10 things you need to know about banking
Suzanne Zemelman Gellman, MS, JD
Financial Education Specialist
For many people, banking seems straight forward—deposit money and write checks. But there are actually many details you need to know about banking to make sure you’re holding on to all of your money and not spending money on fees, or spending too much time correcting problems.
Always make sure you read the disclosures your financial institutions provide so you know the rules that go along with having an account. For example, free accounts are only free if you follow all the rules and avoid using products and services that incur fees.
1. Before you write a check, make sure your checking account has enough money in it to cover the check. A federal law known as Check 21 makes it easier for banks to electronically transfer check images instead of physically transferring paper checks. This means your checks process faster, so money may be deducted from your checking account faster—possibly within the hour.
2. Direct deposit can help you make saving a habit. You can even direct deposit your paycheck into multiple accounts: your regular checking account, and possibly a separate emergency savings account where your money is less available for spending. Take advantage of this easy, effortless way to make savings automatic—to help you reach your financial goals.
3. Open your statements as soon as they arrive in the mail. You only have 60 days to check your statement and correct errors. Some financial institutions even limit the time frame to 30 days. Although you might not always be happy about the “damage” you have done, you need to make sure the damages are all yours and not bank error or identity theft.
4. Protect yourself from check fraud. Fill out your checks properly. This means filling in all spaces to avoid someone being able to add numbers or names to your check. Use a gel pen to prevent people from washing information off your check and rewriting your check with a new amount and payee. Avoid putting account numbers on checks if you can. If you must put account information, limit it to the last four digits of your account.
5. Reduce the risk of identity theft. Go electronic, and keep your financial information out of your mailbox. Stealing mail is one of the top ways identity thieves get your personal information.
6. ATM deposits may not be available immediately. Most banks and credit unions do not consider the money you deposit into an ATM to clear your account until it makes its way inside the financial institution. Your deposit may take one or two business days to clear—and possibly longer—depending on the type of check deposited.
7. Beware of joint accounts. If the person sharing your bank account is not your spouse, you have essentially gifted that person half your account by adding his/her name to your account. You also have put your account at risk to claims by creditors or the spouse of your joint account holder. The best way to provide someone access to pay your bills is by giving him/her a Power of Attorney, not by joint ownership of your account. If you want someone to inherit your property, name him/her as “Pay on Death” on your account.
8. Overdraft protection is not free if you use it (other than on an attached savings account). It often costs a fee per check you overdraft or debit overdraft, plus interest on the balance you owe, until your overdraft is paid off. If your credit card is tied to your account for overdraft protection, you are paying 18 percent to 25 percent interest for your overdrafts until you pay them off. If multiple checks hit your account at the same time, the bank will generally process checks for the largest amount first, leaving the others to overdraft if you don’t have enough money in your account to cover all of them.
9. When you use your debit card, you are giving people information they can use to access money in your bank account. Be careful where you use your debit card. Only use your debit/check card at merchants you trust. Don’t use it to make purchases over the Internet. Prevent problems from happening by protecting your accounts.
10. ChexSystems is the consumer reporting agency that banks and credit unions use to review your banking history. If you have negative information in your ChexSystems report—and if a financial institution closes your account due to overdraft problems, account abuse, or even fraud—it could be five years before a bank or credit union will open another account for you. Take care of your accounts!