How to Prevent Checking Account Overdrafts

You gasp when you receive your bank's notice that the check to your grocery store was returned for insufficient funds. You thought you had enought to cover that grocery bill. Instead, you must somehow make the check good and pay a fee of $25.00 This predicament can be avoided by carefully maintaining your check account records.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Discipline and organization
• Computer
• Internet
• Microsoft Money or similar software
• Check register

1. Write down every purchase as soon as you can. If you don't have time while your in the check-out line, do it after you load your car. Keep all receipts, especially if you wait until home to write it down.

2. In your register, record the date of the purchase, payment or ATM withdrawl, the payment method (check or debit card, check), the place and, most importantly the amount. Write the amount accurately.

3. Do the math correctly. Programs such as Microsoft Money allow you to record checking account transactions. Choose deposits to enter additions to your account and purchases to enter subtractions. Such automated programs will do the addition or subtraction for you and help you avoid math errors. Also, whether you do it yourself or by computer, do not enter as deposits items which are purchases or withdrawls.

4. One major mistake is to not write down a check card purchase you thought was or intended to be a credit card, not a check card, purchase. To avoid this, you must know the last four digits of your check card and compare it with the last four digits which are printed on the receipt. Knowing your last four digits is also critical when you want or need to use a card other than the check card.

5. Track your account through the internet. Most banks allow their customers to maintain their accounts electronically. Transactions are displayed immediately rather than you having to wait for the monthly statement. This allows you to compare your register entries with current information from the bank and to record anything you have missed. By using online access, you can immediately catch errors, unauthorized uses and even double charging for the same transaction.

6. Know when someone is holding. If you use a debit card or your check card as a debit card (i.e. you enter your ATM pin number, the retailer might "hold" more than the amount of the purchase. This makes more than the purchase price not available to you for other transactions. The hold should clear once the transaction clears and is posted by your bank. To avoid this, ask the retailer about its "hold" policy or have your check card run as a credit card.

7. If your bank offers it, enroll in ICR (Instant Cash Reserve). The ICR will deposit funds into your account to cover overdrafts. This is especially useful to cover checks which might otherwise be rejected or returned for insufficient funds.

Tips & Warnings

• While convenient for payment, check cards and debit cards increase the risk of overdrawn accounts unless receipts are kept and promptly recorded. If you lack the time or attention or discipline, use and keep cash, especially for smaller purchases.
• Pay bills soon after you get your paycheck deposited. By paying bills, you will have in your mind how much is really available for you to buy groceries, clothes or "luxuries."
• ICR is not a gift. It is a loan from your bank. Therefore, you must pay back the amount deposited from your ICR. Record the ICR in your register as a deposit, then subtract it once you pay it back.