Balancing your bank account may seem like an outdated practice, now that most financial transactions have become electronic.
These days we can have our paychecks deposited digitally, schedule automatic transfers to pay our bills, and use our smartphones to deposit checks and look at our account balances whenever we feel like it.
With all that digital convenience, keeping track of withdrawals and deposits in a checkbook ledger, then comparing our notes with our bank statements every month may seem unnecessary. What’s more, many of us write few (if any) checks anymore.
Well, not so fast.
The basic idea behind reconciling one’s personal records with the information the bank provides still has value.
The process of monitoring your checking account can help you pick up mistakes and fraudulent charges, learn about fees you may not have realized you were paying, as well as give you a better sense of how much you’re spending each month, and exactly where that money is going.
What’s The Purpose Of Balancing Your Checking Account?
Back in the not-so-distant past, most people who had a bank account received a paper statement once a month in the mail.
On the first few pages, the statement listed the past month’s transactions—checks that had cleared, deposits that had posted, ATM and other withdrawals—along with the account balance as of the day the statement was printed.
On the back page, there was a reconciliation worksheet, where account holders could add or subtract anything that was missing on the statement (deposits or withdrawals that hadn’t yet posted) to be sure the balance they thought they had actually matched the one the bank was reporting.
While some considered the process of balancing or monitoring a bank account tedious and frustrating, others diligently did the math every month.
Times have changed. Though financial institutions are legally required to mail those old-school statements to customers who want them, most have been touting the benefits of going paperless for years—and customers now have 24/7 access to their account information using a website or an app.
Many banks also will provide a monthly online statement with the same data as the old paper statement, usually in the same or a similar format, and they’ll even send a notification when the statement is ready.
But since this requires taking the time to log on, review the numbers, check for errors, and maybe do some math, many people procrastinate, or simply skip, regular, full-scale account reviews–especially if they have multiple accounts.
But monitoring and balancing a bank account still plays an important role in responsible money management. Here’s why.
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People–and Institutions–Sometimes Make Mistakes
Even if you are a fastidious record keeper, logging every cash withdrawal, bill payment, and deposit into a paper ledger, spreadsheet, or app, we all make mistakes from time to time.
Maybe an ATM receipt went missing or bill payment was forgotten or recorded incorrectly. By reconciling an account regularly, these little mistakes can be quickly fixed. This will allow you to have an accurate picture of your account, and help avoid overdraft charges and/or bounced checks.
Banks also can make errors. Duplicate charges are rare, but they can occur. Automatic payments may occasionally go awry. And it’s possible for deposits to land in the wrong account.
Even though the mistake might be the bank’s fault (because of human or technical error), it’s up to the account holder to bring it to someone’s attention – either by calling or writing to the financial institution.
In most cases, the Electronic Fund Transfer Act (EFTA) gives an account holder 60 days after receiving the bank statement with evidence of an error to challenge a problem with a direct deposit, ATM use, phone transfer, and other transactions.
But the time frame for reporting other bank errors may vary—rules may differ from bank to bank—and consumer advocates advise making contact as soon as possible upon spotting a mistake. Reviewing an account regularly can help limit a consumer’s liability.
It also can be a good idea to check on vendor charges. Reviewing debit card, pay-by-phone, and even recurring automatic charges on a bank statement every month can help catch small errors before they become bigger problems.
A bank statement can provide the official documentation needed to dispute the charge with the vendor or financial institution.
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Scammers Hope People Aren’t Paying Attention
Every time a person makes an ATM withdrawal, pays for gas with a debit card, or places an order online, there’s a chance someone is out there, waiting to steal their identity and their money.
Scammers sometimes start by making small purchases and, if no one seems to notice, bump up the spending to a more serious level.
Consumers who check their accounts regularly may have a better chance of spotting fraud faster, limiting their own liability and helping the bank deal with potential problems.
Reconciling regularly can help manage automatic payments
Automatic bill payments are convenient and can help an account holder avoid late payments (and late fees).
But the downside is that those bills might not get the same attention as those we have to make some effort to pay ourselves every month by check, phone or online. Ready or not, the money comes out of the bank account as scheduled, and if the account is low on the payment date, it can lead to bounced checks and overdraft fees.
Account holders who check their statements regularly may find they’re more aware of and prepared for the amount and timing of their autopay charges. They also might find they’re ready to dump or reduce the cost of some of the services and subscriptions they’ve been paying for every month or year.
Reviews May Offer Insights into Spending and Saving Behaviors
Reviewing their bank statements may help those who need or want to take more control of their spending to see exactly where their money is going every day, week, or month.
Regularly scheduled reconciliations enable people to see exactly how much they’re spending every week on nonessentials, such as in-app purchases or happy hours. This kind of information can help people budget more effectively, and help bring them closer to their savings goals, such as a downpayment on a home.
Identifying Unnecessary Fees Can Save Money
Bank fees can eat away at a bank balance so slowly, an account holder might not even notice. The average monthly fee for a checking account now runs around $14. The fee for using an out-of-network ATM can be as high as $4. Overdraft fees often top $32.
Those charges can quickly add up—but if it’s all laid out there in black and white on a statement, it might be harder to ignore how much money is slipping away every month. (It also might provide more motivation to find a way to avoid those fees in the future.)
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How to Balance Your Checking Account
Of course, account holders can always check on their available balance by using an ATM, or by logging into their account online or with an app. But that’s just a snapshot—and the picture could change in just a few minutes, depending on what transactions hit the account through the day.
By reconciling your records with your monthly online or paper statements on a regular basis, account holders can dig into the details of where their money is going, and be confident they aren’t missing any mistakes or paying fees or bills they aren’t aware of.
It starts with gathering the receipts and records for any spending and deposits for the period chosen. (If you use a check register, grab that. If you write your purchases down in a notebook or use software or a spreadsheet, use those. If you collect ATM receipts, pull that pile together, too.)
Next, you’ll need to match those records with the bank statement. If you missed something the bank has listed and you’re sure it’s accurate (an ATM fee, for example, or a birthday check you deposited and forgot about), add it to your records.
Finally, take the statement balance and subtract payments that are in your records but haven’t yet cleared the bank, and add in any deposits that haven’t yet been posted.
The amount you come up with should match with the balance you have in your register/notes/spreadsheet. If it doesn’t, you may have to do a closer check to see what you might have missed or if your math is a little off.
If you’re sure you’re right, and you think the bank made a mistake, or you notice anything else askew, contact the bank by phone or in-person right away to let them know about the inconsistency.
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With so many other tech tools available to help track saving and spending, reconciling a bank statement every month may seem unnecessary—even archaic.
But the process can serve as an important backup and safeguard—especially for those who have multiple accounts, or who have turned over certain financial tasks (deposits, withdrawals, bill-paying, and budgeting) to automation and apps.
It might even point the way toward better budgeting and money management, and help you reach your short- and long-term financial goals sooner.
Looking for Something Different?
If you want an easy way to track your expenditures and stay on top of your budget, a SoFi checking and savings account, which is a brokerage product, allows you to use your phone to track spending, pay bills online, and pay friends right from the app. (The transaction will happen instantly if the transfer is to another SoFi Checking and Savings holder.) And SoFi Checking and Savings holders pay no account fees, and no ATM fees at 55,000+ ATMs worldwide.
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