Using a Checking Account

What is a check and how does it work?

A check is a written order on a credit union, bank, or savings institution, by the account owner, payable on demand to the person named on the check (payee), to that person's order, or the bearer. The check is drawn on funds on deposit in the account owner's checking account.

On demand? That means the financial institution, by contract with the account owner, must honor the check unless there are not sufficient funds in the account to cover it.

To that person's order? If you look on the front of a check, you'll see the words Pay to the Order Of at the beginning of the line where you write the payee's name. This language is one of the things that legally makes a piece of paper a check. Payees communicate their orders with the type of endorsement they write on the back. See endorsing a check below. If the payee simply signs their name on the back, then the bearer (any person who has the signed check) can legally cash or deposit the check.

Your checks will usually be personalized for you. They will have your name, address, the financial institution name, and a check number printed on the face. It's recommended you add your telephone number as well. This helps payees feel more comfortable accepting your check.

The numbers that appear along the bottom of the check are pre-printed in special magnetic ink that can be read by magnetic ink character readers (MICR). Starting from the left, there are three numbers. The first is the routing and transit or ABA number. This number identifies the financial institution. The next number represents the account number. The final number is the number of your check. It matches the check number usually found in the upper right corner of the check.

Paying by Check

When you pay someone by check, your check begins a long journey. If you pay someone out of the area, here's what typically happens.

  • The payee will endorse the check and deposit or cash it at their financial institution.
  • That institution will credit their customer's account.
  • Before the end of the day, they will process the check, then deposit it with others received that day at the local Federal Reserve Bank branch. To get credit, the checks have to be at the Fed by a certain time each day. Many banks used to close at 2 p.m. so they could meet that schedule with the day's checks.
  • The Federal Reserve will send the check to their branch closest to your financial institution.
  • Next the check goes to your financial institution or their check processing firm.
  • When presented with the check, the institution will determine if there are sufficient funds to honor the check, either in the account or through overdraft protection. If the funds are available, the institution will withdraw them from your account and transfer them to the Federal Reserve. If there are not sufficient funds, the institution will return (or bounce) the check back through the system.

The MICR numbers at the bottom enable the efficient travel of your check through this payment system. Some people wonder why the names of their payees don't show up on their statements. That's because MICRs only recognize the institution, account number, check number, and amount. Adding payee names to statements would be a costly, slow, manual error-prone process.

Writing a Check

Writing a check is a simple process, however it is important that it is completed correctly so it can be processed quickly and smoothly. Just follow these easy steps:

  • Write to the left and print Print or type all words and numbers as far to the left in each space as possible. Printing is less easily altered than cursive writing. Always use a ball point pen. If you use pencil, someone could erase and alter the check. Markers also removed.
  • Record the check in your register Immediately record the check number, date, payee, and amount in your register and subtract the amount from your balance so you will know how much you have left in your account.
  • Date Fill in the date that you are writing the check. It is preferable to use words and not numbers, but not mandatory.
  • Pay to the Order of Write the name of the person or company receiving your check. Make sure that you put the full name. This will help prevent someone from stealing the check and changing the name. If paying a bill, make sure you make out the check as requested by the biller.
  • Amount box Located to the right of the "Pay to" line beginning with a dollar symbol. Enter in numerical form the exact dollars and cents to be paid to the person or company. Write cents as a fraction instead of a decimal (10/100 instead of .10) to prevent the number from being altered.

Amount line Below the "Pay to" line, write out in words the amount of the check. For example $145.10 is ONE HUNDRED FORTY FIVE DOLLARS AND TEN CENTS. Start writing as far left as possible and draw a line through any blank space left on the line. This will stop someone from adding words to the amount. Make sure this amount matches the numbers written above. If they do not match, the written amount is considered legally binding. Only use the word "and" in between the dollars and cents. Do not put one hundred and forty five dollars.

 

Print words on check to prevent alteration.

 

  • For line Also known as the Memo line, completion of this space is optional. You can make a note to remind yourself of the purpose of the check. If you're paying a bill, this is a good place to write your account number.
  • Signature line Write your name as it appears on your account on the line that appears at the lower right corner of the check. Signing the check tells your financial institution that you've approved payment. You should never sign a check until the rest is completely filled out and you've confirmed that the information is correct.
  • If you make a mistake write VOID in large letters across the face of the check and put the check in your files or shred it. Then write a new check. Mistakes make the check look suspicious and may prevent it from acceptance by a financial institution. Make sure you write the check number and VOID in your register to make it easier when settling your account.

Making Deposits

How to make deposits to your checking account

It's important to make deposits promptly to prevent loss of checks or cash and get immediate credit in your accounts. It also keeps your records up to date. A deposit made in person requires a deposit slip only for the cash portion of your deposit. Deposits at an ATM don't require separate deposit slips. Endorse all your checks with your signature and account number and seal the envelope. Insert your card into the ATM, choose deposit, and choose checking. Insert the envelope according to instructions at the ATM. Save your receipt. Write "For Deposit Only" with your endorsement. This will A restrictive endorsement prevents anyone from cashing or depositing your check in their own account.ensure that someone else can not cash your check if it's lost or stolen.

How to endorse a check

Endorsing a check shows the financial institution that you've given permission for that check to be processed. A check must be signed on the back side, at the top of the left-hand edge before it can be processed. You must sign exactly as your name appears on the front of the check. If your name is misspelled, write your correct name underneath. Below your signature, write your account number. Endorsements must be confined to the area indicated at the top of the check. The bottom area is reserved for the financial institution processing the check to record information. Wait until you are ready to cash the check before you endorse it. An endorsed check is like cash  anyone can take the money. If you use a restrictive endorsement (see right), with your signature, your account number, and the words For Deposit Only, no one else can cash your check.

Check Registers

How to use your check register

Checks come with a check register. This booklet is designed to help you maintain a running total of the amount in your checking account. If you keep your check register up to date and correct, you'll never write a check for money you don't have. If you write such a check, you may incur fees and your credit rating could be affected as well.

Start out by writing the opening balance at the top right on the first page of the register. Enter the details of each transaction that will affect your checking balance before you make it. Add or subtract the amount from the total. Record the check number, date, payee, and amount. Put a check by items that are tax deductible, such as charitable donations, for reference when you prepare your tax return.

In addition to your checks, remember to record all ATM and Check Card transactions, fees, dividends, electronic bill payments, pre-authorized transfers, transfers to or from other accounts, and automatic payments. To ensure there is money to cover scheduled transactions, mark them in your register a day or two before they happen. A good strategy is to deduct these payments on your register on the payday immediately before the scheduled payment or transfer date. This is so you'll always know how much you really have in your account.

Don't use the balance the bank shows for your account as a substitute for your check register. The balance you see will not include transactions you've made that have not yet cleared checks you've written, Check Card purchases, or deposits you've just mailed.

Monthly Statements

How to read your statement

Every month you will receive a statement outlining the transactions that have been processed for all of your accounts. At the top of the statement are dates indicating the period of time in which the transactions occurred. The checking section will show each transaction that was processed on your account by the date that they took effect. Following the transaction listing is a summary of your account activity, showing transactions by type, totaled and detailed. The checks are summarized in numerical order, making it easy to check against your register.

When the statement comes

  1. Open your statement promptly. Check each transaction to make sure it is correct and you made it
  2. Compare checks, deposits and other transactions to your register. It is helpful to make a check mark next to the checks in your register and on your statement of the checks that have cleared.
  3. Identify checks and Check Card purchases that haven't cleared. On a separate piece of paper subtract them from the statement balance, then add any deposits or Check Card credit slips that haven't cleared
  4. Adjust your check register balance for any fees or interest incurred during the month.
  5. The balance that you just calculated on the piece of paper should agree with the balance that appears on your register, if not recheck.

Examples

Figure 1: Completed Check

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Figure 2: Checkbook Register Double Line Method

 

Double Line Method

 

 

Carry Fwd

Date

Check #

Notation

Deposit

Withdrawal

259.53

12/24/03

106

Structures

 

74.99

-74.99

 

 

clothes for new job

 

 

184.54

12/26/03

 

Deposit

50.00

 

50.00

 

 

Christmas check - grandma

 

 

234.54

12/29/03

 

Withdrawal ATM

 

30.00

-30.00

 

 

movie & dinner

 

 

204.54

1/5/04

107

Springfield Utility Board

 

64.25

-64.25

 

 

Utilities for December

 

 

140.29

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 3: Checkbook Register Single Line Method

 

 

 

 

Carry Fwd

Date

Check #

Notation

Deposit

Withdrawal

259.53

12/24/03

106

Structures Job clothes

 

74.99

184.54

12/26/03

 

Deposit - Grandma Christmas check

50.00

 

234.54

12/29/03

 

Withdrawal ATM - Entertainment

 

30.00

204.54

1/5/04

107

SUB Utilities - December

 

64.25

140.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance Mod 2 Worksheet

1.     Look at the sample check below and label the following parts:

a. Your name and address b. Payee

c. Bank routing number d. Check number

e. Date line f. Bank name and address

g. Account number h. Check amount

i. Signature line j. Memo line

 

Joseph Q. Student 109

881 W. 6th Avenue

Junction City, OR 97448 12-345/6789

(541) 998-2163 Date: __________________

 

Pay to the order of: ____________________________________ $

 

Dollars

 

Last National Bank of Oregon

111 Ivy Street

Junction City, OR 97448

 

For _________________________ ____________________________

 

|:123456789|: 87654312345678 9:| 0109

 
 

 

 

 

 

 

 


2. Write a check to Safeway to cover groceries, the total was $57.83 and record it in the register. Follow the tips described in the module.

Joseph Q. Student 109

881 W. 6th Avenue

Junction City, OR 97448 12-345/6789

(541) 998-2163 Date: __________________

 

Pay to the order of: ____________________________________ $

 

Dollars

 

Last National Bank of Oregon

111 Ivy Street

Junction City, OR 97448

 

For _________________________ ____________________________

 

|:123456789|: 87654312345678 9:| 0109

 
 

 

 

 

 

 

 

 

 

 

 


Carry Fwd

Date

Check #

Notation

Deposit

Withdrawal

$100.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3. What should you do with a check when you make a mistake that cannot be easily corrected?

___________________________________________________________________________________

ENDORSE HERE

 

 

X

 

 

 

 

 

 

 

 

DO NOT SIGN / WRITE / STAMP BELOW THIS LINE

 
4. Endorse the check you received for your birthday. Deposit the $75 check into your checking (account number 4435661) and record it in the register. Follow the tips described in the module.

 

 

 

 

 

 

 

 


Carry Fwd

Date

Check #

Notation

Deposit

Withdrawal

$100.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5. Why should you NOT use the balance your bank shows as a substitute for maintaining an accurate check register? _____________________________________________________________

___________________________________________________________________________________

6. What are the five things you should do when you receive your monthly statement from the bank? ___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

7. Which of the following are appropriate ways of handling checks?

a. Use ink only

b. Print or type all words and numbers as far to the left in each space as possible

c. Never sign blank checks

d. Immediately record the check number and adjust the balance in your register

e. All of the above

 

EXTRA CREDIT

 

Arrange with staff-on-duty to complete the Check writing Elective. This gives you an opportunity to practice writing checks and balancing the register with a monthly statement. Turn it in for additional credit of 1-hour.

 

Joseph Q. Student 12-345/6789 109

881 W. 6th Avenue

Junction City, OR 97448

(541) 998-2163 Date: __________________

 

Pay to the order of: _____________________________ $

 

Dollars

 

Last National Bank of Oregon

111 Ivy Street

Junction City, OR 97448

For _________________________ _____________________________

 

|:123456789|: 87654312345678 9:| 0109