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Chapter 5: Protecting Your Account

Preventing identity theft
In the past, a thief would look to steal the cash you were carrying or the jewelry you were wearing. However, today, many thieves are looking to steal your account information so they can take far more than the $5 bill in your wallet. In fact, they may try to completely drain your account. This type of crime is an example of identity theft, and it has victimized millions of people.

There is no surefire way to prevent identity theft, but there are many things you can do to reduce the likelihood of it occurring:

  • Only carry with you what you need. If you are not going to use your debit card or checks, leave them in a safe place at home.

  • Never carry your PIN with you or write it on your debit card. Do not share it with anyone.

  • Report a lost or stolen check or debit card to your financial institution immediately. If unauthorized charges were made, the maximum amount you can be held liable for under the federal Electronic Fund Transfer Act is dependent on how quickly you report it: $50 if reported within two business days, $500 if reported within 60 days but more than two days, and unlimited liability if you wait more than 60 days.

  • Never disclose your account or debit card number over the phone or on-line unless you know you're dealing with a reputable company.

  • Cut up or shred old debit cards and statements before disposing of them.

Balancing your checkbook
Because identity theft can occur even if you take steps to keep your account information private, you should regularly inspect your checking account statements for unauthorized charges. It is also a good idea to check for clerical errors, such as being charged a monthly maintenance fee when your account is supposed to be free. The traditional method used to monitor statements for accuracy is called “balancing your checkbook”. To balance your checkbook, you first need to independently record every single deposit and withdrawal that you make. Then, when your statement comes, you compare your records to the statement to see if they match. Keep in mind that some differences are to be expected. For example, if you wrote a check that has not yet been deposited, it would show in your records but not in your statement. Before you can properly compare your records to your statement, you must:

  • Subtract from your statement balance any checks you wrote that are still outstanding.

  • Add to your statement balance any checks that were deposited that have not yet cleared.

  • If not already done, add to your records balance any automatic deposits and subtract any automatic withdrawals.

  • Add to your records balance any interest earned on your checking account.

  • Subtract from your records balance any legitimately charged fees, such as a monthly maintenance or NSF fee. (If you believe that a fee was charged in error, report it to the financial institution.)

If, after you do all this, your records and statement are still different, you know there is a problem. But is it a problem with your account or a mistake made in your recordkeeping? To figure that out, some research may need to be done. For example, if your records say you wrote a check for $79 to the supermarket, and your statement says $179, look for the canceled check (a copy should be included with your statement) or receipt. If it is an error in your recordkeeping, fix it. If you believe it is error by the financial institution or an unauthorized charge, call them right away.

The practice of balancing one’s checkbook has somewhat lost popularity in recent years as banking habits have changed. Whereas years ago people had to wait for their monthly statements to be mailed to see what transactions were posted to their account, nowadays most people can check their account activity on-line whenever they want. When you, for example, receive a statement on February 25 for the period of January 15 to February 15, it is hard to know based solely on memory what charges are legitimate. (That is why keeping your own records comes in handy.) However, if you go on-line on January 18 and check all of the transactions that have posted to your account from the 15th to the 18th, it is much easier to remember what you did and notice an error or unauthorized charge without needing to resort to balancing your checkbook. Nevertheless, many financial experts still recommend taking the time to do it, especially if you do not frequently monitor your account activity on-line.

Using a checking account properly is neither hard nor time consuming – it just takes getting into the routine of monitoring your accounts and following a few simple habits.
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