Why am I overdrawn again and how to use a checkregister?

Are you overwhelmed with an overdrawn bank account several times a month (or a week)? You are not alone, many people do because it's hard to know how the system works. Many people check their account balance and assume they have plenty of money based on that balance. The truth is that many transactions do not go through at the time they are completed. This means the balance you see when you check at the bank, on line, or at an ATM could be, and usually is, incomplete and therefore, incorrect. (It does not mean that the bank made a mistake.) I would like to explain how everything works (or at least some of it) and maybe you will have a little easier time with your bank account.

When you deposit a check into a bank account, whether it is a savings account or a checking account, the bank takes your check and gives you a deposit slip telling you your new balance. What the slip doesn't say, and what many banks fail to tell you, is that if the item is a personal check, out of state check, or business check the bank will "hold" the funds until the check clears the bank it was drawn on. In other words, when your bank actually receives the money from the other bank. This could take from 10 days to 2 weeks, or more if the check is international.

Cash that you deposit into your bank account is usually available for immediate withdrawal, however, if the deposit was made on a weekend or holiday, the bank does not apply the deposit to your account until the following "business" day which could delay your ability to use the cash. Also, some banks have a limit on how much you can withdraw at one time. Many banks also have a limit on how much you can withdraw each day. These restrictions are usually pertaining to ATM's but be sure to check with you bank before you attempt withdraw your money.

Checks that you write against your account could be processed by your bank immediately or up to 10 days after you write the check depending on when the company deposits the check, which bank they use, and whether it is a weekend or holiday. Many companies now use "electronic funds transfer" which means they send the check information through the phone lines and the bank "reserves" the money for that company and the funds are electronically transferred to them. This means that the funds are sent immediately even though you wrote a check.

Never expect that a check will not be processed immediately by the company accepting your check. Writing a check that you do not have the funds to cover is called writing a "bounced" or "rubber" check and is illegal. Accidents do happen and miscalculations can cause you to overdraw your account, but the bank will not be tolerant if the "miscalculations" happen too often.

Banks have fees for just about everything. Each bank is different in the amounts and types of fees charged, so check with you bank for their fee policies. Fees are applied to your account immediately but you do not usually see them until you receive your bank statement. Therefore, you should always be aware of what fees your bank will charge you and record them immediately so that you do not attempt to use the money in some other way.

Fees are usually done in the following manner (NOTE: these are only samples and do not cover the entire list of what banks may charge since every bank is different):

• ATM fees-many banks charge ATM fees just for using their ATM (that is usually noted at the time of the transaction), but in addition to that fee, many banks will charge an additional fee if the ATM you used was not in their network.
• Savings and checking fees-Many banks charge service fees for their various accounts. Some of those fees can be waived if you do specific things such as keep a minimum balance in the account or use direct deposit.
• Withdrawal fees-overdraft fees-These are charged by the bank for too many withdrawals, withdrawals that are done too soon, or withdrawals that put you account in the red (means you have tried to use more money than you have in your account). These fees can add up very quickly and often do not show up right away which means you could be overdrawn in your account because of a fee and not be aware of it. Always check with you bank to see what fees they charge, when they charge them, and how much they will be.
• Non-use fees-if you have an agreement with the bank that your account will be used at least once monthly (be sure to read the fine print when opening an account because that is often one of the stipulations) and you haven't used your account (maybe you want the interest to add up or you are waiting for some type of paycheck, etc), the bank may charge you a non-use fee. These fees happen without notification and often drain your account before you knew they were being charged.

Now that some of the charges are clear to you, let me explain what some of the words banks use mean:

• Credit-a credit is an addition to your account-credits might be deposits or corrections. A credit means that your account will increase by that amount.
• Debit-a debit is a subtraction from your account-debits might be fees, checks written, ATM withdrawals, or transfers. A debit means that your account will decrease by that amount.
• Deposit-a deposit is an amount of money that is put into your account by you and could be by check, cash, or transfer. A deposit increases your account by that amount. (credit)
• Withdrawal-a withdrawal is a removal of funds from your account through automatic payments that you have authorized, transfers, checks you have written, or cash that you have removed. A withdrawal will decrease you account by that amount. (debit)
• Overdraft-an overdraft is when you try to remove more money than you have in the account. It may be by writing a check, using an ATM, transferring money, or going to the bank to take money out. Overdrafts will cause fees to be charged to your account. (debit)
• Interest-interest is when your checking account or savings account earns money based on rates and amounts. Interest is usually added to an account as a credit; unless it is being charged on a loan in which case it will be added to your balance owed.

O. K., we know what the words mean, now let's find out how it all works:

• When you open a checking or savings account, you put money into that account. The bank then uses that money by adding it to other accounts and then loaning it out or investing it. When they invest the money or loan it out, they make money with it. Because a portion of what they made money on was your money, they pay you interest on that money based on amount, length of time they have it, etc. Banks do not always pay the interest to you depending on what type of account you have.
• Now you have an account with an amount of money that you have deposited. CHECK WITH YOUR BANK to see when that money will be available for you to use, some allow the funds to be used right away and some do not based on their rules of handling funds. Also, most banks will give you STARTER CHECKS which have no numbers or information pre-printed on them except the bank account number (your actual account number) and the routing number for the bank (identifies their bank). MOST businesses will NOT take starter checks so you should keep that in mind when you wish to use your money
• ATM or debit card-these are cards that are attached to your bank account and allow you to pay for things or get money out of your account electronically. You should have some type of record (see check register below) that you use to record your withdrawals so that you can track your money and know how much is left. ATM withdrawals are usually removed from your account immediately--be aware of all ATM fees and record them at the time of the transaction.
• Checks-checks are written to make payments based on your account balance. Check amounts do not get taken out of your account right away because it usually takes a few days for the check to be presented to your bank for payment unless the company uses electronic transfer programs which allows the company to present your check for payment electronically. That means it may be taken out immediately.
• Bank (or check) Register-WHEN you conduct any type of business (called transactions) with the bank, you should be aware that the items may, or may not, be applied to your account immediately. ALWAYS record your transactions--withdrawals as well as deposits and any fees that you might be aware of--in a bank register (a book the bank provides for you to record what you do and add or subtract each item so that you know how much you have left). Banks will provide these books for free. If you exclusively use your ATM to pay for things, you should keep the bank register with you so that each item can be recorded. (see illustration of check register below).

If you use on-line banking or ATM balance checks---BE AWARE that some of your transactions may not have been processed at the time you check your balance so even if the bank says you have $XXX amount in the account, that may not be correct if you have conducted transactions that have not yet been recorded. Your bank register can help because you have (or should have) a record of each and every transaction you have done. When you go on-line, be sure to compare what has been removed and what has not yet been removed. ALSO, if you check your balance using an ATM, you will only see the amount the bank has as a balance----NOT ALL of your transactions may have been recorded yet. NEVER, NEVER, NEVER assume that the amount you see when you check your balance is CORRECT!

O.K., you've kept a record of all of your transactions and you have kept a running balance so you know how much you have. Now the bank sends you a statement of what they have and it doesn't match yours!!!!!!!. It's O.K., it usually doesn't match until you reconcile it with your register to see if you, or the bank (yes they do make mistakes-they are only human you know), has made a mistake in the amounts or the calculations.

First: compare the amounts that have been withdrawn by the bank from your account and the amounts that have been added to your account with the amounts you have recorded in your register--put a small check mark in the little box set aside for that purpose to show that the item has been processed. If the amount is incorrect-either in your register or on the statement, check your receipts to verify the amount. Correct your register if necessary or contact the bank if the amount they have is incorrect.

Second: Record any items that have not been processed by the bank onto the form set up for that purpose (see illustration below) on the back of your statement. Note: OUTSTANDING CHECKS are checks or amounts you have recorded as being removed from your account but the bank has not yet processed, and OUTSTANDING DEPOSITS are amounts that have been put into your account by you but that have not yet been processed by the bank.

Third: add the outstanding check amounts together and put the total to the right where it shows you, please see example. (There will be a little "-" next to the place where you should put this amount)

Fourth: add the outstanding deposit amounts together and put the total to the right where it shows you, please see example. (There will be a little "+" next to the place where you should put this amount)

Fifth: locate the final balance amount on the front of your bank statement and put it where indicated, please see example.

Sixth: Add outstanding deposits to the final balance amount.

Seventh: Subtract the outstanding check amount from that balance.

Eight: Check to see if this amount matches the balance amount you have recorded in your register.

Ninth: If the amount matches you are balanced. HURRAY! Place a little note in your check register so that you know where you last balanced your account.

If, however, the amount does not match it means there is a mistake somewhere. (Sadly, 90% of the time the mistake is in the calculations in your register.) Check that first. If you don't find the mistake, then check your calculations for outstanding checks, outstanding deposits, adding the check amount together, adding the deposits together, adding deposits to the final bank balance, subtracting the checks from that total. Check to be sure you have the correct bank balance amount. If you do not find a mistake in these calculations, check for fees or interest amounts that you have not yet recorded in your register.

If you still do not balance, contact your bank to have an associate go over the amounts with you (this should be done in person) to see if you can find the error.

Remember:

1. Check your amounts in your checkbook register to the bank statement as you check them off, often the amount is put in quickly and read wrong when the calculations are done.
2. Check to see if you missed an item that is (or is not) on the statement.
3. Check to see if you miss-copied the bank balance.
4. Check your calculations on the bank balance sheet.
5. Look for fees, interest, debits or credits that you missed recording in your check register.

I hope this article helps you, I was overwhelmed the first time I had to reconcile my bank statement and so I know how hard and confusing it can be.

Happy Reconciling!