by Pam Reiss
Believe it or not, many people get through life without understanding the basic principles of banking. They make their deposits on payday and make withdrawals to pay the bills, and as long as the balance is in the black their finances aren’t given a second thought. But to know the “what” of banking is only half the story—understanding the “why” is equally important. By educating yourself on why certain elements of banking happen the way they do, you can become better equipped to manage your assets responsibly.
Even some of the most basic banking principles, like balancing a checkbook, have gone by the wayside—especially with the growth of online banking. Would you believe that 69 percent of people never balance their checkbook?
So let’s get back to basics and cover a few of the fundamentals of banking that you should understand about your hard earned savings.
Why do you need to balance your checkbook?
While the practice of balancing a checkbook is commonly viewed as a lost practice these days, in fact it is more important than ever. Even though there are strict procedures in place within financial institutions to protect your assets at all times, cases of identity theft and cyberattacks continue to rise. If this happened to you and you haven’t reconciled your account, you might not catch the crime until more damage has been done.
Why are there temporary holds on check deposits?
When you make a checking deposit, a portion of those funds become immediately available for use. But a temporary hold is placed on the remainder. This is important to know so that you can avoid bouncing checks with money that has yet to be transferred to your account. Don’t take it personally, though—the reasoning has nothing to do with your bank’s impression of you. In fact, your bank is simply waiting for the funds to be transferred from the payer’s bank, which can take up to several days. Your financial institution is simply making sure those funds arrive as planned.
Why pay off your whole credit card balance instead of the monthly minimum?
When you’re struggling to make ends meet, the monthly minimum payment option offered by credit card companies might seem enticing. But paying off the bare minimum has a far-reaching impact. Credit scores, for instance, are calculated largely based on the amount of debt that you carry. You also may end up owing more in the long run, as your interest rates could end up creating more debt than you’re paying off each month.
Even if you can’t pay the whole balance in full, making a payment a little above the minimum will help you avoid letting your debt spiral and will demonstrate to your card issuer that you are a responsible customer, giving you more bargaining power in the future when you look to increase your credit line or take out a loan.
For more basic banking principles, stop by a Milford Bank branch location near you or check out our Learning Center online by clicking here.