You’ve probably seen the bumper sticker I can’t be out of money, I still have checks! and chances are you smiled knowingly. This statement, while very amusing, is really quite scary. Checks are only as strong as the money in the account to pay them. Many people find the process of balancing their checkbook each month too much of a hassle. So they periodically check the amount of money in their accounts and then write a check if they guess the balance can cover the check. The surprise comes when someone to whom you wrote a check holds it for many months and then cashes it. Banks make lots of profits off people who bounce checks. If you do not remember how to balance your checkbook, a simple review course follows. With your most recent bank statement in front of you, do this:
- Open to the part of your checkbook where checks are recorded.
- Compare the numbers on the checks you have written to the check numbers that have cleared on your statement.
- Make a list of any checks that have not cleared and tally the total value of the list. These are your outstanding checks.
- Deduct this amount from the closing balance of your bank statement; this number should match the number you show as available on your checkbook.
- If the numbers don’t match, you need to check your addition and subtraction. The lazy-lady method you can substitute is to put the lower number in your checkbook and not question the difference. If you always work with the lower number, at least your checks won’t bounce. Interesting Enough?
More important than making an account balance is being certain you earn interest on your checking account. Most people do not bother to do this, and many keep a lot of extra money in their checking account to avoid the embarrassment of bouncing a check. It is not difficult to earn as much as 5% on your checking account. If you are making less than this amount, ask yourself why. Many people believe they have free checking, that is, no fees are charged on their account. These same people often are not earning one penny of interest on their checking and have a minimum balance requirement of $1,000.
In this scenario, your bank is earning about $50 a year on your minimum balance requirement in exchange for not charging you for checks. This arrangement hardly sounds like a free account! You can usually earn that same amount on your checking account and still not pay any fees. It pays to comparison shop for these accounts. Many places run their checking accounts as fly traps that is, they pay a good interest, without fees, to entice you to do other business with them. For example, most brokerage accounts work this way.