MEMBER: You know, the most obvious concepts are sometimes the most overlooked.
CREDIT UNION: What do you mean?
M: Well, I’ve read a lot of articles about how best to manage a savings account. I’ve seen recommendations for exactly how much money I should keep in my savings account at all times, which features to look for, and more.
CU: And what’s wrong with that?
M: Nothing, really. It’s just, I use my checking account so much more, and I hardly know the first thing about how to manage it well.
CU: You do have a point there, but I think we can help you out.
M: That’s what I was hoping.
CU: Let’s take a moment to review basic checking account features and go over a few pointers for managing these accounts in the best ways possible.
M: Sounds great!
CU: OK, let’s begin with the features of a checking account.
M: You mean how to spend from one?
CU: Exactly. Accessibility is actually the primary feature of a checking account. Since it’s designed to be used for everyday expenses, the money in your checking account is available to be utilized at any time.
M: Is there a preferred method for withdrawing the funds?
CU: That depends on your circumstances. In general, you can withdraw cash at , swipe a debit card or write out a paper check. Each of these actions is a way of withdrawing funds from your account.
M: What’s the difference between each method?
CU: A cash withdrawal and swiping your debit card immediately lowers the balance in your account, while a check withdrawal will have a delay of a few days — or even more if the recipient does not cash or deposit it right away.
M: Are there any other factors to consider?
CU: Yes; there’s also the convenience factor. You may or may not be able to pay for a transaction with a debit card, and you may not be comfortable carrying around large wads of cash, either.
M: That’s true. Won’t I also spend more if I pay for a purchase using a debit card?
CU: You won’t generally pay more for the use of a debit card, but, you may very likely be compelled to spend more. Research shows that most people spend more when they pay with plastic. On the other hand, cash leaves no record of use or running balance. So that can make it easier to overspend and more difficult to budget and track your spending.
M: It’s not exactly black and white, is it?
CU: That’s right. It’s an individual decision you need to make, taking your personality, spending habits and personal preferences into account.
M: I see. What about withdrawing cash—do I need to go to the branch to take out money from my checking account?
CU: Not at all. We offer the option of ATM and Live Tellers.
M: That’s convenient! Now, what can you tell me about the balance in my checking account? Is there a specific amount of money I should try to keep in my account?
CU: Absolutely. There are no set rules like you have for your savings account, but there are some guidelines to follow.
M: Such as?
CU: The general rule of thumb is to try to have one or two months’ worth of living expenses in your checking account at all times. To determine your exact living expenses, track your spending over several months, including all bills and discretionary spending. Be sure to include seasonal and occasional expenses as well.
M: What’s the reasoning behind this rule?
CU: Well, since your checking account is your transactional account, you want to make sure you have enough funds in your account at all times to cover your everyday expenses.
M: I guess that makes sense.
CU: There are other reasons as well. First of all, you want to avoid overdrawing your account. This often happens when a paycheck or another deposit didn’t yet clear and the account holder assumes there are more funds in the account than there actually are.
M: And we don’t want that to happen.
CU: No, we do not. Why risk being charged overdraft fees for every transaction when you can easily avoid this mistake? Here at Marine Federal, you can sign up for overdraft protection to ensure you never pay a fee for an overdrawn account again.
M: What other reasons are there for keeping that amount of money in a checking account?
CU: You also want to provide a cushion for the occasional pre-authorization hold.
M: What’s that?
CU: Some merchants, including some who operate gas stations, hotels and car rentals, will place a pre-authorization hold on your debit card until you complete a transaction. These pre-authorizations can reduce your available checking account balance by up to $100. Once your transaction clears, though, the merchant hold will be released and the funds will become available to you again.
M: The money in my account will be held? So I have the money, but I can’t use it?
CU: Exactly. Keeping your checking account well-funded allows you to comfortably agree to pre-authorization holds without stressing over an empty or overdrawn account.
M: That’s very good to know. Anything else like that I should know?
CU: In general, it’s also a good idea for your financial wellness to have a large amount of liquid funds available. A robust checking account means access to cash is just an ATM transaction away. You’ll sleep better knowing you have cash available if and when you need it.
M: If it’s so important to keep a checking account well-funded, why not just keep all of my money in this account?
CU: Well, too much of a good thing can also be a problem.
M: What do you mean?
M: So, I guess I shouldn’t take it to the extreme.
CU: We don’t recommend that you do. Once you’ve determined exactly how much money you should be keeping in your checking account, look into other options for the rest of your funds.
M: Sounds like a plan.
CU: Great. And remember, you also have the option of linking your checking account to your savings.
M: Really? What’s the advantage of that?
CU: Well, it will make it easier to save. You can set up an automatic transfer from your checking account to your savings account each month.
M: You mean I won’t have to do anything to set aside a part of my paycheck for savings?
CU: That’s right. After you’ve set up an automatic monthly transfer, your money will start growing while you sleep. Also, if you do happen to mistakenly overdraw your checking account, you can set up your savings to act as Overdraft Protection to prevent extra fees.
M: Wow! Now that’s convenience.
CU: That’s what your checking account is all about: the best in convenience. Our generous features, broad accessibility options and easy terms make a checking account the best place to keep the money you need for your day-to-day spending.
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