There’s a lot more to banking than writing an occasional check.
To get your banking experience off to a good start, it’s smart to be able to talk the bank’s language.
Available funds is the money in your account that you have the right to withdraw or transfer. Cash you deposit is available immediately, as are electronic transfers. Checks become available following the clearing guidelines established by the Federal Reserve. Mutual fund money market accounts with check-writing privileges set their own schedule for when deposits are available.
A bounced check is a check that you’ve written but that your bank refuses to pay either because there isn’t enough money in your account to cover it or the funds you put in to cover it aren’t available yet. If a check bounces, the bank typically charges you a fee, sometimes as much as $35 or more. One solution is to arrange for overdraft privileges, a line of credit the bank taps on your behalf to cover your checks.
A cancelled check is a check your bank has paid. The place and date when the check was deposited are printed on the back. Cancelled checks are proof of payment, but you are more likely to receive an electronic or photocopy rather than the check itself back.
Float is the time lag between when you write a check and when your bank debits your account. If you write a check before you have funds available to cover it, and it clears faster than you expect, your check may bounce. When you make an ATM withdrawal or use a debit card, there is no float.
Overdraft protection on a checking account can save not only embarrassment if your check bounces but also what can add up to substantial fees, including those charged by the payee and its bank as well as your own bank. Of course, this protection isn’t free if you actually use it. As is the case with all lines of credit, you pay interest on the amount that’s transferred from your line of credit until you repay it. There’s sometimes also a fee. So you don’t want to use it often. But to cover an occasional error, it’s worth the cost.
That’s not equally true when the protection covers purchases or withdrawals with your debit card that are larger than your balance. In that case, the protection can result in substantial fees plus interest charges on everyday purchases, even a cup of coffee that you pay for with your card.
That’s why the law requires you to agree separately to overdraft protection for your card. There are good reasons to say no thank you.
Routing numbers appear in magnetic image character recognition code (MICR) in the bottom left hand corner of your check. The first set is the code for your bank and the second set is your account number. Scanning machines read the code and forward the data to the right location. If you ever need to arrange a wire transfer of money from one account to another, you’ll need to provide the bank and account routing numbers.
Stop payment orders are instructions you give your bank telling it not to pay a specific check that you’ve written. There’s generally a fee comparable to the fee for bouncing a check. But you can prevent payment on a check that has been lost and perhaps stolen or on a check for goods or services that are defective or unacceptable. You can give the order over the phone, but should provide a written request as well.
A wire transfer is a fast way to move money electronically from one account to another. For a fee, you can ask your bank to send money from your account to someone else’s, provided you have the account number and bank routing number. Usually, the transaction goes through at the end of the business day that you make the request and is avail- able in the recipient’s account the next day.
You can also establish wire transfer, privileges between an online bank and a local bank or a mutual fund or brokerage firm and a bank. Typically, the transferred money is available the next day. If the fund is handling the transfer, there’s usually no fee.
When your paycheck is deposited directly or your debit card purchase is processed, it’s handled by an automated clearing house (ACH), an electronic payment network that typically links banks through an intermediary. You can authorize regular bill payments using the ACH system by giving your payee—such as a utility company—the right to initiate debits from your checking account. Automatic payments can simplify your life, but you’ll want to share your bank account number very cautiously to avoid fraud or abuse.