If you have a bank account, you’ve probably heard the term “bank statement” before. But what exactly is a bank statement and why is it important? In this article, we’ll break down the purpose of a bank statement, how to get one, how to read it, and the benefits it provides for your financial well-being. Let’s dive in!
What is the purpose of a bank statement?
A bank statement is a document that summarizes all the financial activity in your bank account over a specific period, usually on a monthly basis. It includes details of deposits, withdrawals, fees, and interest credited. The primary purpose of a bank statement is to help you reconcile your account, track financial transactions, and watch out for any potential fraudulent activity. By regularly reviewing your bank statements, you can gain insights into your income, expenses, and spending habits. It can also help you identify areas where you can save money and cut back on unnecessary expenditures.
How to get a bank statement
Banks, credit unions, and other financial institutions provide account statements regularly. Depending on the type of account, you will receive either physical copies through mail or have access to online statements. Many banks now encourage customers to opt for paperless or electronic statements for convenience and environmental reasons. For example, Discover Bank sends monthly emails to inform customers that their statement is ready to view online or on the Discover mobile app. Simply log in to your account and click on the statement link to view or print it out for your records. Some banks may charge a fee for paper statements, while others offer them for free upon request.
How to read a bank statement
Bank statements may seem overwhelming at first glance, but they contain valuable information. The format may vary slightly between financial institutions, but the key elements are consistent. A typical bank statement includes the date range, opening and closing balances, and a list of transactions within that period. You’ll come across terms like Electronic Funds Transfer (EFT), ATM (Automated Teller Machine), check, fee, and interest. EFTs are electronic transfers of money between banks or accounts, while ATMs are used for cash withdrawals, deposits, and balance inquiries. Checks are physical documents used for payments, and fees are charges imposed by the bank for specific services. Interest can be earned or charged on your account balance, depending on the type of account.
How to find and correct mistakes on your bank statement
While banks strive for accuracy, mistakes can happen. If you notice an error on your bank statement, it’s crucial to act promptly. Contact your bank’s customer service department to report the error and provide any evidence you have. If the mistake involves a third party, such as a retailer or payment issuer, reach out to them as well. Once the error is corrected, make adjustments to your own records if necessary. It’s important to maintain a file with records of all correspondence with the bank or third party to facilitate future resolution if needed.
How a bank statement works
A bank statement consists of a beginning balance, an ending balance, and a list of transactions that occurred during the statement period. The beginning balance reflects the amount of money you had in your account before any transactions took place, while the ending balance shows the amount at the end of the period. Transactions, categorized as withdrawals (e.g., POS transactions, ATM withdrawals, checks, fees) or deposits (e.g., direct deposits, manual deposits, interest earned), are recorded chronologically. Pending transactions may also appear on your online statement, but note that they may not affect your current balance until they clear. Reconciling your bank statement with your own records is essential to ensure accuracy and identify any discrepancies.
How long should I keep my bank statements?
The duration for retaining bank statements depends on various factors. Banks are required to keep customer records for at least five years, while some institutions may store them for up to seven years. If a statement contains relevant tax information or is involved in a dispute, it’s advisable to keep it for a longer period. However, for non-tax-related statements, you can shred or delete them after one year. Having at least one year’s worth of statements can be helpful for future reference, such as when applying for a loan. For tax-related statements, it’s wise to keep them for seven years, especially if you can download and securely store digital copies.
Benefits of a bank statement
Bank statements provide a reliable record of your financial transactions and offer several benefits to help you manage your money effectively. They allow you to track your spending habits, identify unauthorized transactions, spot bank or third-party errors, and avoid overdraft fees. By reviewing your bank statements regularly, you gain valuable insights into your financial health and can make informed decisions to achieve your financial goals.
How to reconcile your bank statement
Reconciling your bank statement is crucial for verifying transactions, detecting fraud, and ensuring the accuracy of your records. To reconcile manually, compare your bank statement against your own records, check the starting balance, review deposits and withdrawals, and make any necessary adjustments or corrections. Alternatively, you can use automated reconciliation software like Quicken or YNAB to streamline the process. Regularly reconciling your bank statement allows you to track and protect your finances effectively.
How often should you check your bank statement?
The frequency with which you should check your bank statement depends on the mode of access. If you receive paper statements, you can only review them when they arrive in the mail. However, if you have online access to your account, it’s recommended to check your account regularly, ideally weekly or even daily. Regular monitoring helps you detect any issues early on and avoid potential financial problems in the future.
Conclusion
Bank statements are a vital tool for managing your personal finances. By understanding the purpose of a bank statement, how to obtain and read it, and how to reconcile your accounts, you can stay on top of your financial health. Regularly reviewing your bank statements not only helps you identify errors, fraud, and discrepancies but also provides a deeper understanding of your spending habits and financial goals. So, make it a habit to check your bank statements regularly and take control of your financial well-being.
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