Opening a checking account is a positive first step in controlling your financial future. Unless, of course, you bounce a check or get stuck with overdraft charges so that your $2 hamburger turns into a $35 overdraft charge. Have no fear however, because avoiding bank charges and keeping your account on the correct side of zero is really just a numbers game. Below are five rules for making sure your next $3 pit stop doesn't turn into a triple-digit overdraft nightmare.
Rule One: Know What Time It Is
Before you write your first check or use your debit card for a single transaction, you need to understand your bank's funds availability policy. Just because you deposit money on Tuesday morning does not mean it is available to cover transactions Tuesday afternoon. Timing is everything in the banking world, and most banks have some type of waiting period before funds become available, anywhere from the next business day to a week. Even if the bank has a same day availability policy, normally there is a cut off. For example, if you deposit money at the bank before 2 p.m., the funds are available that day. But if you deposit after the 2 p.m. cutoff, the funds aren't available until the next business day. You need to understand your bank's policy before making a transaction because the funds might not be available yet. Read through your policy and then speak with your bank about specifics regarding your account.
Although it should be obvious, never write a check based on funds you do not have, even direct deposit funds. If something should happen to the deposit or if the check is cashed before the funds become available, then you could become overdrawn. Depending on your bank's policy, if you have multiple transactions come through at once, you could potentially be charged for each transaction. Know when your deposit becomes available, and avoid writing checks or making debit purchases until that time.
Rule Two: One Order of Overdraft Protection, Please
The purpose of overdraft protection is to help mitigate the costs of going overdrawn. Your bank can offer you a more specific idea of what protection is available to you, but often overdraft protection involves additional fees or even an available line of credit the bank uses if you do not have sufficient funds to cover checks or debits presented for payment. The best idea for protecting yourself from overdrafts is to establish your own protection. Link a savings account to your checking account so that if your checking account overdraws, your bank will pull money from the savings account. Fund the savings account by either depositing your emergency funds or building an emergency fund by putting in a set amount of money each payday. The longer you go without overdrawing, the more protection you will have.
If you can't afford to put a little money back every payday, it is a warning sign that your income is not sufficient to cover your expenses. Emergencies happen and occasionally you miss work, so if your budget allows you no wiggle room whatsoever, you need to plan for a contingency by cutting down on your expenses or increasing your income.
Rule Three: Trust Not the Balance on Your ATM Receipt
Carefully balance your account using a spreadsheet or good old fashioned paper. For advice on balancing a checkbook, check out http://www.bankingquestions.com/studentloans/a_ckbkbal.html. However, never trust the available balance on your ATM receipt. For that matter, you can't really trust the balance online either. While the balance accurately reflects the charges currently being deducted from your account, the ATM and online banking service are not omnipotent. Only you know what checks or debits you've made. Checks can sometimes take several weeks to post and debits can often take several days. Depending on the available balance without subtracting out charges that have yet to post is a sure way to find yourself overdrawn.
Rule Four: Use Online Banking
Online banking has its purposes. While it cannot tell you what checks you've written, online banking keeps you up to date on the transactions already posted. If you've forgotten to write down a debit transaction, for example, knowing sooner rather than later can help you avoid problems. Online banking also helps you keep an eye out for unauthorized transactions and allows you to double check the posting of your deposits. Online banking serves as a safeguard to your own balancing sheet to make sure that you have all transactions correctly written down and you are aware of scheduled payments.
Rule Five: Know Your Tellers
You bank tellers are your first line of customer service. They can often help you with account questions and waive certain fees. Like everything else in life, if your teller knows you, he or she is much more likely to help you out should problems occur.
Also, if you know you are going to be overdrawn or have problems, often speaking to your bank before the problem occurs will help. The bank might be able to help you find out where the initial error occurred that led to the overdraft, and in some situations, the bank might be willing to waive part of the fees. However, don't count on your bank to waive the fees. It is your responsibility to keep your account out of the negative.
Opening a checking account is a big responsibility, and to make sure you don't have problems, balance your checkbook often. Use cash as much as possible, know your bank's policies, and above all, be diligent. After all, no one wants to pay $35 for a $2 hamburger.
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