Checking Accounts

Module 5A, pp. 3-21

I.Checking Accounts

  • Demand Deposit Account (DDA) – what a checking account is called
  • When you demand the bank to transfer money from your bank account to “Kmart” for a purchase
  • Use when spending money frequently (at least once per week)

A.BENEFITS:

  • Don’t have to carry large amounts of cash on you
  • Can have easy access to spending the money in the account without having to carry it with you all the time
  • Can be traceable (with checks)
  • Can receive interest from the bank
  • Canceled checks(paid & processed checks—red shoebox) serve as a proof of payment
  • Safe to put in the mail (vs. cash)
  • Float period– the length of time it takes for an amount to get deducted from your bank account from the time you wrote the check; allows money to stay in account for 7-10 days (if not used as a debit card transaction); floats are becoming extinct!!
  • Insured by the FDIC (up to $250,000 per account)
  • Can pick out funky check designs! 

B.DOWNFALLS:

  • Money is not immediately deducted from your account, so bank balances [from an ATM slip] may be inaccurate (because of “float”)
  • Not readily accepted out of state or internationally
  • Monthly service charges(SC) usually apply (none if a minimum balance is maintained)
  • Must purchase the checks (box of 100 checks,4 books of 25 checks)

II.OPENING A CHECKING ACCOUNT:

  • $50 minimum (usually) + free prizes! 
  • Identification needed (Social Security Card, photo I.D.)
  • Security Questions – Watch out when giving mother’s maiden name!
  • Sign a “signature card” to prove what your signature looks like – must always sign each check in this “exact” way! :o)
  • Use your middle initial if have a common name
  • Can open up with a spouse (“joint account”)
  • Must be a min. of 18 yrs. of age unless w/a parent

III.USING A CHECKING ACCOUNT:

  • Temporary Checks – must complete all your personal information on each check used (p. 10)
  • Personalized Checks – may take weeks to receive
  • When you write checks: It is a legal document used to transfer money from one bank account to another
  • Personalized Deposit Tickets – come in the check pack, after 25 checks (4 books in a box)
  • Checkbook Register – must use this log to keep track of all transactions (deposits + withdrawals) on the account
  • ALL TRANSACTIONS ARE RECORDED in the register, NOT just checks!
  • Use “codes” to identify each type of transaction (see below – Roman #VII) – DEP, AP, 2032, INT, DEBIT
  • Need to “balance” or reconcile your checking accountonce a month, when you receive your bank statement
  • Always keep a running balance to be sure there is enough money in the account to cover any checks that you write or ATM or debit card transactions! Do NOT rely on your ATM receipt for an accurate balance!!!
  • Can use a single-line method or a double-linemethod!

A.Deposits – $$ added into a bank account

e.g.Interest, cash, checks, direct deposit of paychecks

B.Withdrawals – $$ deducted/subtracted from a bank account

e.g.Service Charges (fees), checks, debit card transactions, automatic payments

IV.CASHING A CHECK:

  • When a check has been written to YOU & you are receiving and/or depositing the money
  • Must endorse(sign) the back of the check!!
  • If your name has been misspelled, check can still be cashed! Listen how . . .
  • Must have a bank account with the bank in order to cash a check . . . sometimes, you must have a balance in the account for at least the amount of the check (if you want cash back)

If you want CASH from your checking account & don’t have your ATM Card, write a check made out to “Cash” while standing at the teller window.

V.MAKING DEPOSITS:

  • Complete the pre-printed deposit slip located at the back of your checkbook; lobbies don’t haveblank deposit slips anymore.
  • ABA (American Banking Association) Number – a fraction or hyphenated number on the front of the check on the upper right corner. It identifies the bank branch.Write this on the deposit ticket
  • If depositing the entire amount of the check(s), do NOT sign the deposit slip on the front
  • If asking for a portion of money back from the total amount of the check(s) deposited, then SIGN the deposit slip on the front
  • Never SIGN THE BACK of a deposit slip
  • Endorse (signing the back of) the check while standing in front of the teller (never at home)
  • If making a deposit via the ATM there could be a delay in getting it posted to your account – if you DON’T want a delay, put a deposit into the “night dropbox”
  • NEVER deposit cash into an ATM

VI.Completing a CHECKBOOK REGISTERFOR ALL TRANSACTIONS:

1.Complete the registerprior to completing the transaction (debit card, too)

2.Complete the register from LEFT to RIGHT:

  • Check number (takes precedence) OR the code (abbreviation)
  • Write the date 10-2 or 10/2 (no year needed)
  • Who you are paying (PAYEE) OR where you got the money from
  • Fill in the amount of the transaction: 2 columns: one for withdrawals; one for deposits
  • Using a calculator, calculate a new account balance – last column

Leave all other columns BLANK for now!

VII.TRANSACTION CODES (use in the check register):

  • Check Number -
  • DEP = Deposit +
  • DEBIT or DC = Debit card transaction -
  • INT = Interest +
  • FEE or SC = Fee or Service Charge -
  • EFT = electronic funds transfer+ or -
  • AUTO or AP = Monthly, Automatic payment for a bill-
  • ON = Online payment for a bill -
  • TT = Telephone transaction + or -
  • WD = Withdrawal -
  • ATM = AutomatedTeller Machine transaction (either withdrawal or deposit) + or -

ATM Card

  • It does NOT have a VISA or MasterCard symbol (can’t be used at stores)
  • Must enter a PIN (Personal Identification Number) into an ATM machine to access your accounts
  • A card that is attached to the “funds” of your checking [or savings] account
  • Can be used worldwide to access your money to get CASH/currency from an ATM

DEBIT Card

  • An ATM card with a MasterCard or Visa symbol on it, can also be used as a “credit” card (funds still taken out immediately, though)
  • A card that is attached to the “funds” of your account
  • Amounts get deducted immediately from your account when used, even if say “credit”.
  • Can be used at stores when making purchases (POS)

Debit Card vs. Credit Card?Always say CREDIT – see p. 13!!

TRADITIONAL CREDIT CARD: using someone else’s money (the bank’s) for 30 days then paying it all back when they bill you for it—NOT attached to your DDA account!! Borrowing the money (Module 2)

PAYEE – the person RECEIVING the money/check; they cash or deposit the check to get the money

DRAWER (Payer) – the person completing the check (spending the money); the employer or boss of the account

DRAWEE – the bank where the account is held; the employee of the payer

VIII.GOOD HABITS WHEN WRITING A CHECK:

  • Always use non-erasable blue or black ink
  • Write legibly – use cursive or print
  • Don’t leave extra space before or after your writing – fraudulent activity can occur! Always start at the FAR LEFT! If there’s empty space, fillin with a line (check, not the checkbook register)
  • Use the current date + the YEAR!
  • Utilize the “Memo” area to explain why the check was written (the purpose)
  • If you make a small mistake on a check, draw ONE line through the incorrect portion, correct the mistake,INITIAL it
  • If digits don’t match the amount written in words, bank will cash check based on the WORDS
  • Avoid making a check payable to CASH unless you are standing in a bank; if the check gets lost, ANYONE can cash it!
  • If you need to withdraw cash from your DDA & you are in the bank’s lobby with no ATM card, you will make a check out to CASH, in front of a bank teller – there are NO DDA withdrawal slips in a bank!!

POSTDATED CHECK – dating the check with a future date on it (banks & other companies don’t pay attention to this & will deposit the check immediately upon receipt)

VOIDED CHECK– when you make a mistake on a check & you don’t want to continue completing it; you DON’T present it to the payee. Rip out the signature area

CLEARED (paid; “went through”) or CANCELLED CHECK (paid check in your hand) – a check that the bank has processed & the amount has been deducted from your account to the Payee; keep these as “proof of payment” for your bills & expenses.

“OUTSTANDING” CHECK or DEPOSIT – a transaction (check or deposit) that has not shown up on a bank statement yet; YOU KNOW about the transaction but the bank doesnot know about its existence so the bank balance doesn’t include it; has NOT CLEARED yet

BOUNCED CHECK/NonSufficient Funds (NSF) – when you present a check to someone as payment but you didn’t have enough money in the account to transfer to his or her account. Bank charges $30+ for each time a NSF check is presented. Even if you are attempting to use your DEBIT card!!

OVERDRAWING YOUR ACCOUNT / OVERDRAWN ACCOUNT – Spending beyond what the account balance is; an account that has a negative balance

FORGERY – when someone signs another person’s name on a check or completes a check from an account that they don’t own

STALE CHECK – a check written & dated 6 or more months ago; not able to be cashed anymore; IF it’s an ON-LINE BANKING check, they are stale after 30 or 60 days.

STOP PAYMENT ORDER – asking the bank NOT to pay a check that has already been presented to the Payee (the check may be LOST in the mail). There is a $20+ charge to do this PER CHECK.

RETURNED CHECK – a check that was NOT able to be processed & deducted from the drawer/payer’s account (stop payment, bounced, closed account, stale).

ENDORSEMENTS – a signature or instructions written on the BACK of a check to authorize the bank what to do with it; when looking at a written check, flip it over, then sign on the LEFT side of the back of the check in ink. When you receive a check from someone & want to cash it, you must endorse it 1st!!

1.Blank Endorsement – the most “unsafe;” only a signature of the payee is written on the back. Use if you want [or a bit of]cash back for yourself.

2.Restrictive Endorsement – The purpose of the transfer of monies is given, when entire check amount is being deposited into your checking account

e.g. “For Deposit Only” (top line), “to Acct # . . . ”(2nd line), then sign your name (3rd line)

3.Special Endorsement (‘endorsement in full’) – transferring the check to someone OTHER than the payee, written on the front of the check

e.g. “Pay to the order of . . . (new person), “then sign your name. New person signs their name under yours

IX.BANK STATEMENTS:

  • Received once per month (via email or postal service)
  • Reconciliation(balancing your account) must occur! The balances shown on a bank statement will NEVER match up to the balance you show on your check register.
  • Lists:
  • Cleared transactions (deposits, ATM, debit card, checks written, other withdrawals) + dates
  • Any service charges or fees withdrawn from your balance
  • Any interest that you may have earned during the month

X.RECONCILIATION (Reconciling/balancing):

  • Comparing the bank statement transactions with those written in your checkbook register
  • After completing reconciliation, the ending balance on the bank statement must be equal to the ending balance in the check register
  • FOLLOW the steps to reconciling your account!
  • It is VERY IMPORTANT to “balance/reconcile” your checkbook each & every month!!

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