Balancing your checking account may sound like an old-fashioned and unnecessary chore when you can quickly and easily access your balance online or with a mobile app. Still, balancing is a smart habit that can help you track your deposits and withdrawals and make sure your balance matches your bank’s records for your account.
Balancing your account offers a number of benefits. You may be able to:
- Find fraud by identifying transactions in your account that aren’t yours.
- Save money by avoiding overdrafts and the fees that come with them.
- Spot errors to assure that your account record is accurate.
- Track spending to improve your budgeting and cut or cancel expenses.
“Balancing a checking account regularly allows you to fight fraud if you notice differences between your bank statement and the amount you expected. It also makes you more cautious about your expenditure and may (help you) try to control the expenditure,” says Justin Nabity, founder and CEO at Physicians Thrive, a financial planning firm headquartered in Omaha, Nebraska.
You don’t have to balance your account every day. Weekly may be a good habit. Monthly is usually enough.
Before You Balance, You Must Keep a Record of Your Transactions
The first step in balancing your account is updating your records of every transaction in your account. Transactions may include direct deposits; debit card charges; paper checks; cash withdrawals; overdraft, ATM or other bank fees; and, for some types of accounts, interest you earned.
You can record your transactions in a checkbook register, notebook or banking app. Keeping receipts from your deposits, withdrawals and other transactions could help you update your records.
“This reconciliation with your bank lets you know that your records align with your bank’s records. This (helps you) spot mistakes and omissions, such as a payment you forgot to note, or bank errors, such as a missing deposit,” says Bryan R. Routledge, an associate professor of finance at Carnegie Mellon University’s Tepper School of Business.
How to Balance Your Checkbook
After you record all of your transactions, the next step is to check off each transaction that is in your record and shows up on your bank statement. These transactions have been processed, or “cleared,” through your account.
You’ll normally have some transactions that have not been processed yet. Three examples are a debit card transaction that hasn’t been posted yet, a check you wrote to someone who hasn’t deposited it yet and a check you deposited that has a temporary bank hold on all or part of the funds.
You then adjust your bank’s balance for your account to reflect the outstanding items you didn’t check off. To do this, start with your bank’s balance, then add or subtract the outstanding items. Once that’s done, your bank’s record of your account balance and your own personal record of your balance should match.
Your Amount Doesn’t Match: What’s Wrong?
If the two balances don’t match, you’ll need to repeat these steps to try to find and fix your mistake. Common errors include transactions you forgot to record, errors in addition or subtraction, or erroneous dollar (or pesky cent) amounts.
“Most of the time the error lies in your record or adding,” Routledge says. “An old accounting trick (is that) if the difference you are off by is divisible by 9, it might be a transcription error. For example, the amount was $1.45, but you wrote it as $1.54.”
If you find new, unusual or suspicious charges that you don’t recognize in your account, notify your bank as soon as you can.
For example, if you lose your debit card or it’s stolen and you notify your bank within two business days after you discover the loss or theft, you shouldn’t be held responsible for more than any unauthorized transaction amount or $50, whichever is less. After two business days, you could be responsible for up to $500.
If you receive a bank statement that shows an unauthorized debit and you don’t notify your bank within 60 days, you may be held responsible for subsequent unauthorized transactions that your bank could have prevented if you’d notified it sooner.
You may be able to notify your bank with an online form, email or phone call. If the amount is large, you may want to go to one of your bank’s branches and talk to someone about it in person.