Understanding both the good and bad about checkbooks and how they work may help you gain better control of your checking account and spending habits.
Definition and Example of a Checkbook
Checkbooks are compact, paper-based financial instruments you receive after opening a checking account with a financial institution. A checkbook typically consists of a pad with paper checks you can use to pay bills and make purchases with the money in your checking account. A checkbook pad contains identical checks with sequential numbering. In addition, each paper check in a checkbook is preprinted with your name, address, and your financial institution’s information. The paper checks in a checkbook are legal documents in that they represent an agreement to pay a specific amount of money to whomever you’re making it out. Additionally, the last few sheets in a checkbook typically include several deposit slips. The deposit slips are preprinted with the same information as your paper checks. You usually give them to the bank when you’re depositing any cash or checks you have received. You typically also will get a checkbook register when you receive your checkbook. The register is a separate booklet or ledger meant to be used with your checks. The register is where you should keep a tangible record of any checks you write, your ATM withdrawals, and your deposits. The register can be crucial in helping you manage your checking account. It allows you to keep a running total of your checking account balance. Doing this can help you make sure you have enough funds to cover the checks you write, so you don’t inadvertently overdraw your bank account. Checkbooks are not used as often as they used to be, but you might need to use a check in some instances. For example, your landlord might not accept credit or debit cards if you rent an apartment. Additionally, because not all landlords are as organized or thorough as they could be when they cash your check, you have proof from your bank that it was cashed.
How a Checkbook Works
The checks in your checkbook work similarly to cash, at least on your side of the transaction. You write the transaction information on a check, tear the individual check out of the checkbook along the perforated line, and hand it or mail it to the recipient. Once you’ve conducted the transaction, it’s essential to make sure you enter the details of the transactions in the register at the back of the checkbook to make sure you’re accounting for the money transfer. When you enter the transaction in the register, you’ll see different columns for the check number, date, transaction description, payment amount, deposit amount, and the account balance after your transaction. When you enter deposit or payment amounts into the register and add or subtract them from your balance, you have a quick reference for how much accessible money you have in your account. However, checks can take up to a few days to process and clear, or the recipient may not cash them right away. If that is the case, your bank account balance may not accurately reflect the amount you actually have available. Once the recipient deposits the check, both banks coordinate the fund transfer into the recipient’s account. At the end of the month—or more frequently—you can use your bank statement, checkbook register, and check carbon copies to make sure your checkbook entries and account match.
Do I Need a Checkbook?
You might think checkbooks are no longer necessary for everyday transactions using your checking account. It’s common for financial institutions to issue debit or ATM cards to their customers anytime a new account is opened. On top of that, many major banks also offer the ability to access account information online when you want to make payments or transfer funds. Online transactions and digital account tracking are becoming increasingly popular. However, a checkbook can still be an excellent tool to help you manage your money. You may also encounter circumstances where checks are required. For instance, some government agencies or utility companies won’t accept electronic payments for property taxes or water bills at their offices. However, many use electronic payment services that charge you fees to avoid payment processor and other third-party fees.
Pros and Cons of a Checkbook
Pros Explained
Safer than carrying cash: Cash can easily be lost, misplaced, or stolen, whereas writing a check from your checkbook means that only the check recipient can cash it. It helps you monitor your spending: Unlike electronic transactions, listing your transactions in your checkbook register helps you keep a closer eye on your bank account balance. Convenient when debit or credit cards are not accepted: Having the ability to use your checkbook to make payments or purchases is a huge convenience if you can’t use one of your cards. Checks act as purchase receipts: Unlike cash, cashed checks are traceable.
Cons Explained
Checks might not be cashed immediately: The process of clearing most paper checks happens electronically and very quickly. However, not all check recipients deposit checks the same day or week they receive them, so your account can appear to have more money in it than you can access. Poor tracking of your spending can result in a bounced check: Not having enough available funds in your bank account to cover any checks that you write can result in a “bounced check” and extra fees. It can be used without your permission: Checkbooks can be lost or stolen and used to make unauthorized purchases from your checking account.
