Banks are a place for us to handle our checking, savings, and possibly a loan. Beyond that, for many of us banking is a black hole. Why banks do what they do and how they do it is little understood outside of the banking community.

The more information you have, the better consumer you can be.

Being a Smart Banking Consumer

(Part 6): Common Checking Account Activities

This article will discuss the most common types of transactions that you or the bank initiates, and the implications for you as the banking client. The most significant transactions completed using savings accounts and CDs were detailed in the article on savings accounts. Here, we will deal only with checking accounts.

Cash Deposits or Withdrawals

Cash deposits and withdrawals are among the most common types of activities performed with checking accounts. When a cash deposit or withdrawal over $10,000 is made to a checking account in the same day, this initiates a form called a Currency Transaction Report (CTR). This happens whether the $10,000 is deposited or withdrawn in one lump sum, or in smaller transactions. The CTR form will list all information about you and your account history.

CTRs are generated by the bank software system, and are sent by the bank to a database kept by the IRS. The database is accessible by all law enforcement agencies. The purpose of this is to enable these agencies to detect money laundering (explained below).

Banks also monitor accounts when deposits between $5,000 and $9,999 are made over a short period of time to avoid the CTR. This will generally not work, and the CTR will be filed in this case as well. In these instances, a Suspicious Activity Report (SAR) will also be filed in addition to the CTR. The SAR report indicates to the federal agencies that you are doing something to avoid the CTR. This is considered serious, as these reports get significant attention.

Money Laundering

Money laundering is an attempt to take money obtained illegally and get it into the banking system so it looks like a “normal” business or consumer transaction. For example, drug money or stolen money is often involved in money laundering cases. Once this money is successfully in the banking system, it may be very difficult to trace or identify the source.

Precautionary Activities

Co-Ownership

If there are two or more owners of a checking account, which means all of the names on the account signature card, any one of them can withdraw any or all funds from that account. This can be done without the knowledge of the other owners. For this reason, it is recommended that you be very careful when you set up an account with another person.

Stop Payments

When you submit a stop payment on a check that you wrote to someone for whatever reason, the bank will have you fill out a stop payment form. The stop payment form authorizes the bank to reject the check if it is deposited. Once the information on the stop payment is in the bank software system, the check will be rejected for a maximum period of 6 months. After that timeframe, you must renew the stop payment if you want it to continue. You can cancel the stop payment at any time. The bank may charge you a fee for each stop payment.

Pay on Death Account

A pay on death account is one where you have given the bank the authorization to pay the proceeds of the account to a specific person named in the account upon showing evidence of your death.  Death certificates or trust documents are usually the only documents required in order for the designated person to receive these funds. This can be particularly useful if the person you named will oversee cleaning up your affairs after you pass on. If you do not use this feature, the bank will hold the funds in your account until the state probate process is complete, which in some cases could take months.

Discontinued Practices

Two-Signature Requirements

If you would like to have all, or certain checks you write to require two signatures in order to be deposited or cashed, the bank will not check for those signatures when the check is processed. Banks no longer offer this option, as check processing is highly automated. For this reason, it is not currently possible to program the automated systems for a review of signatures.

Special Instructions on Checks

The bank will not honor any special instructions you may put on a check, such as “void after thirty days” or, “not payable until some time in the future.” The banks’ processing system cannot be tailored to these types of special instructions. If you wish to have a check not paid until some time in the future, one way to do this is to place a stop payment order to that date.

In the next article we will continue with possible account transactions.

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