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The Danger In Keeping A Minimal Balance In Your Checking Account

July 15, 2011 · 34 comments

in Personal Finance

Do you like to keep your checking account balance as low as possible in order to maximize interest gains in your savings (or other) accounts?

This logic seems to make sense.   However, it can also come back and bite you.

My Real World Example of the Dangers of a Minimal Checking Balance

We were going on vacation, and we deposited a check in the ATM on our way.  Well, for the first time ever in my 25 years of using money machines, the ATM accepted the envelope with the check in it, but didn’t actually acknowledge the deposit.  Instead, the machine kept cranking and cranking like it was waiting for the envelope to be inserted, but it had already been taken.  I had to cancel the transaction to get my card back, but it never gave me back my deposit envelope.

My husband went inside the bank (which we did not belong to, we were just using the ATM), and was told they could not access the inside if the ATM, but they would call us once they figured out what was going on.

The next day when we were far from home, we were notified that the bank did indeed have our check.   There had a been a jam in the machine and three deposits kind of got chewed up.   We were assured that our money would be in our account the following Monday.

OK, no big deal, things happen.   However, once I returned from vacation, I saw the deposit still had not showed up in our account, which was one full week later than was promised.  So, we called the bank again, and it turns out our deposit was actually credited to another person’s account that also had their deposit jammed up.  (Ironically enough, 2 of the 3 deposits that got jammed up in the ATM were for our credit union.  Our deposit went to the other person’s account at our credit union somehow.)

Thank goodness that I watch our account closely and that I didn’t just assume that money was placed in our account safe and secure, while I wrote checks along the way.   I have no way of knowing, but I wonder it the mistake would have ever been realized had I not followed up.   Also, I am so glad that I keep a buffer of at least a thousand dollars in my checking account.  Otherwise, I might have run into some check bouncing problems.

Technology, Good and Bad

Sometimes technology can get on my nerves, like in grocery stores and dysfunctional ATMs.  However, this is one case where I am glad that technology has provided me the ability to look at my bank account every single day and at any time. I know that some people are concerned about security issues with online banking, but I love the convenience it provides me.   If my identity is ever stolen and someone raids my bank account, I may change my mind.  For now though, I love Internet banking.

In the end, the check did end up deposited in my account, and all is good.  It took a lot of work, but I guess I earned about $400 an hour, which is what I would have lost had I not followed up with the deposit and just moved on instead.  I also learned a valuable lesson:  if you are going to keep a minimal balance in your checking account, you better be on top of your banking daily.  There is so much that goes on behind the scenes, especially when dealing with ATMs, that no system is foolproof.   So protect yourself, and make sure you always have enough in your checking account to cover your expenses, and do not include any recent deposits that were not done in person until you actually see your account credited.

What is the minimum you keep in your checking account?  Have you ever had a check bounce due to bank error?

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{ 24 comments… read them below or add one }

101 Centavos July 15, 2011 at 7:04 am

Been there once or twice, mostly when we’ve left too much time elapse between checkbook maintenance. We’re careful to keep a minimum cushion in between paychecks, so it doesn’t happen again.


Kris July 16, 2011 at 5:26 pm

I love online banking because it is so much easier to make sure things are all good than back in the old days when you had to wait for your statements. I try to balance the checkbook weekly, just to put my mind at ease.


Nicole July 15, 2011 at 7:10 am

Haven’t had a check bounce, but definitely keep some slush in checking. I tend to deposit to savings and move money from savings to checking before the bills become due. Many years ago I messed up a transaction and checking overdrafted to savings… thankfully I had the account set up so that only resulted in a $3 fee.

DH’s debit card was copied once and it took FOREVER for the bank to reimburse us for the fraudulent charges. It also takes a long time to get reimbursements back for business expenses.

None of the atms in our town will accept deposits to our credit union except the ones belonging to the credit union. Not even the ones in the CU network. Our CU is so old fashioned that we deposit most things in the drive-through with vacuum tubes.


Kris July 16, 2011 at 5:25 pm

My kids loved the vacuum tubes when they were little, and they the receipt was always returned to us with suckers for them. I am surprised your CU is not a part of a larger network.

That must have been scary for your husband to have his debit card copied and used. Especially when it is hard to quickly come up with money to magically put into your checking account.


Nicole July 16, 2011 at 6:37 pm

It is in a CU network, but we can’t deposit with the other CUs.

I believe the debit card was copied in Heathrow airport… Luckily I was still in the States and noticed pretty quickly. It was our big bank account, not the CU account where we keep the bulk of our cash on hand, so they couldn’t get much. Really they just did a few testing amazon purchases, which I understand is something organized bad people do.


First Gen American July 15, 2011 at 7:30 am

I have more slush now than I used to…but I remember when we had our 2008 work layoffs I remember thinking I had $17 in my checking account and nothing in liquid savings. I’ve changed a lot of things since then and having a bigger buffer is definitely one of them.


Kris July 16, 2011 at 5:22 pm

Oh my goodness, $17 is so little, that must have been very stressful. I am sure you were incredibly relieved that you were not laid off!


No Debt MBA July 15, 2011 at 8:25 am

yikes! I’ve never had an ATM check up a check but now I’m afraid of it happening. Bank of America ATMs now accept checks with no envelopes and scan them. You can have a picture of the check printed on your receipt. great feature, but makes me worry that the extra complexity makes them more susceptible to jams. That sucks!


Kris July 16, 2011 at 5:19 pm

Extra steps do often lead to more errors. However, I hate the pressure of asking for an envelope, then the machine beeping at me because I need more time, hurrying up and filling it all out and getting it into the deposit slot quickly enough. Having a picture of the check would sure be handy for proof though.


Money Reasons July 15, 2011 at 8:43 am

I like to have 5,000 as a minimum buffer, but occasionally I do find that my balance dips below this number. It takes a lot of the stress off of me though.

So far, all has been well, but I’ll watch better now knowing the problem that you just encountered.

I’ve never bounced a check due to anything (although once I’ve come close when I was younger).


Kris July 16, 2011 at 5:20 pm

You are better than I am MR- I bounced 2 checks in college and still hate that I did that.


The Biz of Life July 15, 2011 at 10:08 am

We have had ATMs give back the wrong amount of money before…. it spit out 2 dollar bills instead of 20 dollar bills….. the bank thought we were trying to rip them off and we had quite a fight to get them to give us a refund.


Invest It Wisely July 16, 2011 at 12:00 am

Ouch! I have always feared having something like that happen but it seems like 95% of ATMs only give out $20s these days. A rare few also give out $50s.


Kris July 16, 2011 at 5:14 pm

Biz- that must have been so strange. I didn’t even think $2 bills were much in circulation anymore. That would be a tough one to prove, glad you won the day though.


Linda July 15, 2011 at 10:30 am

I bounced a check once when I was working in my first job out of college. It was my own stupid error; I had recorded a $100 check I wrote in the credit area of the check ledger, so I had added it to my balance rather than subracting it. Obviously I didn’t have much of a cushion in my checking account back then.

I still don’t keep a lot in any of my three checking accounts (I know that sounds like a lot, but there are good reasons for this), but I haven’t had any issues. I think that’s because most of paycheck gets electronically deposited in an interest-bearing, online checking account that I use to pay most of my bills. I’ll have a $1,000 to $2,000 balance in there at times, but I’m still earning interest on it.


Kris July 16, 2011 at 5:14 pm

That is great you are earning interest on your checking account. I could sign up for an account like that, but I think I would have to keep at least $5,000 in the account at all times, which I don’t want to commit to.


Money Beagle July 15, 2011 at 12:24 pm

We keep a minimum of a month’s worth of payments in our checking account, so unless we got hacked somehow, we should never ever have insufficient funds. We’re costing ourselves a little in interest since our checking account is no-interest, but with interest rates so low anyways, the difference is worth it for us in terms of peace of mind.


Kris July 16, 2011 at 5:13 pm

Isn’t that the truth about interest rates. I think the savings account at the credit union where my checking account is offers an interest rate of about .75% for savings. Doesn’t make you feel too bad about keeping a little extra in checking, that is for sure.


Financial Success for Young Adults July 15, 2011 at 4:18 pm

I don’t normally keep a large buffer in my checking account and I keep up with expenditures in my head and by using online banking. However, I do have overdraft protection with my linked savings account incase anything were to go wrong.


Kris July 16, 2011 at 5:12 pm

The overdraft protection is a great idea. My credit union offers it free, which I love. I still get nervous at the thought of actually having to use it though.


krantcents July 15, 2011 at 8:41 pm

I have overdraft protection although I keep a small amount in my account.


Kris July 16, 2011 at 5:11 pm

KC, then you are all set! I don’t keep as much in my account as others, but I get very nervous if the balance is below $1000 for more than a day.


Invest It Wisely July 15, 2011 at 11:58 pm

Lately I blew through my minimum due to having a bunch of expenses pile up at once, but normally I keep about two weeks to one month of salary in there, and then there’s another two months or so in a joint chequing account.

I did something dumb once when I was young, putting my deposit in the little slot for garbage instead of in the place that accepts the envelopes. I was able to get it back, as when I returned the janitor was there ready to throw the trash out! Man did I feel embarrassed. In my defense I think it was one of the first times I used an ATM in my life. 😉


Kris July 16, 2011 at 5:09 pm

Oh my gosh, you are so lucky the janitor was there! Otherwise, you would not have had any proof that you actually made a deposit. Glad it all worked out!


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