Checking Accounts: New Rules, Old Rules, Your Rules

Did anyone ever give you a user's manual for your checking account?

Probably not. There are best practices in managing a checking account, but even if you learned the rules from your parents or through your own hard-won experience (or if you never did), it may be time for a little checking account check-up.

Why? Because some of the rules for checking accounts no longer apply. Financial regulation, market conditions and technological developments have all changed some of the ways you should think about managing your checking account.

Here are today's rules — some new, some old, and some a matter of personal choice — for managing your checking account.

New rules for checking accounts
Don't be pressured into opting in to overdraft protection. The Federal Reserve now requires U.S. banks to have customers actively opt in to overdraft protection before applying that protection to their checking accounts.

Banks very badly want you to opt in, because the fees are so juicy — a survey of bank fees released in July 2010 found that the average overdraft fee was $29.26. Although this fee could very well lead to the proverbial $30 cup of coffee, a poll by the National Foundation for Credit Counseling found that more than a quarter of Americans plan to opt in to overdraft protection.

Don't opt in to overdraft protection without thinking long and hard about whether it makes sense for the way you use your account — more on this below.

J.D.'s note: If you struggle with overdrafting, check out my advice on how to avoid overdraft fees.

Keep a large cushion in your checking account. Conventional wisdom was that you should keep your checking account balance at a minimum, so more of your money could be earning high interest somewhere else.

These days, though, with the FDIC reporting that the national average for savings account interest rates is 0.19 percent annually, you won't be missing out on much interest if you keep more money in your checking account.

Having this cushion — large enough for you to avoid overdrafts entirely or not worry about monthly maintenance fees — can more than make up for the lost interest. Rather than thinking about bank fees as a few dollars here or a few dollars there, think about them as negative interest — so a single month's $10 maintenance fee really sets you back.

Make use of banking technology. Debit cards have accelerated the pace of banking. Aggressively use technology like online banking, electronic expense tracking and mobile alerts to accelerate the pace of your account monitoring. There's no reason not to check your checking account balance every morning, especially if you are going to be using your debit card that day.

Oldie-but-goodie rules for checking accounts
Some rules for handling checking accounts are timeless.

Balance your account. If you simply rely on the bank's records, you will be less alert to possible fraud or new fees on your account. Keep your own set of records, and check it against the bank's record at least once a month. Is that extra work? Yes. Do banks sometimes make mistakes? Absolutely.

Shop around. Not all checking accounts are created equal. The July 2010 bank fee survey found that 44.2 percent of checking accounts have no monthly fees, but on other accounts those fees can range as high as $50 — that would come to $600 a year. Overdraft fees can be as low as $18 or as high as $35 dollars.

Comparing checking accounts for the lowest fees and terms that fit your banking habits can make a huge difference.

Protect your data. Make sure you are using a secure Internet connection before accessing your account online, and avoid using public computers for online banking. If you use old-fashioned paper checks, mail them in a secure mailbox — bill payments usually look obvious and are a favorite target of fraudsters.

Your rules for checking accounts
Some ways to best manage a checking account depend on your own habits and preferences.

Figure out how your usage patterns affect your fees. Bank fees come in a variety of flavors — monthly maintenance fees, overdraft fees and ATM fees, to name some common examples.

Identifying the “lowest-fee” checking account depends a lot on how you use the account. If you never overdraft your account, you might not mind an account with high overdraft fees, and you could even opt in for overdraft protection just to be on the safe side. If, however, you are a serial overdrafter, you'd better look for low overdraft fees — or seriously consider not opting for overdraft protection so you will be forced to break this bad habit.

Find a record-keeping method you will stick with. The “on-the-fly” nature of debt card transactions causes many people to neglect their recordkeeping, but you can't manage your finances responsibly without good information.

You can bring a paper register with you to record transactions as you make them, get fancy with a smartphone app or simply keep your receipts in your wallet and sit down at the end of the day to log them in. (There are a number of tips and tricks offered by others to track your spending. Monitor your balance and transactions in whatever way works for you, but stick with it.)

Leave home without it. One old ad campaign for a major credit card advised, “Don't leave home without it.” A newer one asks, “What's in your wallet?” The common theme is that credit and debit cards should accompany you wherever you go.

If you're prone to compulsive spending, however, you may want to rethink that. Try going cold turkey on carrying your debit card around now and then, and see if you spend less money as a result. If you find it helpful to use cash, try the envelope system.

Checking accounts are both a tremendous convenience and a potential source of financial trouble. Following a few simple rules for handling your checking account will help give you the convenience without the trouble.

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