This is “Your Own Money: Cash”, section 7.1 from the book Individual Finance (v. 1.0).
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Most people use a checking accountA bank account that is used to facilitate payment by check. as their primary means of managing cash flows for daily living. Incomes from wages and perhaps from investments are deposited to this account, and expenses are paid from it. The actual deposit of paychecks and writing of checks, however, has been made somewhat obsolete as more cash flow services are provided electronically.
When incoming funds are distributed regularly, such as a paycheck or a government distribution, direct depositAn automatic deposit of income directly to the receiver’s designated bank account; widely used by employers and government agencies. is preferred. For employers and government agencies, it offers a more efficient, timely, and secure method of distributing funds. For the recipient, direct deposit is equally timely and secure and can allow for a more efficient dispersal of funds to different accounts. For example, you may have some of your paycheck directly deposited to a savings account, while the rest is directly deposited to your checking account to pay living expenses. Because you never “see” the money that is saved, it never passes through the account that you “use,” so you are less likely to spend it.
Withdrawals or payments have many electronic options. Automatic paymentsA direct payment of an expense or a debt payment made as an electronic transfer of funds from the payer’s bank account to the payee’s. may be scheduled to take care of a periodic payment (i.e., same payee, same amount) such as a mortgage or car payment. They may also be used for periodic expenses of different amounts—for example, utility or telephone expenses. A debit cardA card that allows point-of-sale payment as an electronic transfer of funds from the payer’s bank account to the payee’s at the time of sale. may be used to directly transfer funds at the time of purchase; money is withdrawn from your account and transferred to the payee’s with one quick swipe at checkout. An ATM (automated teller machine) cardA card allowing direct access to a bank account through an automated teller machine (ATM), most often used to access cash without having to go to the bank housing the account. offered by a bank allows for convenient access to the cash in your bank accounts through instant cash withdrawals.
The bank clears these transactions as it manages your account, providing statements of your cash activities, usually monthly and online. When you reconcile your record keeping (i.e., your checkbook or software accounts) with the bank’s statement, you are balancing your checking account. This ensures that your records and the bank’s records are accurate and that your information and account balance and the bank’s are up to date. Banks do make mistakes, and so do you, so it is important to check and be sure that the bank’s version of events agrees with yours.