Introduction
Account management is essential to maintaining a strong financial position. The practice offers several benefits, such as avoiding unnecessary costs and maintaining the account. Poorly managed accounts are often closed or reported to checking account reporting institutions. A high number of negative reports may make it difficult to open new accounts with other financial institutions. Individuals may be blocked for a specified period, as outlined in the Fair Credit Reporting Act (Consumer Financial Protection Bureau, 2020).
The aforementioned law stipulates that checking account reporting agencies must use reasonable procedures to ensure that all the information they provide to financial institutions is accurate (Consumer Financial Protection Bureau, 2020). Consumers can request a free annual report for the aforementioned companies to review their financial status (Consumer Financial Protection Bureau, 2020). There are specific measures that can be implemented to ensure that checking or savings accounts are managed effectively.
Digitization
The digitization of banking services has revolutionized the industry by enabling more efficient management. Digital banking involves the computerization of traditional financial services (Haralayya, 2021). It allows clients to access banking goods and services through Internet channels.
The digitalization of banking activities eliminates the need for clients to visit physical bank branches. Digital banking activities include cash deposits, withdrawals, and transfers; bill payments; account services; loan management; portfolio management; and investments in financial assets (Haralayya, 2021). Easy access to financial services facilitates the effective implementation of strategies to keep finances in check.
Management Strategies
Service Fees
It is critical to monitor and analyze monthly service fees consistently. According to Boel and Zimmerman (2022), many individuals find it difficult to manage savings or checking accounts because they cannot predict the exact fees they will be charged. A significant number of financial institutions waive monthly fees provided the account holder maintains a specified minimum balance or is a signatory on a direct deposit account. Other organizations waive fees for specific categories of individuals, such as students, older people, or members of the armed forces. It is vital to verify eligibility for any offered benefits, as they may reduce the monthly fees charged.
Balances and Payments
All account holders must keep track of balances or outstanding payments. Minimum balance requirements are often an impediment to the successful management of accounts (Boel & Zimmerman, 2022). It is important to ensure that account balances are kept in check. This ensures that expenditures do not exceed available funds. In addition, close observation of balances ensures that the minimum balance required to avoid monthly service fees is maintained.
The highlighted goal can be achieved through the financial institution’s mobile application. Checking weekly reports on expenditures ensures that any emergent issues are addressed promptly. It is also important to check balances in the application before making ATM withdrawals or large payments.
Determining whether a hold is on deposited funds is essential. It is worth noting that account payments are often processed quickly. All transactions from checking accounts must not be made until it is ascertained whether there is a hold on the deposited funds. Withdrawals and payments are often processed out of order. An account holder must confirm that the available funds will cover all the associated costs.
Overdraft Fees
Effective account management involves avoiding overdraft fees. An overdraft occurs when an account holder spends more than they have in their account, prompting the financial institution to cover the deficit. It is worth noting that overdrafts are often costly, and fees are applied for every overdraft transaction. In addition, delays in repaying the overdraft and associated fees may attract additional charges, depending on the bank or credit union’s policies. Banks are legally permitted to pick the order in which they handle a customer’s account transactions (Maggio et al., 2020).
For example, given an initial $400 checking account balance, the bank can execute a $500 rent debit before two smaller $50 transactions, even if the rent debit was posted most recently (Maggio et al., 2020). In this situation, the reordering costs the consumer three overdraft fees rather than one, as would be the case if payments were completed in chronological order(Maggio et al., 2020). Therefore, it is essential to ensure that an account has sufficient funds before engaging in transactions.
Banks may choose the order in which to fulfill specific transactions. A 2016 study by the Pew Charitable Trusts examined the operations of 50 of the country’s top banks by deposits (Maggio et al., 2020). The study revealed that high-to-low transaction reordering is a common practice. Approximately half of the evaluated institutions reserve the right to reshuffle transactions rather than execute them in chronological order (Maggio et al., 2020).
Banks claim that high-to-low reordering is beneficial for clients because it prioritizes large payments, such as rent, mortgages, and student loans (Maggio et al., 2020). Nonetheless, such an approach is often troublesome, particularly for younger and lower-income clients who may lack the means to maintain a healthy financial cushion in their bank accounts.
There are specific strategies that can be applied to reduce the frequency of overdraft transactions. Some financial institutions offer account options that exclude the overdraft facility. This is vital because it allows an account holder to manage their spending. The second tactic involves choosing not to opt into debit overdrafts. This means the financial institution will not charge a fee for overdraft transactions.
It is worth noting, however, that banks may charge a fee for direct debit facilities, checks, or online transactions (Maggio et al., 2020). The final strategy involves linking accounts to ensure seamless access to funds if a specific account runs out of cash. Financial institutions often pay a specified fee for the service, which is often lower than overdraft charges.
Bank Statements
All account holders must open and review all the statements sent by their financial institutions. It is vital to assess the statements and take note of any errors. Any identified inconsistencies must be reported at the earliest opportunity. Bank statements also provide critical information, such as changes to minimum balance requirements, transaction fees, and other terms and conditions. Such changes are likely to impact the cost of owning an account at the financial institution.
Expenditures
Limiting expenditures to the funds available in the account is essential. The authorization of electronic payments or the writing of checks must be based on the availability of funds to cover the transactions in full. In the event the funds are insufficient, banks often charge their clients a non-sufficient funds fee or an overdraft fee (Boel & Zimmerman, 2022).
A Pew Center study found that one-third of overdraft users closed their bank accounts due to high fees (Boel & Zimmerman, 2022). The resultant lack of access to essential banking services limits the affected individuals’ opportunities to engage in vital economic activities. Overdrawn accounts or those with pending fees can negatively impact the owner’s ability to access critical financial services in the future.
ATM Machines
The use of financial institution ATMs should be prioritized. ATM networks rarely charge their clients for depositing or withdrawing funds. However, it should be noted that financial institutions often charge their clients for using out-of-network ATMs. ATM locator maps are handy tools for choosing a machine to withdraw funds or make other transactions. Account holders should take every available opportunity to minimize the fees charged by financial institutions on savings and checking accounts.
Conclusion
Financial literacy is an important skill, given the volatility in the global economy. The ability to manage finances is essential, given that it is a key determinant of success. Savings and checking accounts are the primary means through which individuals craft their financial futures.
Effective management strategies ensure an individual’s financial health. Account holders need to prioritize ATM use, limit expenditures, scrutinize bank statements, avoid overdraft fees, monitor balances, and assess monthly service fees. The highlighted measures are essential to preserving financial independence by effectively managing vital accounts.
References
Boel, P., & Zimmerman, P. (2022). Unbanked in America: A review of the literature. Economic Commentary, 7, 1-11.
Consumer Financial Protection Bureau. (2020). How do I dispute an error on my checking account consumer report?
Haralayya, B. (2021). How digital banking has brought innovative products and services to India. Journal of Advanced Research in Quality Control and Management, 6(1), 16-18.
Maggio, M. Di, Ma, A. T., & Williams, E. (2020). In the red: Overdrafts, payday lending and the underbanked (28242), 1-56.