Archive for the ‘Banking Basics’ Category

Banking Basics 101: Checks

coment Tuesday, July 12th, 2011

Some time ago, another Wingman taught readers how to write a check. I thought I’d go a step further and explain the rules for each component. It’s good to know these guidelines when writing a check, but especially important when trying to cash or deposit a check.

  1. Date: May not be postdated or stale dated. Postdated is when the date written has not yet happened. Payees must wait until the check’s designated date to present the check for payment. The depositing bank may accept it, but the paying bank could deny it because of the date discrepancy. A stale dated check is one that is more than 6 months old. According to the FDIC, no bank is obligated to accept a stale dated check.
  2. Payee: The payee, as designated by the check’s remitter, must be the one to endorse the check and take ownership of the funds. The only exception is if the payee signs the check with a special endorsement, making the check payable to another person.
  3. Legal Line: The legal line is where the remitter designates the check’s dollar amount in written word. You also write the dollar amount in numerical form to the right of the legal line. These two amounts must match! If they do not, the bank will refer to the legal line for payment.
  4. Signature: The remitter must have signed the front of the check. Without a signature the check is no good.
  5. Legibility: The check must be legible and the motive clearly stated. Since checks should be written in pen (to prevent alterations), mistakes happen. If writing a check and you make an error, correct it legibly and mark the edit with your initials. Don’t use white out. If it is messy, or you are trying to reuse a check that was originally intended for a different payee, don’t use it! Void it out and write a new check. Banks have the right to refuse any checks that appear altered. Why risk writing or accepting a check that could be turned away?

An additional pointer to leave you with: a valid check will always have a routing number and check number printed along the bottom of the check. This is called the MICR line. If someone hands over a check without a MICR line, you should hand it right back.

Banking Basics 101: Transaction Tickets

coment Friday, May 20th, 2011

Tellers and front line staff are trained to help you conduct your banking business. While they should know their branch cut-off time and can tell you your available vs. collected balance, they may not be familiar with a “checking-deposit-withdrawal from savings.” To help the tellers help you, make sure you understand what you are trying to accomplish when visiting the bank.

These are some typical requests handled at the teller line:

  • Deposit: Putting money into your checking or savings account for spending or saving
  • Split Deposit: Depositing funds from one source into multiple accounts
  • Deposit with Cash Back: Depositing a portion of a check and getting the remainder in cash
  • Loan Payment: Making a payment toward an owed balance on a loan
  • Transfer: Moving money from your account to another (can be your own or a friend/relative’s account)
  • Withdrawal: Taking money out of your account
  • Cash a Check: Turning a check into cash-in-hand
  • Change Order: Exchanging currency for different denominations
  • Balance Inquiry: Asking for your current balance, as determined by bank

One reason it’s important to know what type of transaction you’re making is because each will likely have its own coordinating ticket or slip. It is important to use the correct ticket for each transaction, as they are encoded with either a specific account number or a special code that designates the type of account (i.e. checking, savings, loan, etc.). Some institutions offer “universal tickets” that can be used for multiple transaction types, but they need to be labeled with a specific code in order to complete the transaction.

If you’re confused about the type of transaction you’re trying to complete, then the teller may be as well. It’s important for the customer and the teller to have patience in these situations. Often times it’s very easy to figure out what type of ticket is needed, even if you don’t know what your transaction is called. For your convenience, most tickets can be filled out by the teller; however, a signature may be required when money is leaving the account.

Banking Basics 101: Check Endorsements

coment Tuesday, May 10th, 2011

Checks are negotiable instruments that permit the transfer of money from remitter to payee. Checks are considered a promise to pay; meaning, they are not guaranteed forms of payment like Money Orders or Cashier’s Checks. Since it is a promise to pay, many factors determine if a check can be accepted for deposit or cash. One of those factors is having a correct endorsement.

The remitter is the person who wrote and signed the check. The payee is the person getting paid. The payee signs the back of the check. This signature, or endorsement, concludes the negotiation of the check. This means the transaction is finalized.

To assure that a check is processed without delay or failure, it is important to endorse the checks exactly as intended by the remitter. The bank accepting the check should be looking for the correct endorsement, but here is a run down of basic rules for personal checks.

The most common type of endorsement is a when the payee signs the back of the check and then presents it for cash or deposit. This is called a blank endorsement. Ironic, I know. It is considered “blank” because there are no additional instructions or limitations; the check can be deposited or cashed.

Instead of signing your name on the endorsement line, another option is to write “For deposit only” on the back of the check. This is called a restrictive endorsement because it is declaring the check limited to deposits, meaning it can not be cashed. You may choose to present the check for deposit without providing an endorsement of your own. In this case, the depositing bank may mark the check with a stamp. Verbiage will vary, but will read along the lines of, “Pay to the account credited within Name of Bank.” This is similar to the payee writing “For deposit only” and is considered a restrictive endorsement.

A special endorsement is used when the payee wants to give their check to a person not named by the remitter. The payee must first endorse the check and then write, “Pay to the order of First Last name.” The new payee then endorses the check and presents it for payment. Due to the risks involved with cashing such checks, it is up to the financial institution’s discretion whether or not to accept the check, and how to do so. 

When there is only one payee named on a check, that one person alone has the right and responsibility to endorse the check. However, when multiple payees are listed, ownership of the funds depends on how the remitter wrote the check. If the names are connected by the word “AND,” all payees must endorse the check. If the names are connected by the word “OR,” then only one of the payees must sign. This is the same rule if the check reads “AND/OR;” one or all payees may sign. If names are simply listed, perhaps connected with commas but no words, it is at the bank’s discretion to interpret this payee designation as either “AND” or as “OR.” It may be safe to have all payees sign, but whenever it’s up to your bank’s discretion, it’s always best to make a call to your local branch and find out its policy. Like I love to say, knowledge is power!

Banking Basics 101: Money Orders

coment Thursday, May 5th, 2011

Money Orders are monetary instruments that order a specified amount of money to be paid to someone else. Given that Money Orders are paid for in full at the time of purchase, they are considered a guaranteed form of payment to the recipient.  

People who do not have checking accounts will commonly use Money Orders, because they serve as an alternative to personal checks. Money Orders are also a secure way to send money, because if cash is sent in the mail and lost, it is gone for good. Money Orders are traceable and can be replaced if lost or stolen (they typically come with a purchaser’s receipt that can assist in tracing).  Another benefit to using a Money Order is when paid for out of a bank account, the money is automatically debited from your balance so you are not at the mercy of the recipient cashing it unexpectedly. Bank accountholders may find this helpful for managing their finances and keeping a balanced register.   

If you do not have a bank account, don’t fret, there are plenty of options for purchasing a Money Order. Most banks will sell Money Orders to non-customers, and you can also look to your local grocery store, gas station or check-cashing service who may act as vendors for Western Union and MoneyGram. Your city’s Post Office may provide Postal Money Orders.  

Before purchasing your first Money Order (MO), here are some other things you should know:

  • The foolproof way to purchase is with cash. Other possible options would be to use traveler’s checks, a bank debit card or withdraw from a bank account.
  •  The standard cut-off limit is $1000 per MO. If needing an amount greater than $1000, multiple MO’s would be needed. If you need to pay more than $1,000 you first might consider visiting a financial institution for a Cashier’s Check. It is similar to a MO, but with higher securities guaranteed by the paying bank. 
  •  While not free, MO’s are cheap. Typically $1-$2, if not a little pocket change.
  • Valid I.D. may be required at the discretion of the vendor. Take one just in case.
  • Sometimes MO’s have expiration dates, sometimes they do not. Make sure you are aware of the issuer’s policy, especially if you’ve received one as payment. 
  • Scammers exist everywhere. Make sure you are purchasing from a reliable source and that you are careful with any sent to you. If you unexpectedly receive a MO in the mail, or receive one for a higher dollar amount than anticipating, take it to the business of issuance (the company that printed it) for verification of authenticity.

Banking Basics 101: Business Days and Cut-off Times

coment Friday, April 15th, 2011

When you conduct a transaction at your bank, the teller “posts” the transaction to your account so that your current balance reflects the deposit or withdrawal. At my bank, this transaction is called a memo-post because it is pending approval. At the end of the business day, the paperwork for each transaction is put through processing. This is where a team of people and technology review the transactions for accuracy. If no corrections are needed, the transaction is then hard-posted to the account and is no longer considered a pending transaction.

The process of hard-posting begins at the end of the business day. Business days are determined as Monday through Friday, with the exception of federal banking holidays (i.e. Memorial Day and Christmas). The end of the business day is determined by a financial institution’s cut-off time.

Cut-off times designate when that day’s processing begins, and mark the “rollover” to the next business day. Cut-off times vary depending on your bank and city. Banks will often remain open past its cut-off time, which is why it is important to be aware of the change in business day, especially if trying to avoid an overdraft fee or negative account penalty.

At my bank, a fee is charged when a purchase is made using overdraft or bounce protection, but some banks will apply a fee for every day an account is negative. Because of the possibility for these fees, make sure you understand how cut-off times affect your deposits. If you make a deposit before your bank’s cut-off time, your transaction will be processed that same business day. However, if you make a deposit after the cut-off time or during the weekend, it will not be processed until the next business day, meaning you may be subject to a fee since you are ending the business day with a negative balance.

To help you understand, here is a basic scenario. At Bank XYZ, the weekday cut-off time is 5:00 p.m., but it remains open past the 5 o’clock cut-off. The breakdown:

  • If you visit Bank XYZ before 5:00 p.m. Monday through Friday, your transaction will go through that same day’s processing (which begins at 5:00 p.m.).
  • If you visit Bank XYZ after 5:00 p.m. Monday through Friday, your transaction will go through processing on the next business day.
  • If you visit Bank XYZ after 5:00 p.m. Friday or anytime Saturday or Sunday, your transaction will go through Monday night’s processing (as Monday is the next business day).

The same timeline applies to card transactions. When you make a card purchase, the transaction will memo-post to your account and will be reflected in your current balance. When the merchant closes its business day, the transactions will hard-post. Traditionally, the card purchase will hard-post in alignment with the bank’s end-of-the-day processing, but this can vary depending on the merchant’s timing as well as the bank’s.

The moral of the story: be knowledgeable of your bank’s timeline. Business days are classified as Monday through Friday with a few federal holidays throughout the year. When a holiday occurs, it is treated the same as a weekend day where all items are memo-posted to the account throughout the day, but nothing will hard-post until the following business day. As far as cut-off times, they will rarely affect you unless trying to deal with a negative balance. However, it is wise to be aware of the cut-off time, and your bank should make this easy by having signs posted at the teller line.

Banking Basics 101: Available vs. Collected Balance

coment Tuesday, March 15th, 2011

Throughout my business day, I often find myself explaining the difference between available and collected funds. Your available balance refers to the spendable money in your account. The collected balance refers to the money that has neared or completed the federal collection process. I know what you’re thinking (or at least I’ll pretend for the sake of a needed rhetorical question). You’re thinking, “Why are there two balances?” Well, I will tell you. It all boils down to guaranteed funds.

When you make a deposit, the availability of those monies is determined by what you are depositing into your account. Cash goes directly to your available balance because currency is a guaranteed fund. At the end of the business day, the cash deposit will then be added to your collected balance because the transaction has cleared bank processing. Same goes for electronic deposits like your direct deposit from work or income tax refund. On the day of the deposit, it will show as available to you, then after that night’s processing, it will show as collected the following business day. Checks, however, follow different rules.

When depositing a check, its “spendability” is determined by a number of factors and possible risk. Is it a personal or business check? Is it a money order or cashier check? Is the deposit normal for your banking history? Does the Bank have reason to believe the check will not clear for any reason? All of those factors, plus a few more, determine when your deposited check is spendable. If the teller can assume the check will clear without fault, it will immediately show in your available balance. The check is then submitted to the Fed for clearing, and once it has completed the preliminary processing, the check will be added to your collected balance. This usually takes a few days.

If the teller determines there is a risk in making the check available immediately, the Bank may opt to place a hold on the check. This means the check will not show in your available balance until the hold is released. The check would then follow normal procedures for collection processing and would eventually show as both available and collected on your account.

Now, why is it important to know the difference between available and collected funds? Because while available is spendable, collected is guaranteed. So if you want to purchase a money order, cashier check, wire transfer or traveler’s checks (which are all guaranteed forms of payment) the Bank can only use guaranteed funds to purchase them. Before making a trip to the bank for such a purchase, just call ahead and ask for your collected balance. Because as you’ve learned, there is a difference!