OPENING A CHECKING ACCOUNTWhile fewer checks are being written each year, a checking account is usually the foundation for using a debit card and for your online banking activities.
Traditionally, checks provide convenience, ease, and safety for making payments, while also being used as proof of payment and a record of spending. These benefits of a checking account continue.
The First DepositOpening a checking account starts with providing personal data and a sample of your signature. In the past, a signature card was used. This document usually requires your legal name, address, phone, Social Security number, driver's license number, and e-mail address. Today, signature cards might not be actual cards. Most financial institutions enter your personal data online and use an electronic capture device to obtain your signature sample. The electronic image of your signature can then be available to tellers at branch banks
These methods are used to verify your signature. The bank compares the signature on checks to the one on record when the account was opened. Signatures will likely be verified when you are cashing a large check at your bank, or when the bank suspects that a forged check is being presented for payment.
Sometimes two or more people have an account together called a joint account . Each person who will write checks on the account must provide a sample signature. Any signer for a joint account can write checks on the account as if he or she were the only owner.
When you deposit money in a checking account, you fill out a deposit slip. This form lists all items you are depositing—currency, coins, or checks. The deposit slip shows your name, account number, the date, the items deposited, and the total amount of the deposit.
Types of EndorsementsBefore depositing a check, it must be endorsed. This involves writing your name on the back of the left end of the check. An endorsement is written evidence that you received payment or that you transferred your right of receiving payment to someone else.
When you endorse a check, your responsibilities are almost as great as if you had written the check yourself. As an endorser, you are actually making this promise: “If this check is not paid by the bank, I will pay it.”
Your endorsement must be made in the 1½-inch space on the left side of the check. If you write outside this limit, the bank may return the check. Different endorsements have different purposes. Figure 17-4 shows some examples.
Traditionally, checks provide convenience, ease, and safety for making payments, while also being used as proof of payment and a record of spending. These benefits of a checking account continue.
The First DepositOpening a checking account starts with providing personal data and a sample of your signature. In the past, a signature card was used. This document usually requires your legal name, address, phone, Social Security number, driver's license number, and e-mail address. Today, signature cards might not be actual cards. Most financial institutions enter your personal data online and use an electronic capture device to obtain your signature sample. The electronic image of your signature can then be available to tellers at branch banks
These methods are used to verify your signature. The bank compares the signature on checks to the one on record when the account was opened. Signatures will likely be verified when you are cashing a large check at your bank, or when the bank suspects that a forged check is being presented for payment.
Sometimes two or more people have an account together called a joint account . Each person who will write checks on the account must provide a sample signature. Any signer for a joint account can write checks on the account as if he or she were the only owner.
When you deposit money in a checking account, you fill out a deposit slip. This form lists all items you are depositing—currency, coins, or checks. The deposit slip shows your name, account number, the date, the items deposited, and the total amount of the deposit.
Types of EndorsementsBefore depositing a check, it must be endorsed. This involves writing your name on the back of the left end of the check. An endorsement is written evidence that you received payment or that you transferred your right of receiving payment to someone else.
When you endorse a check, your responsibilities are almost as great as if you had written the check yourself. As an endorser, you are actually making this promise: “If this check is not paid by the bank, I will pay it.”
Your endorsement must be made in the 1½-inch space on the left side of the check. If you write outside this limit, the bank may return the check. Different endorsements have different purposes. Figure 17-4 shows some examples.
Blank Endorsement An endorsement that consists of only the endorser's name is a blank endorsement . To endorse a check, sign your name in ink exactly as it is written on the face of the check. If the name on the check is different from your official signature, you will need to endorse the check twice. First, use the name as given on the check. Then, write your name as it appears on the account.
A blank endorsement makes a check payable to anyone who has the check. While you can use this endorsement to transfer any check, sometimes another type of endorsement is better.
Full Endorsement The use of a full endorsement , also called a special endorsement, allows you to transfer a check to another person. You write the words “Pay to the order of…” followed by the name of the person or business to which the check is being transferred. This is followed by your signature. This phrasing results in only the specified person being able to sign and cash the check.
Restrictive Endorsement A restrictive endorsement limits the use of the check to the purpose given in the endorsement. For example, you may have several checks that you want to mail to the bank. You could write For deposit only above your signature, followed by your account number. This endorsement restricts use of the check so it can only be deposited to your account. Often, organizations that receive
A blank endorsement makes a check payable to anyone who has the check. While you can use this endorsement to transfer any check, sometimes another type of endorsement is better.
Full Endorsement The use of a full endorsement , also called a special endorsement, allows you to transfer a check to another person. You write the words “Pay to the order of…” followed by the name of the person or business to which the check is being transferred. This is followed by your signature. This phrasing results in only the specified person being able to sign and cash the check.
Restrictive Endorsement A restrictive endorsement limits the use of the check to the purpose given in the endorsement. For example, you may have several checks that you want to mail to the bank. You could write For deposit only above your signature, followed by your account number. This endorsement restricts use of the check so it can only be deposited to your account. Often, organizations that receive
many checks use a rubber stamp with the words For Deposit Only followed by the company name and its account number.
USING A CHECKING ACCOUNTChecking accounts are an easy way to access funds. Still, to use a checking account correctly, you must understand certain information and follow some simple procedures.
Check-Writing ProceduresSome checks are light blue or green in color. Others have a picture of a forest, a sports team logo, or an inspirational quote. No matter what they look like, all checks contain essentially the same information.
Elements of a Check Figure 17-5 shows some terms that are used to identify the parts of a check. Three parties are shown on each check.
the checkbook, that allows you to maintain a record of the checks written. A duplicate copy of the check may also be automatically created when you write the check.
Always fill out the stub or register first. If you write the check first, you may forget to record the information before you transfer the check. Your check register should also be used for maintaining a record of debit card payments and cash withdrawals.
Writing a Check Fill out the check completely and carefully using the following seven steps.
1. Write checks in order by number so you know which checks have been paid.
2. Write the date in the proper space.
3. Write the payee's name on the line following Pay to the Order of.
4. Write the amount of the check in figures after the printed dollar sign. Write the amount close to the dollar sign to prevent someone from altering your check. Write the cents figures close to the dollar figures so that additional numbers cannot be inserted.
5. Write the dollar amount in words on the line below the payee's name. Write the cents in figures as a fraction of a dollar. Begin writing at the far left end of the line. Draw a line from the fraction to the printed word Dollars to fill all unused space.
6. Write the purpose of the payment on the line at the bottom of the check.
7. Sign checks with the same signature you wrote on your signature card.
Proper Check Writing Poor check writing can cause problems and financial difficulties. Follow these tips to avoid trouble.
1. Write checks only on the forms provided by your bank. Checks can be written on just about anything—even a paper bag—but sorting and processing can be delayed when you do not use the proper form.
2. Write checks in ink. This prevents someone from altering the amount.
3. Only write checks if money is available. Writing a check for more than is in your account can result in an over-drawn account. The bank may not pay the check and you will most likely be charged a fee.
4. Use the current date. A postdated check is one that is dated later than the date on which it is written. This business practice is unwise and can result in additional service charges.
5. Avoid making checks payable to “Cash” or to “Bearer.” Such a check can be cashed by anyone. Instead, make the check out to yourself or to the bank as payee.
6. Always fill in the amount. If you leave it blank, you may be held responsible for amounts filled in by others.
7. Void checks on which you make errors. Do not try to erase or retrace your writing. Write “Void” across the check. Make note of the voided check in the check register.
8. Record every payment from your checking account, whether the payment is by check, debit card, or automatic payment. Some people carry a few blank checks. When one is used, make a note of it and record it in the register. Also, promptly record all transactions made at an ATM.
USING A CHECKING ACCOUNTChecking accounts are an easy way to access funds. Still, to use a checking account correctly, you must understand certain information and follow some simple procedures.
Check-Writing ProceduresSome checks are light blue or green in color. Others have a picture of a forest, a sports team logo, or an inspirational quote. No matter what they look like, all checks contain essentially the same information.
Elements of a Check Figure 17-5 shows some terms that are used to identify the parts of a check. Three parties are shown on each check.
- The drawer is the owner of the account who signs the check.
- The payee is the person to whom the check is written.
- The drawee is the bank or other financial institution that pays the check.
the checkbook, that allows you to maintain a record of the checks written. A duplicate copy of the check may also be automatically created when you write the check.
Always fill out the stub or register first. If you write the check first, you may forget to record the information before you transfer the check. Your check register should also be used for maintaining a record of debit card payments and cash withdrawals.
Writing a Check Fill out the check completely and carefully using the following seven steps.
1. Write checks in order by number so you know which checks have been paid.
2. Write the date in the proper space.
3. Write the payee's name on the line following Pay to the Order of.
4. Write the amount of the check in figures after the printed dollar sign. Write the amount close to the dollar sign to prevent someone from altering your check. Write the cents figures close to the dollar figures so that additional numbers cannot be inserted.
5. Write the dollar amount in words on the line below the payee's name. Write the cents in figures as a fraction of a dollar. Begin writing at the far left end of the line. Draw a line from the fraction to the printed word Dollars to fill all unused space.
6. Write the purpose of the payment on the line at the bottom of the check.
7. Sign checks with the same signature you wrote on your signature card.
Proper Check Writing Poor check writing can cause problems and financial difficulties. Follow these tips to avoid trouble.
1. Write checks only on the forms provided by your bank. Checks can be written on just about anything—even a paper bag—but sorting and processing can be delayed when you do not use the proper form.
2. Write checks in ink. This prevents someone from altering the amount.
3. Only write checks if money is available. Writing a check for more than is in your account can result in an over-drawn account. The bank may not pay the check and you will most likely be charged a fee.
4. Use the current date. A postdated check is one that is dated later than the date on which it is written. This business practice is unwise and can result in additional service charges.
5. Avoid making checks payable to “Cash” or to “Bearer.” Such a check can be cashed by anyone. Instead, make the check out to yourself or to the bank as payee.
6. Always fill in the amount. If you leave it blank, you may be held responsible for amounts filled in by others.
7. Void checks on which you make errors. Do not try to erase or retrace your writing. Write “Void” across the check. Make note of the voided check in the check register.
8. Record every payment from your checking account, whether the payment is by check, debit card, or automatic payment. Some people carry a few blank checks. When one is used, make a note of it and record it in the register. Also, promptly record all transactions made at an ATM.
Stopping PaymentIn certain situations, you may not want your bank to pay a check that you have written. To do so, you will fill out a stop payment order , a written notice that tells the bank not to pay a certain check. Because banks charge a high fee for stopping payment on a check, use this process only for good reason. You may learn, for example, that a check you have written to pay a bill was lost in the mail. A check you have written may have been stolen. Before you write a new check, you should stop payment on the one that was lost or stolen.
THE RECONCILIATION PROCESSAs a depositor, you will need to review the record of your account that the bank keeps. At regular intervals, usually monthly, the bank will send you a report on the status of your account known as a bank statement .
Bank Statement InformationWhile bank statement formats vary, most present the following information.
Determine Checks PaidWhen your bank statement arrives, compare the checks you wrote to those that have been paid by your bank. Banks might not return actual canceled checks that have been paid. Instead, banks can use a substitute check , which is a digital reproduction of the original paper check. In some cases banks do not return checks or provide substitute checks unless the customer requests them.
There are times when you need to show proof of a payment. In most cases, information on the statement will be sufficient to prove payment. If the check showing the endorsement is needed, a substitute check is considered a legal equivalent of the original check.
Find DifferencesYou keep your own record of your checking account, usually in a check register. The bank statement is the bank's record of your account.
The document created to show how the two balances were brought into agreement is called the bank reconciliation . Bringing the balances into agreement is known as reconciling the bank balance. The bank often prints forms for reconciling on the backs of bank statements. Figure 17-7 shows an example of a bank reconciliation.
The balances shown on your records and the bank statement may be different. Following are some of the most common reasons for the difference.
Calculate Adjusted Balance
To determine the true balance in your account, take the following steps.
1. Subtract the total of the outstanding checks from the bank statement balance.
2. Add any deposits in transit to the balance statement balance.
3. Subtract service charges, fees, and automatic payments from your checkbook balance.
4. Add any interest earned to your check register balance.
At this point, if the balances do not agree, either you or your bank has made an error. You should check each of the steps again. Then, carefully go over the calculations in your check register. If you do not find an error in your calculations, contact your bank.
After you have reconciled your bank statement, correct any errors that you made on your register. The new balance now agrees with the bank statement. With your account updated, you can write checks on the new balance.
THE RECONCILIATION PROCESSAs a depositor, you will need to review the record of your account that the bank keeps. At regular intervals, usually monthly, the bank will send you a report on the status of your account known as a bank statement .
Bank Statement InformationWhile bank statement formats vary, most present the following information.
- The balance at the beginning of the month.
- The deposits made during the month.
- The checks paid by the bank during the month.
- Any automated teller transactions made during the month.
- Any electronic fund transfers (EFT) or special payments the bank has made.
- Service charges for the month, including charges for services such as stopping payment on a check.
- Any interest earned on the account.
- The balance at the end of the month.
Determine Checks PaidWhen your bank statement arrives, compare the checks you wrote to those that have been paid by your bank. Banks might not return actual canceled checks that have been paid. Instead, banks can use a substitute check , which is a digital reproduction of the original paper check. In some cases banks do not return checks or provide substitute checks unless the customer requests them.
There are times when you need to show proof of a payment. In most cases, information on the statement will be sufficient to prove payment. If the check showing the endorsement is needed, a substitute check is considered a legal equivalent of the original check.
Find DifferencesYou keep your own record of your checking account, usually in a check register. The bank statement is the bank's record of your account.
The document created to show how the two balances were brought into agreement is called the bank reconciliation . Bringing the balances into agreement is known as reconciling the bank balance. The bank often prints forms for reconciling on the backs of bank statements. Figure 17-7 shows an example of a bank reconciliation.
The balances shown on your records and the bank statement may be different. Following are some of the most common reasons for the difference.
- Some of the checks you wrote may not have cleared (been paid). These checks, which have not been deducted from the bank statement balance, are called outstanding checks .
- You may have forgotten to record a transaction in your register, such as an ATM deposit or automatic bill payment. A service charge may appear on the bank statement.
- You may have mailed a deposit to the bank that has not yet been received.
- Interest earned may have been added.
- You may have recorded the amount of a check incorrectly in the check register. You may have added or subtracted incorrectly.
Calculate Adjusted Balance
To determine the true balance in your account, take the following steps.
1. Subtract the total of the outstanding checks from the bank statement balance.
2. Add any deposits in transit to the balance statement balance.
3. Subtract service charges, fees, and automatic payments from your checkbook balance.
4. Add any interest earned to your check register balance.
At this point, if the balances do not agree, either you or your bank has made an error. You should check each of the steps again. Then, carefully go over the calculations in your check register. If you do not find an error in your calculations, contact your bank.
After you have reconciled your bank statement, correct any errors that you made on your register. The new balance now agrees with the bank statement. With your account updated, you can write checks on the new balance.
OTHER TYPES OF PAYMENTSOften, you might need to make a payment in a situation when a personal check is not acceptable. Several payment alternatives are available.
Certified ChecksA certified check is a personal check for which a bank has guaranteed payment. The certification is stamped on the face of the check and is signed or initialed by a bank officer.
Cashier's ChecksA bank usually keeps funds in an account of its own on which it writes its own checks. A cashier's check is a check that a bank draws on its own funds. A cashier's check costs the amount of the check plus a service fee. These banker's checks are more acceptable than the personal checks of an individual whom the payee may not know.
Traveler's ChecksCarrying a large sum of money when you travel is risky. In addition paying traveling expenses with personal checks may be difficult. Traveler's checks are special forms designed for making payments when away from home. You can buy them at banks, credit unions, and travel bureaus. Traveler's checks are sold in several denominations such as $10, $20, $50, and $100. In addition to the value of the checks, a fee of 1 percent may be charged. This means that $100 worth of traveler's checks will cost $101.
Traveler's checks require your signature in two places. First, you sign each one when they are bought. Then, when you cash a check or pay for a purchase with it, you sign it again in the presence of the person accepting it. Businesses throughout the world commonly accept traveler's checks.
Money OrdersA person who does not have a checking account and wants to send a payment through the mail may purchase a money order. A money order is a form of payment that orders the issuing agency to pay the amount printed on the form to another party.
Several types of organizations commonly sell money orders.
Certified ChecksA certified check is a personal check for which a bank has guaranteed payment. The certification is stamped on the face of the check and is signed or initialed by a bank officer.
Cashier's ChecksA bank usually keeps funds in an account of its own on which it writes its own checks. A cashier's check is a check that a bank draws on its own funds. A cashier's check costs the amount of the check plus a service fee. These banker's checks are more acceptable than the personal checks of an individual whom the payee may not know.
Traveler's ChecksCarrying a large sum of money when you travel is risky. In addition paying traveling expenses with personal checks may be difficult. Traveler's checks are special forms designed for making payments when away from home. You can buy them at banks, credit unions, and travel bureaus. Traveler's checks are sold in several denominations such as $10, $20, $50, and $100. In addition to the value of the checks, a fee of 1 percent may be charged. This means that $100 worth of traveler's checks will cost $101.
Traveler's checks require your signature in two places. First, you sign each one when they are bought. Then, when you cash a check or pay for a purchase with it, you sign it again in the presence of the person accepting it. Businesses throughout the world commonly accept traveler's checks.
Money OrdersA person who does not have a checking account and wants to send a payment through the mail may purchase a money order. A money order is a form of payment that orders the issuing agency to pay the amount printed on the form to another party.
Several types of organizations commonly sell money orders.
- A bank money order is sold by a bank stating that money is to be paid to a specific person or business.
- A postal money order purchased from the U.S. Post Office can be sent safely through the mail. It can be cashed only after the payee signs it.
- An express money order is issued by various organizations including traveler's check companies, travel agencies, and many supermarkets, pharmacies, and convenience stores.
- A telegraphic money order involves buying a message to direct a telegraph office to pay a sum of money to a certain person or business.
- If a money order is lost or stolen, the receipt copy that you receive may be used in making a claim.