Tag: direct deposit

The Answers to the Banking Questions you Never Asked–Part II

Check Negotiability and Availability

One of the biggest challenges we have as bankers, and you have as a banking consumer, is issues arising from availability and negotiability of checks. Yes, people do still write, and cash, checks. Admittedly, its much less than it used to be. In fact, according to The Atlantic, check writing in 2012 was just under 20 billion transactions versus 40 billion in 2000. Paper checks currently account for just 15% of all payments. Things like direct deposit, electronic payments, debit cards, credit cards and most recently apps like Venmo and Zelle, have greatly reduced the number of checks we write and cash. But checks are not obsolete just yet. You may not receive checks on a weekly basis, but occasionally you will: A birthday present from your gram, an insurance check from a claim, a rebate check from an overpayment or store rebate offer. So it’s important to know the items that make up your check, and the elements that may affect your ability to cash the check, as well as when those funds will be available to you.

Negotiability

Let’s start with negotiability, which means the conditions under which you can cash or deposit a check with your bank.

The “maker” is the person who issues the check. That person, or business, must complete the following pieces of information:

  • Date: You cannot cash a check that is dated ahead of todays date. Also, checks are generally good for 6 months, so you won’t be able to cash a check dated more than 6 months ago
  • Dollar amount: The amount must be filled in both numerically, and in written words, and those amounts must match; if they do not match, the written words will serve as the legal amount
  • Memo line: this is optional and serves as a note to the maker of the check as to the purpose of the check
  • Endorsement: Where the maker signs the check; a check cannot be cashed if the endorsement is missing
  • Payee: The Payee line tells who is authorized to negotiate the check and can be the most complicated element. It is the item that most often causes problems. Here are some possibilities and how they affect negotiability
    • Single payee: this is payable to one individual and can be cashed or deposited by that individual
    • Multiple payee: this is payable to more than one individual; the presence of the word “and” means both individuals must sign and be present; “or” means either can sign without the other; in the absence of “and” or “or,” “or” can be assumed
    • Double endorsed: This means that a second person, other than a payee, is attempting to negotiate the check; most banks will accept this as long as both parties –the payee and the casher–are present and identified; this most often happens when the payee does not have a relationship with a bank and is unable to cash the check on their own
    • Checks payable to any entity(ies) other than an individual: This includes checks payable to a business (AT & T), an association (MA Bowling League), an Estate (Estate of John Smith), or a Trust (The Smith Family Living Trust), among others. These checks may only be deposited into an account bearing the same name; often individuals will think that because they are the owner of the business, or the trustee of the trust, they can cash the check on their own; unfortunately, that is not the case. These checks must always be deposited into a like titled account

Other things that can affect your ability to cash a check include:

Identification: Most banks require a government issued, unexpired, picture ID. Most common forms of these are a drivers license, state issued ID or passport. Some banks will require a second form of ID such as a social security card, or credit card.

Customer status: While banks will cash a check for a non customer when that check is drawn on one of their own accounts, in most cases you will only be able to cash checks at a bank where you have a deposit relationship.

Availability

The next thing you may need to consider when cashing or depositing a check is availability. This means when the funds from your check are actually available to you to use for purchases. This is often referred to as “holding” the funds. Most banks make funds from cash deposits or direct deposits available to you immediately, but rules around checks are different. There are two main reasons for this. The first is that the bank has no way of knowing if the check is actually good. It could be fraudulent, or the maker might have insufficient funds to cover it, in which the check will be returned to the bank where you cashed it or deposited it, and the bank will deduct those funds from your account. Placing a hold on the check helps to ensure that those funds are in your account in the event the check is returned.

The second reason for holding the funds is that the bank does not actually receive the funds for that item until it gets back to the bank that it is drawn on. In essence, you are borrowing those funds from your bank while the bank awaits payment.

Government entities regulate how long banks can hold funds on checks. The main regulation that outlines these guidelines is called Regulation CC. The regulation sets maximum days that banks can hold your deposited checks. Check clearing has become much quicker in recent years. You may have noticed that your bank now scans your transactions, which allows the processing of the check to be completed much more quickly. Scanners are also designed to pick up on potential problems like fraudulent checks and unusually large items. This means that your bank often knows very quickly if a check is not good. They are therefore able to make the funds available to you more quickly. So although Reg CC sets limits on the number of days your bank can hold your funds, often the bank has a more generous funds availability policy.

Your bank is required to give you a copy of this policy when you open an account (Typically in your “Deposit Account Agreement”), but they will also provide it to anyone upon request. These days, most banks make funds available from checks within 1 or 2 days. Longer holds may come into play for more unusual situations such as: Large checks, checks that have been returned once already, or if your account is new to that institution. Keep in mind that these are “business” days, which do not include saturdays, sundays, or holidays. So if you deposit a check on friday, and availability is 1 business day, those funds will be available on monday. If you make a deposit on saturday or sunday, the business day of that deposit is actually monday. So 1 day availability means your funds will be available on tuesday. Availability is important to know, because if you attempt to access the funds sooner, you could be subject to fees. For example, if you make a check deposit today and then try to use your debit card today for a purchase that requires use of the funds you just deposited, you may find your transaction is declined, OR, you could be charged an insufficient funds fee, as those funds are not yet available.

There are ways to minimize worries about availability of check deposits. First, if direct deposit, or electronic crediting is available, take advantage of that as, in most cases, those funds will be available more quickly, often immediately. Also, many banks now offer ATM deposits and mobile deposits which allows you to process your check deposit after banking hours. So if you can’t make it to the bank before your branch closes, you can still deposit your check for that day. The sooner you can get your checks deposited, the sooner those funds will be available to you. Pay attention to “cutoff” times in these instances. You may have to deposit the item by 7 or 8 pm in order for it to be processed on the same day.

I hope this information is helpful! Feel free to share your questions about banking and I’ll attempt to address them in a future installment of The Answers to the Banking Questions You Never Asked.

Bills You Don’t Have to Remember

Have you ever forgotten to pay a bill and gotten whacked with a late fee? Or worse, gotten a “friendly” reminder call that your payment has not been received? Did you feel a nervous jolt when you finally got around to going through all that email only to discover an unseen bill notification?

Whether you rent or own, drive to work or use public transportation, like to travel or improve your home space, the bills keep coming. The consequences of not paying on time range from late fees, to lowered credit scores, to loss of the item or service you’re paying for. So how do you ensure that for all of those items, due at different times during the month, you not only have the funds when you need them, but that the bills are paid on time?

As a banker, I talk to a lot of people every day about money. Frequently, I’m talking with college kids, opening their first checking account or getting their first credit card and beginning to manage their first paychecks and payments. I often share my thoughts on managing money, taking on debt, and paying your bills to be sure your credit score is always going in the right direction: UP.

I have a method for managing my monthly expenses that I’ve used for years. And in all that time I have not stressed about having the money when the bill comes in. Nor have I ever missed a payment for any of the items on my plan.

I use my method for all of my fixed monthly bills, including mortgage, car payment, car insurance, cell phone and cable. Your list might look a different, but I think it makes sense to include any expense that is billed monthly, and that does not fluctuate very much from month to month. For example, I do not include my electric bill, which is often much higher in the summer due to air conditioning costs.

Once I’ve identified my fixed monthly costs, the next step is to open a second checking account, separate from my main (day to day) account. I call this second account my bill account. All of your fixed monthly expenses will be paid from the bill account. After you’ve established your bill account, add up all the monthly expenses you identified as being relatively fixed. Then, divide this number by the number of pay periods you have every month. If you get paid weekly, divide by 4. If biweekly, divide by 2.

Example:

Rent 1200

Car payment 250

Car insurance 150

Cable 180

Cell phone 180

Total 1960 / 4 (pay periods per month) = 490

This figure is the amount you need to deposit into your bill account each pay period in order to ensure enough funds to pay all expenses for that month. The best way to accomplish this deposit is to set up an automatic transfer through your employer for those funds to be deposited directly from your paycheck, removing the need for you to manually handle the transaction. Most employers offer this option, but if yours doesn’t, you can easily set up a recurring transfer through your online banking from your main account to your bill account. The keyword here is “recurring.” Set it up to happen automatically so you don’t need to remember and you will quickly get used to what’s left of your paycheck after the mandatory expense money has been transferred. The leftover money is what your have to work with for every day expenses–gas, groceries, bills not included in your bill account–until your next paycheck.

The last step is to set up automatic payments to your bill collectors by providing them with your bank routing number and the account number of your bill account, or by setting up recurring payments through your bank’s online bill payment feature. Voila! You have now set up a system to ensure you always have the money for your monthly bills, and that they are paid on time!

Here’s a recap of the benefits of using the bill account with automatic deposits and payments:

–Always enough money there when the bills are due

–Payments always made on time

–No late fees or consequences

–Credit Score continues to go up

—Extra paycheck twice a year

Wait, what??

Yes, you may have noticed that 2 months a year, there are 5 fridays in the month which means 5 paydays (or 3 paydays if you’re paid biweekly). Since you’ve planned to have enough money to cover your bills from 4 paychecks (or 2 when paid biweekly), you have an extra sum twice a year that you can use for whatever you want. It’s like a bonus!

As I said, I’ve used this method for about 10 years now and it works extremely well. No stressing about payments and no late fees! Occasionally I tweak when a payment changes or drops off (car is paid off, yay!) but for the most part it runs along smoothly with no thought from me of how, or when, bills are being paid.

And don’t worry if you actually like stress. I’m sure some will come along soon enough.