There are many pitfalls to keeping a basic checking account balanced.
Some of the basics include:
- posting order
- cut off times
- debit card tracking
- keeping a register
~Cut Off Times~
Banks receive items to process on accounts through many channels throughout the day. Some of these channels include the branch, ATM, phone customer service, online, and many other departments that deal directly with other banks or the Federal Reserve. For practical reasons there must be a time of day each channel gathers that days transactions and sends them off to processing.
Have you ever wondered why a deposit made Friday night or Saturday is not available on Monday?It is because the first processing of the week isn’t done until Monday night. Posting from the previous night’s work is available the next morning. So Tuesday morning through Saturday morning deposits become available. For example deposits made before cut off on Friday post Saturday morning, deposits made after cut off Friday post Tuesday morning.
~Cut Off Time Example~
You then gave someone a check at 5:30pm but their bank does electronic processing and is able to do same day processing and it hits your bank that night. So according to the bank it looks like this.
It does not mean that the banks are no longer charging overdrafts for card transactions. It simply means that if the money is not in the account it will be declined. For example if the balance available at the time you swipe your card is $10 you cannot make a purchase for $11. However, if you have $5 in your account and you go to the gas station, which will show at first as $1 until you pump and finish your gas, than it will be approved by the bank. If it then posts for more than $5 you will pay an overdraft fee, you are the only one who can know your balance. This issue is causing a lot of confusion for people. Many are thinking that banks are not charging overdraft fees anymore and this is not true.
There is no “12 midnight” rule about this. It will come in when it comes in. Remember this is after the cut off time for any bank.
Because the direct deposit is electronic the bank will usually add it to the balance available to you right away even though it hasn’t actually gone through possessing or posted to the account. That means you can call and see a positive available balance on Friday morning but still receive fees later in the day for items that posted negative with Thursday nights processing.
You see, although available, the direct deposit will not post to the account until its processed Friday night, which means Saturday morning. It does not cover Thursday night’s items.
~Cut Off Example~
The fees can be anywhere from $20-$70 per item. Those prices increase every year. For our example I used $40 as an average of what I’ve seen among the major banks.
*Note: a new process called “Date of Origination” posting is beginning to creep up. Some banks and states have begun using this already and the projection is that all banks will cross over to this new method. It began as an answer to those who complained that they did 10 purchases on a Saturday and a large Mortgage Payment came out on Monday and it posted first (because items are posted high to low) and caused more than one overdraft fee.
The Insider is a BIG fan of Dave Ramsey:
- Go read/listen/watch Dave Ramsey and he'll teach you how to do it right!
- Listen to The Dave Ramsey Show (HERE)
- Or by his most popular book: (HERE) The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness