BANK RECONCILIATION

Many current accounts include bank overdraft facilities. Bank overdrafts are an expensive way of borrowing money and should only be used as a means of short term finance.

If you have arranged for overdraft facilities on your current accounts, you will be charged an authorised overdraft interest rate. You agree an amount in advance up to which you can go overdrawn and will be charged the authorised rate if you remain within this authorised limit.

However, if you have not arranged for such facilities or have exceeded your authorised limit, you will be charged overdraft interest at the unauthorised overdraft rate, which is much higher than an authorised rate. You may also be charged a fee for being overdrawn.

How to manage your current account and avoid paying bank charges

* You can manage your cash book or monthly cash flow on a spreadsheet. Include all your monthly revenues, such as salary, pension, rental income, dividends from shares, etc, and all your monthly outgoings, such as food bills, motor expenses, utility bills, etc. Also, do not forget to include all payments made by direct debits which are taken out of your current account either monthly, quarterly or whatever time period you have agreed to pay those expenses.
* When your bank statements arrive each month, check the items on your bank statements against your spreadsheet entries to ensure that all the payments shown on the bank statements are legitimate items. Query with your bank if there are payments in the statement that you know nothing about. If you are satisfied with your bank's explanation on these items, then include them in your spreadsheet.
* Do a bank reconciliation to reconcile the differences between the bank statement balance and your cash book balance.
* Review all your direct debits regularly to make sure that you are not still paying for things that you are supposed to have stopped paying - such as subscription to a gym you no longer use. There may also be payments to charities that you had agreed to pay years ago when your financial situations were much healthier. Can you afford to continue paying to charities without getting your current account into an overdraft situation? You may wish to cancel them now and reinstate them later when your financial situation improves.
* Project your cash flow two or three months ahead so that you can have a clearer picture of your financial situation. You may need to take whatever action necessary to avoid being in a bank overdraft situation. For instance, you may be able to delay spending on non-essential things like entertainment or eating out. Alternatively, you may be able to transfer funds from your savings accounts or recover debts from friends or relatives.

Bank overdrafts should only be used sparingly. For long term financing it is advisable to get cheap loans but that may require some form of collateral.

SOURCE:
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