In the space provided for memo, write a short note or description in relation to your purchase, e.g. “magazine” if you just purchased a magazine.

6. Depending on how many signatories on the account your check leave may have space for more than one signature. Inscribe appropriately, as done on your signature verification at the bank. The correct signature is important and confirms payment.

7. On the attached stub, complete the necessary information for your personal use. Duplicated checks are more helpful when retaining written check information

8. Tear your check carefully along its perforation.

At times a form of identification is requested upon payment.

Post-dated Checks

A post-dated check is a check written to be withdrawn at a future date. There are many reasons for writing post-dated checks; your funds may be insufficient at the time, or in attempt to get payment to someone in a timely fashion. Exercise precaution when writing post-dated checks. How?

1. Get permission for writing a post-dated check from the payee, standard checks are ‘payment on demand’ and to avoid any concerns from payees, due notification must be given in the case of a post-dated check

2. Notification should also be extended to the bank to avoid any penalty on bad check writing.

Writing a post-dated check is not illegal, however writing a post-dated check with negative intentions is. E.g. writing a post-dated check only to allow yourself time, to cancel the check with your bank without penalty.

Keep your check book safe. Check books can be stolen and thieves may make payments from your account without your permission. Completely destroy void checks, unused checks and deposit slips so that one cannot copy the MICR (magnetic ink character recognition) band “computer-typed looking numeric codes” dependent on the check processing technology used; for the purpose of counterfeit. To ensure that money is being transferred from the right account one must be able to distinguish that code which is comprised of the check number, the bank’s routing number and the account number.

Endorsing a check

Your endorsement on a check is an instruction and authorization from you to transfer the funds. You can endorse a check to deposit the funds into a bank or other financial institution, or to transfer ownership of the check to one or more people.

Commonly used forms of endorsements:

1. Blank endorsement: where the recipient of the check endorses the back for withdrawal.

2. Special endorsement: Where the person receiving the check authorizes another for check withdrawal. In which case payee endorsing the back of the check inscribing ‘pay to the order of Jane Doe’, then signs.

3. Restrictive endorsement: This specifies the way in which a check can be negotiated. The most common form of restrictive endorsement is "For Deposit Only," which renders a check unable to be cashed.

Do not sign your check with a blank endorsement until you are about to either cash or deposit it. Otherwise someone can potentially try to cash your check.

(NSF) Bounced Checks

Non-sufficient funds, commonly termed as a bounced check occurs when there are insufficient funds in the checking account for the check written to be drawn. There are many consequences to writing bounced checks, it is imperative for a check holder to keep a checking account register, monitoring all purchases and deposits.

Consequences of writing bad checks

Continuously writing bad checks can

1. Ruin your credit history

2. Destroy your reputation

3. Land you in jail

Depending on your relationship with your bank, if you write a check with a relatively small amount of insufficient funds your bank may honor your check, but incur overdraft charges which can be a bit of a strain on your account. The larger the amount of insufficient funds the less likely it is for your bank to honor the check.

The best way to avoid overdraft and bounced-check fees is to manage your account so you don’t overdraw it.

1. Keep track of how much money you have in your checking account by keeping your account register up-to-date. Record all checks when you write them and other transactions when you make them. And don’t forget to subtract any fees.

2. Pay special attention to your electronic transactions. Record your ATM withdrawals and fees, debit card purchases, and online payments.

3. Don’t forget about automatic bill payments you may have set up for utilities, insurance, or loan payments.

4. Keep an eye on your account balance. Remember that some checks and automatic payments may not have cleared yet.

5. Review your account statements each month. Between statements, you can find out which payments have cleared and check your balance by calling your bank or by checking online or at an ATM. Be sure to find out the actual amount, in your account.

Sometimes mistakes happen. If you do overdraw your account, deposit money into the account as soon as possible to cover the overdraft amount plus any fees and daily charges from your bank. Depositing money into your account can help you avoid additional overdrafts and fees.

Reconciling checking account

Always register all checks, debit card payments or withdrawals, deposits, and automatic payments in your account register. This activity helps with reconciling your statement at the end of the month. Normally banks issue statements at the end of every month but with online banking you are able to print out your statements at any time.

To reconcile your checking account, you will need your check book, check register, your bank statement, your reconciliation form and a pencil. Your check register is your daily recording of payments and deposits. The column titles on your check register must be precise and allows for easy checking and balancing. Typical check register columns include: Check number, Date of transaction, Description of transaction, Check mark, Debit (-), Credit (+) and Balance.

DEBITS: All money paid for items charged to your account including checks written, debit card purchases, ATM cash withdrawals, fees and charges.

CREDITS: All money put into your account including deposits you make and interest you might earn.

Create a worksheet in Excel or other with these particulars and you have yourself your check register. Remember to enter your daily monetary transactions in this file or register.

We reconcile monthly, and we have received our bank statement from the bank. First let’s prepare a reconciliation form, you may find one on the back of your statement or simply add this information to your check register: Check book balance, bank balance, outstanding checks, and total outstanding checks.

Reconciling your checking account saves you headaches in the long run, with overdraft charges, bounced check complications, ruined credit reputations … Happy reconciling!

1. On your check register, in the check mark column tick the checks that have already been cashed, or the checks appearing in your bank statement, then put an ‘o’ for checks that are outstanding or not found in the bank statement.

2. List all ATM transactions, bank fees, deposits and other automatic transactions in your check book register from your bank statement.

3. Total all the checks that are not listed in your bank statement. These checks are still pending withdrawal (referred to as outstanding checks). Subtract your total amount from the bank statement balance.

This amount should equal the amount in your check register. If not, you will need to check each of your transactions and also possibly need to check your math.

Formula: Bank Account Statement Ending Balance + Deposits Outstanding- Checks Outstanding= Ending Balance in Checkbook Register

Start your personal checking account today!