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Checking Accounts – Your History Follows You

By Dr. Cynthia Crawford [i]

Most employers expect to direct deposit their employee’s paycheck directly into a bank account. Imagine that upon graduation, you have to explain to your first employer that you’re not eligible to have a checking account because of your poor financial management during college.

If your relationship with your “checking account” bank was similar to how the Hatfield family got along with the McCoy family, the problems may follow you for years. Moreover, the likelihood of a longer term problem is greater, as companies like Chex Systems, Inc. make their living by providing deposit account verification services to its financial institution members to aid them in identifying account applicants with a history of mishandling accounts. An example would be a bank client that chronically overdraws her account to the point that the bank has had to close the account.

Unlike negative information in credit reports that stays in the records for up to 7 years (up to 10 years for bankruptcy), negative information stays in the Chex System for only five years. This can be shortened, if the bank or credit union that filed the report requests its removal or Chex System is forced to remove it under the Fair Credit Reporting Act.

You must remember that a checking account at a financial institution is a privilege, not a right. Financial institutions are not required to offer a checking account to any one, particularly those with a history of poor financial management.

It is important to foster a sound business relationship with your bank or credit union. Here’s how:

  • Reconcile your checkbook with the bank statement every month. Less than half of all checking account holders reconcile their checkbook with the bank statement each month. You are exempt from this rule, if you have never made a math error or have never forgotten to write down a check or ATM transaction in your check register.
  • Record ATM and Debit Card transactions. ATM and debit card transactions need to be written in your check book record just as quickly as paper checks. Far too many overdrafts are triggered by forgotten ATM and debit card transactions.
  • Know your balance. Don’t assume that the balance on your ATM slip or the bank’s website is actually how much you have available to spend. You may have outstanding checks or other transactions that have not been posted.
  • Know what your checking account costs. Is there a monthly service charge? Is there a per check charge? Are the ATM locations convenient (driving is costing more and more these days)?
  • Keep a cushion in your checking account. With overdraft bank fees hovering around $35, keeping a $100 cushion in your account is good insurance.
  • Ask about overdraft protection. Ask your bank about overdraft protection options and their costs. The peace of mind might be worth the interest charges you occasionally incur.

For most students and young families, the goal is to find a free checking account. Most require you to never overdraw the account and some may require you to hold a minimum balance in a savings account or money market account. Do the math, based on your patterns of use.

You might like to receive interest on your average balance in your checking account. For low balance checking accounts, however, it is probably unrealistic to expect interest to be paid in today’s market. Still, ask the question.

There will be a fee for check printing but you do not have to have your checks printed by your financial institution. You may have your checks printed by mail-order or through an on-line check printing company, sometimes at a substantially lower cost.

Finally, establishing a business-like relationship with your financial institution can be the factor that the bank uses to judge your character as client. Hence, it can have a great effect on your ability to make the most of your opportunities for Financial Success.

POSTSCRIPT: Alaska was great! The fish and bears are as large as they say.