6 Efficient Ways to Manage the Cash in your Checking Account

Ever find yourself facing a deadline for a bill payment but it falls just before or on your paycheck date? You don’t want to miss your due date because that can mean you may lose your bargain interest rate, slapped with a larger interest rate next month, get your credit limit reduced automatically and/or lower your credit score. What to do?

Times used to be when you could write a check to pay a bill on or before its due date and the check would not clear (funds withdrawn) your bank for 2-3 days. You would have a few days to make sure you have deposited enough funds to cover the payments that are due. This was known as “check float”, the time it takes from writing your check to the actual presentation of the check and withdrawal of those funds from your account. Those days are long gone. So are the days of having a rather large stash of funds so that due dates aren’t quite such a crisis. Today its many times paycheck to paycheck.

In 2003. the Federal Government under pressure from banks passed the Check Clearing for the 21st Century Act also known as “Check 21”. This act allowed participating banks to use electronic imaging of checks they receive to present to the bank from which the check was written for faster collection of funds. That meant everything electronically transmitted would get same/next day attention collecting the money out of your account. While this Act shortened the time it takes before a bank takes your money, it did nothing to allow the same courtesy in collecting your paychecks and deposits timely. Banks can still hold paper check deposits according to the policies they set. That means that your bank may cash the check you wrote and still put a hold on your regular paper and paper paycheck deposits. This may sometimes create a serious negative balance in your checking account upon which you will be incurring many different fees charged against your checking account according to your bank’s policies. It can snowball on you if you are not careful. Doesn’t seem quite fair does it? Unless consumers rise up and put a consumer advocacy group together there’s not much one can do except legally manage your finances around this law.

Here are several things you can do to protect yourself from one-sided law.

1. Sign up for direct deposit whenever possible.

Generally your paychecks from your employer or funds requested that are electronically sent through the “Direct Deposit” system is available either by midnight or early the next morning of your paycheck date or deposit date. No receiving bank can hold an electronic direct deposit from your account unless there are serious security and or theft issues. While this won’t solve all your timing issues it will be helpful.

CAUTION: Make sure that the issuing party does not have a processing lag time between your request and the actual electronic transaction into your requested account.

One example: ING Direct, an online bank will allow you to set up online transfer
requests from your checking or saving accounts you have with them to any outside bank account you have verified with them. While you may have cash in one of their accounts they have a policy that your funds are going to be deposited no earlier than 3 business days. Here is an instance of electronic lag times from an issuing bank.

WARNING: Any checks and payments that come through your bank at the end of the previous day are usually processed first before next day deposit transactions which can create a situation called “unavailable funds” regardless of midnight or early morning deposits . “Unavailable funds” occurs when a check or payment is presented and paid before your deposit is considered collected in your account. Not only can this occur but the order in which these checks/payments are paid can slam you with many more fees than normal. Many banks will process the largest payment first which may not overdraw you but as they process the next smaller amounts you may be hit for each transaction after that. Check with your bank on their interpretation and timing of this situation as it creates fees against your account identical to expensive overdraft fees.

2. Customize your due dates.

You should map out the timing of your financial transactions. It is easier if you do this on paper. Take a calendar and first plot out the dates of your income. It may be weekly on the same day of the week, bi-weekly (every two weeks), semi-monthly (twice a month usually the 1st and the 15th or the 15th and the end of the month) or monthly. Record the amount net of taxes, the amount you will receive in your account after payroll taxes. If you are not sure estimate 15-20% of the gross amount you make should be subtracted for taxes. You now know how much you will be generating every pay period and be better able to determine how long those funds should last.

Next you should plot out all your debts by their due dates. Add each pay period’s debt obligations and compare them to your income. Are too many clustered around a certain date, say perhaps the 15th of the month? Call your creditors and see if they will change your due date so that you can spread out your obligations over the timing of your income. You may also arrange your own payment date when you pay certain bills online but that usually means you are having to pay your payments earlier than your original due date. You will have to get permission directly from your creditor and have them change your due dates if you want to postpone your original due dates by a few days. Not all will agree but its always worth a try.

You are the best source for determining how often you want to pay bills and how you want to pay them.

3. Leverage your credit cards.

This is tricky and involves careful monitoring of your credit cards, balances and due dates. If you don’t have the time to manage your credit cards more carefully than simply using and then paying them, this is not something you should undertake.

Leveraging your credit cards means that you may make purchases right after your due date is met. Your report to the credit bureau by your creditor will be made at statement time with the balance after your payment is applied. Right after that date you could use your credit card to make a purchase you planned on paying in full anyway sometime during the month. That will give you up to three weeks or more before you have to part with that money. That means you could make a budgeted purchase sooner interest free only IF you make that payment before the card’s next due date and you have not already spent the extra funds. Do not make a habit of this if you don’t have the time to spend managing your budget because sooner or later this can catch up with you and you may end up paying large amounts of finance charges due to your negligence in staying aware of your cash situation.


4. Enroll in online banking.

Online banking provides the tools for you to monitor our funds on a daily or weekly basis. You can see what is clearing in your account sooner and get a better feel for your bank’s posting procedures. Remember: Not all banks and credit unions have to adopt Check 21 but it is encouraged. Online banking allows you quicker access to your other accounts transfers and deposits when you need to cover payments. Many banks will allow you to pay your bills for free directly from your accounts which offers you better control of your funds.

Security is becoming less of an issue nowadays and is actually safer than putting
checks in the mail.

5. Take advantage of alerts and alarms that are offered on your accounts whether they are checking accounts, credit cards, loan accounts or any debt you have.

Many times your financial institution or credit card companies will allow you to set up automatic e-mail notification of statement availability, payment reminders, deposit alerts, fee notifications, late payments etc. If you are not internet savvy take some time to become better aquainted, save yourself some time and set these alerts up. We all get busy with our lives and it’s easy to attend to an alert before some consequence when we are notified beforehand. Forgetting is easy and remembering is hard so why not make your life a little easier with automatic reminders?

6. Work on your own personal overdraft cushion.

While most of our banks allow us to apply for a small unsecured note or line of credit that will automatically activate once our checking account overdrafts, we will sometimes pay a heavy price for using that small loan to cover our mistake or timing issue.
There are also techniques by which you write yourself a check which shows less funds than you actually have but not all of us can operate with a false balance. If you can, the best option is to attach a savings account to your checking account and squirrel away $500 to $1000 at least in the event of an overdraft issue in your checking account.

Don’t assume your bank will automatically withdraw those funds in your savings to keep you from paying overdrafts. You will have to talk with your bank or credit union to make sure that they will set that up automatically for you. You will save yourself overdraft fees and grief if you do this correctly while still managing a little interest on these funds waiting for use.

If you find your bank or credit union is not cooperative in helping you avoid overdrafts then find another bank. Remember, banks make money on the interest you pay to borrow from them. Keep borrowing to a minimum and pay yourself interest on the use of your own funds.

There is virtually no way around the management of your cash any way you look at it. Banks have made it easier to take your money and harder for you to accumulate it. Be smarter and wiser by managing your own funds. Make it harder for banks to use and spend your hard earned cash by decreasing the opportunities for them to charge you fees. They are in business to make money from you and you should be using them to create wealth for yourself. You can’t create your own wealth from giving someone else your cash.