The most basic and important aspect of checking account management is ensuring that there is enough money in your account to cover your transactions. Ultimately, keeping your account in good standing is your responsibility.

What happens if you do try to use your debit card or write a check when you do not have enough money in your account? That depends on the way your account is set up:

• If you are not allowed to overdraw your account, your balance cannot go below zero. Your debit card transactions will be denied, and your checks will bounce. For each check that you bounce, you can be charged a NSF (non-sufficient funds) fee. If you frequently write bad checks, you could lose your account, and you could even be subject to legal actions.

• If you are allowed to overdraw your account (but have no overdraft protection), your balance can go below zero, so debit card and check transactions will not be denied even if you do not have the funds in your account. (However, your account may have a limit as to the amount you can be overdrawn.) Essentially, your financial institution is giving you a loan. But without overdraft protection, you will likely be charged a fee every time you overdraw your account. Furthermore, the money that you owe to your financial institution (the amount you are overdrawn) can be deducted from your account immediately the next time you make a deposit. Like when you bounce checks, your account could be closed if you routinely overdraw your account.

• If you have overdraft protection, you are not charged a fee every time you overdraw your account. There is often a monthly fee for this service, but it is usually less than overdraft and bounced check fees. With overdraft protection, your checking account is typically linked to your savings account, credit card, or a line of credit, and the amount you overdraw is automatically deducted from or charged to that.

Having the ability to overdraw, even if you have overdraft protection, does not relieve you of your duty to make sure you have enough money in your account to cover your transactions. Remember, when you overdraw your account, you are not given free money – you must pay back the amount you overdraw. People often get stuck in a vicious cycle where, because they have to pay back their overdrafts from the previous month, they continue to overdraw. If you find yourself in this cycle, try to revaluate your spending habits and/or look for ways to increase your income so that you can break out of it.

The best way to prevent overdrawing or bouncing checks is to monitor your account balance. Is it necessary to check your balance every time you want to buy a $1 pack of gum or $3 magazine? No, but it is a good idea to do so whenever you are not sure if there is enough money in your account. In this day and age, knowing your balance is a snap – most financial institutions will let you check it over the phone or on-line. (Remember to subtract from your balance the amount of any outstanding checks.) If you see that you don’t have enough money, don’t make the purchase. But what if you need to buy an essential, like gasoline or food? The ability to overdraw your account can come in handy in a pinch, but as mentioned above, it is better to manage your finances so that you do not need to do it.

Checking Account Ledger
If you do not feel comfortable checking your balance online or over the phone, you can also use the pen and paper method. Start with the opening balance. Every time you make a deposit, record it and add it to your balance. Every time you make a withdrawal (including writing a check, even if it has not yet been deposited), record it and deduct it from your balance. When you want to know your account balance, you can simply look at your sheet.