MONEY 23 - BANKING

THIS IS MY 23^RD POST ON UNDERSTANDING MONEY TOOLS

Money, Money, Money.  With these educational tutorials I am trying to bring into context practical, everyday and simple lessons about money.  Another friend of mine asked me questions very basic about banks, so I thought we could re-visit banking and delve into more parts.

What’s the purpose of a bank?  These days we all wonder, right?  Well, banks are around for two specific purposes, other than drive us crazy, these are to deposit money and to borrow money.  Some banks have more adjuncts like investment counselors as well so that you can buy and sell mutual funds, stocks and bonds; set up and manage trusts, life insurance, credit cards, etc.

We’ve covered much of this banking material in other blogs.  My friend wants to open a checking account.  First, is it going to be for personal use or business use?  Duplicate copies of each check is helpful at the end of the year accounting and for tax purposes. Yes, a lot of banking today is done “on-line” so we would need to call the bank or meet with them if there were  issues.  Getting down to even the most basics of a check. In the upper right hand we have the check number.  Most banks will start off with a three or four digit number, rather than “1”.

Next, we have several lines….date, who the check is to be made out to, the amount to be written in, the amount numerically written in and your “John Hancock” signature.  When writing in the amount I like to draw a short line prior to writing so someone else can’t add on, and a short line following the writing, again so someone can’t add on to the amount.  If you are writing a check for a small amount you might want to say as an example, “Only two and no/100”.  This way it deters someone dishonest person from adding a six or an eight in front of the two.

What are all those numbers at the bottom of the check.  Going from left to right is the routing number for your bank and processing.  The next numbers is your checking account number. You will notice the last four digits is your check number on a particular check.

When you endorse another person’s check on the back, I like to write in where the check is to be deposited to avoid screw-ups.  For instance, write in “Only for deposit into checking account 1234567 (your account number) and then sign below that.

When opening this checking account you will be asked to sign a “signature card”.  I like to sign my checks differently from the exact name on the left top of the check.  For instance, if my name was John H. Doe on the check I might sign J. Doe, so that check forgers or people who have stolen checks have a harder time cashing the check, as your name is different than at the top of the check.

It may be a good idea to do something similar with credit cards.  A friend of mine with his credit cards writes in “Ask for photo/personal ID” where the credit card is to be signed on the backside.

Ask the bank if you can have “overdraft protection” on your checking account.  This is a line of credit, a reserve account, like a credit card so if you don’t have adequate money in your checking account you will automatically have money transferred into your checking account so that your check does not “bounce”. If you don’t have this and a check does not have sufficient funds it is returned to the party you wrote the check to, and this can get expensive with a bank transaction fee of $35-50.  The interest charged on a “overdraft protection” account is high, approximately 20% in most cases.

When selecting a bank for a checking account ask about all fees.  There are many banks that have free checking.

We will cover more in banking and practical information in our future blogs.