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Most of us dread the task… if we do it at all.

In the days before the ease and convenience of credit cards, debit cards and direct deposit, people carried a checkbook (a stack of checks along with a check register journal). You’d write a check the merchant would take to the bank with his other deposits, and the bank would cash the check, deducting the money from your account. When you'd write the check, you'd note the date, amount and merchant in your check register. You’d also keep track of deposits and withdrawals you made during the month in your check register.

At the end of the month, you’d take your checking account statement and your check register and match up your entries with your bank’s records. You corrected any errors, like deducting the amount of the check you forgot to write down and subtracting bank fees charged to you, and reconciled your account.

While most of us no longer carry around checks and record expenses by hand in a check register booklet — some of us rarely even write a check — we still use a traditional checking account as our primary bank account. Our paycheck is direct deposited into it, our debit card is linked to it, and we pay our bills online from it. Then the bank sends us a monthly statement for our records.

While you don’t have a formal check register to balance, you still need to reconcile your records with your bank statement for a few key reasons, two of which follow.

1. Reconciling your checking account helps you discover mistakes and rectify them quickly

Banks make mistakes: They process hundreds of thousands of transactions a day, and even in this electronic age, banks make mistakes — and it’s on you, the account holder, to bring mistakes to the attention of your bank. And because you typically have only 60 days to catch an error in your account, you need to maintain a regular schedule of balancing your account.

You make mistakes, and mistakes are costly — to you: Overdraft and ATM fees are a big source of revenue for financial institutions. The Consumer Financial Protection Bureau reported that overdraft and non-sufficient fund fees totalled $15.47 billion in 2019. While the costs dropped during the pandemic, the costs were rising once again as of Q3 2021. Thing is, overdraft fees are totally avoidable if you track your spending and balance your account regularly, and most banks charge ATM fees only when you use an ATM provided by another financial institution. With a little planning, you can easily limit your withdrawals to ATMs provided by your bank. Everyone makes mistakes, but by balancing your account regularly, you can prevent mistakes from becoming catastrophes.

Merchants make mistakes: While companies are basically honest, there’s human error and electronic processing errors, and there may be hidden or undisclosed fees that get charged to your account. Typically, you have only 30 days to catch these errors and bring them to the attention of the merchant.

Fraudsters are out there: We regularly make ATM withdrawals, use debit cards and credit cards, make online purchases, file for tax refunds online. All these provide opportunities for someone to hack your account or steal your identity. Fraud cases are on the rise, with the Federal Trade Commission reporting $8.8 billion in losses in 2022, based on 5.2 million reports. The same year saw a tptal of approximately 1.1 million cases of identy theft reported to the FTC. And the latest stats published by the Treasury Inspector General for Tax Adminsitration show that the IRS identified fradulant tax refund claims totalling $310.7 million for the 2022 tax year. Balancing your checking account will help you find fraudulent charges quickly. The quicker you react, the faster the bank can freeze your account to prevent any additional theft from happening.

2. Reconciling your checking account helps you manage your money — and saves you money

It’s a key aspect of proper money management: Keeping a close eye on the transactions in your checking account can provide useful insights for how to budget your money more effectively. It helps you know exactly what your balance is to control cash flow and manage your money efficiently.

Important tip: Don’t use your printed ATM receipt as a reliable method of checking your balance. The printed balance is just a snapshot of how much is in your account at that very moment. It won’t reflect any transactions that haven’t been posted, like debit fees or checks that haven’t cleared.

It can support your savings goals: Managing your checking account balance routinely could help you save money on banking fees from unnecessarily draining your account. Combined with the habit of budgeting, you might even find extra funds to add to your savings account on a regular basis.

It’s never been easier: With online banking, you can take advantage of all the online advantages, including automatic text, email alerts, and personal finance software synchronization. Register your account online to make reconciliation easier. You don’t need to wait for your statement to come via snail mail. You have around-the-clock access to your accounts. You can monitor your transactions and make sure your balance information is correct. Most financial institutions allow you to sign up for email and/or text alerts. If there’s a fraudulent charge, you’ll know right away. And most online banking accounts can be synchronized with personal financial software such as Quicken, which makes it really convenient to monitor and reconcile your account.

It can save you money and frustration: Eliminate costly (and unnecessary) fees. If you forget to note an ATM withdrawal, debit card purchase or other transaction, you may start bouncing checks and incurring fees — often $25 or more for each returned check. If you don’t correct the issue quickly, you could get charged additional returned check fees for the same check if the person the check was written to re-deposits it right away hoping it’ll clear.

How to balance your checking account

The concept of reconciling or balancing your account is simple. You compare your records to the bank’s records to discover any errors or unauthorized activity. So exactly how do you balance your checking account?

  1. Start with your records, whatever you use to personally track your spending and deposit activity: your check register, your receipts or the transactions you logged into your personal finance software budgeting app. You should always keep track of three key things: the date of the transaction, the amount that was paid and the payee. Be sure to include all ATM transactions as well.
  2. Match your records with the bank statement. If anything is in the bank statement that is not in your record, include it in your record. This could be something you forgot to record, or it might be a bank or ATM fee or perhaps interest you’re paid on the account.
  3. If something is in your record but not in the bank’s, it’s probably because that payment or deposit has not yet cleared the bank; don’t just delete it from your record.
  4. From the bank statement’s balance, subtract payments in your record that have not yet cleared the bank, and add deposits that have not yet cleared. This new balance should match up with the balance in your record. If it does not, track down why there’s a difference. Perhaps you transposed two digits somewhere. Or perhaps the bank made a mistake; if so, be sure to contact your bank right away to discuss the discrepancy.

Whether you decide to manually reconcile the balance of your checking account or track your account online, do it. Maintaining and keeping track of your checking account is an important step to managing your personal finances with accuracy and confidence.

Ruth Lyons Freelance Contributor

Ruth Lyon is a freelance contributor for Moneywise.

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