Bank accounts provide you with a secure place to keep your money and offer you the ability to write checks, make debit card purchases, and earn interest on your money.
For information on how to choose a bank, see this article on Choosing a Bank.
The two main types of bank accounts are checking accounts and savings accounts:
A savings account allows you to earn interest on your money. Having an account separate from your checking account allows you to set aside and accumulate money for emergency expenses or certain financial goals, such as a vacation, new car, down payment on a house, or education.
A checking account enables you to write checks to pay bills or make purchases. When you open a checking account you will receive checks and a check register. Each time you write a check, be sure to record the transaction in your check register so that you'll always know how much money is in your account.
Balancing Your Checkbook
Each month you will receive a bank account statement, which will list all the transactions made in the statement period, including credits (deposits made to your account) and debits (such as checks written, ATM withdrawals, debit card purchases or fees).
To reconcile your account (also referred to as "balancing your checkbook"), you will need your monthly bank statement, your checkbook, a pencil, and a calculator.
For each item listed on the statement, find it in your check register, confirm that the amounts are the same, and then make a checkmark in the appropriate box of your check register. Follow this procedure for each check written, ATM or other electronic transactions, and all deposits.
If there are any transactions listed on your bank statement that were not recorded in your check register, add those entries now. These may include bank fees, ATM withdrawals or other transactions.
The back of your bank statement will usually have a check reconciliation form. Use this form to reconcile your checking account. The form may vary, but usually includes the following steps:
- Write the ending balance shown on your bank statement.
- Add the total amount of deposits that were made after the ending date of the bank statement, and which therefore do not appear on the statement. The reconciliation form usually has a place where you can list and total these deposits.
- Subtract the total of any checks or debits still outstanding (checks that you have written that do not show up on your bank statement). The reconciliation form should have a place where you can list and total all outstanding checks.
This amount should equal the amount listed in your check register. If not, you will need to check each of your transactions and possibly your math.
Bank Account Statement Ending Balance + Deposits Outstanding - Checks Outstanding = Ending Balance in Checkbook Register
For information on how to fill out a check, see this article on Writing a Check.
Bouncing a Check
Bouncing a check means that there were not enough funds in your bank account to cover the amount for which you wrote the check. Most banks will charge you a fee for insufficient funds between $15-$50 for each bounced check, which they will automatically deduct from your account. Sometimes this may cause further problems for you since those additional debits to your account may in turn cause other checks to bounce. In addition, the company to whom you wrote the bounced check may charge you a penalty fee.
Writing checks when you know you do not have the funds to cover them is illegal and can result in large fines or even imprisonment.
To avoid bouncing checks:
Always record each deposit, withdrawal, debit card charge, check and fees in your check register, double-checking your math.
When you get your monthly bank statement, balance your checkbook.
Ask your bank if they offer overdraft protection. In order to have overdraft protection, you'll need to have both a savings and a checking account at the same financial institution. If you overdraw funds on your checking account, the money needed to cover the check or purchase will automatically be deducted from your savings account. Of course, if you do not have the needed amount in your savings account either, your check will still bounce. There is usually a fee each time an overdraft is made, but it is usually lower than the fee for a bounced check.
Many banks offer check account holders the option of getting a debit card (also called a check card). A debit card is linked to your checking account and has two functions: (1) it serves as an ATM card, allowing you to withdraw cash from your bank accounts via an Automated Teller Machine; and (2) it can be used to make purchases anywhere that credit cards are accepted. Your bank will provide you with or let you choose a unique PIN number (Personal Identification Number), which you will need to memorize and key in to the ATM machine or the keypad of the retailer's magnetic strip reader whenever you use your card. When you make a purchase using your debit card, the funds are automatically deducted from your checking account.
While debit cards essentially work like checks, they offer certain conveniences that checks don't. First of all, some retailers do not accept checks, but most do accept debit cards. And even when retailers do accept checks, the process often takes a little longer since check payments usually require you to present a driver's license to the cashier, who may then need to write down your license number and expiration date. Unlike checks, you can use a debit card to make on-line purchases or guarantee hotel reservations. If you do not own or qualify for a credit card, you can still get a debit card, as long as your bank provides the service for its checking account holders. Finally, using a debit card instead of a credit card may help you avoid running up debt since you are essentially paying off each purchase as you make it, plus you are limited by your bank account balance.
It is important to note, however, that debit cards do not generally offer the same protections against that credit cards do when it comes to fraudulent charges or charges that you want to dispute. Contact your bank and ask them about their policies and procedures.
If you have a computer and want to save on postage, find out if your bank offers the option of paying bills online, rather than writing checks. In addition, many banks have websites that will allow you to view your bank balance, account activity and cancelled checks; transfer funds between your checking and savings accounts; and order checks online.