The Wall Street Journal Guide to Understanding Personal Finance: Mortgages, Banking, Taxes, Investing, Financial Planning, Credit, Paying for Tuition

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Overview

Sound financial advice from the most respected name in the business.


Answers to the basic questions we all have.


In this sweeping primer that takes the mystery out of personal finance, you will get a comprehensive, easy-to-understand roadmap for everyday financial matters.


From banking, credit and home finances to planning, investing and dealing with dreaded taxes, The Wall Street Journal Guide to Understanding Personal Finance explains the universal facts you need to know to make smart decisions. Because every financial situation is different, this audio program avoids specific recommendations and yet provides sound advice. It informs, educates and warns of the possible pitfalls in every area of personal finance.


The Wall Street Journal Guide to Understanding Personal Finance is a must-listen for anyone who wants to start getting serious about their personal economic future.

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Product Details

  • ISBN-13: 9780671879648
  • Publisher: Touchstone
  • Publication date: 9/4/1992
  • Pages: 176
  • Product dimensions: 5.22 (w) x 10.21 (h) x 0.38 (d)

Table of Contents

BANKING
Banking 6
Banking Opportunities 8
Checking 10
How Checking Works 12
Checking Variety 14
Special Checks 16
ATMs: Tellers Go Automatic 18
The Monthly Statement 20
CD: Certificate of Deposit 22
Savings 24
Technology: New and Old 26
Home Banking 28

CREDIT
Using Credit 30
Credit Cards 32
Understanding Card Credit 34
What Cards Cost 36
Protecting Your Card Rights 38
Loans 40
The Substance of a Loan 42
The Cost of a Loan 44
How Repayment Works 46
Loan vs. Lease 48
Credit Histories 50
Reading a Credit Report 52
Coping with Debt 54

HOME FINANCE
The Roof over Your Head 56
Can You Buy? 58
Buying a House 60
Finding a Mortgage 62
Dealing with the Lender 64
Surviving the Closing 66
The Cost of a Mortgage 68
Mortgage Rates 70
Refinancing 72
Your Home as Investment 74
Using Your Equity 76
Insuring Your Home 78
Selling Your Home 80
Figuring Your Profit or Loss 82

FINANCIAL PLANNING
Financial Planning 84
Making a Financial Plan 86
Managing Your Cash Flow 88
Your Net Worth 90
The Cost of a College Education 92
Financial Aid 94
Planning for Retirement 96
Individual Retirement Accounts 98
Salary-Reduction Plans 100
Annuities 102
Social Security 104
Life Insurance 106
Types of Life Insurance 108
Long-Term Care 110
Estate Planning 112
Making a Will 114
Trusts 116

INVESTING

Investing 118
Risk vs. Reward 120
Figuring Your Return 122
Diversifying Your Portfolio 124
Investing in Stocks 126
The World of Stocks 128
Tracking Your Investments 130
Tricks of the Trade 132
Taking Stock of Your Investments 134
Investing in Bonds 136
The Value of Bonds 138
Special Types of Bonds 140
It's a Fund-Filled World 142
Investing in Mutual Funds 144
Anatomy of a Prospectus 146

Tracking Mutual
Fund Performance 148
Futures and Options 150
Investing in Real Estate 152

TAXES
Paying Taxes 154
The Tax Brackets 156
The Reporting System 158
Completing a Return 160
Withholding-Prepaying as You Go 162
Tax Planning Is a Must 164
January Reading: The W-2 166
Keeping Records 168
Tax Help 170
The Dreaded Audit 172

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First Chapter

Chapter 1: Banking When you choose a bank, you should consider convenience, cost of service.

When you think about handling your personal finances, among the things that may come to mind are paying your bills, saving money to pay for the things you want and maybe arranging for a mortgage to pay for a home or a loan to buy a new car. In each case, there's probably a bank involved in your plans.

Banks offer a wide range of checking, savings and investment accounts. They're also one of the first places to look when you need to borrow money. And they increasingly provide access to national and even global financial networks that let you get cash, have your pay check direct deposited or transfer money to pay bills or make investments electronically.

As a rule, hanks charge fees for their checking-account services and pay interest on savings accounts.

BANKING PLUS

If your banking needs are like most people's, what you're looking for are a checking account to handle your day-to-day finances and perhaps a savings account. Many banks also offer added conveniences:

Direct deposit

You can have your paycheck or Social Security check deposited directly into your checking or savings accounts.

Bank cards

Most banks offer bank cards so you can use automated teller machines (ATMs).

Credit cards

Credit cards linked to your bank account include a line of credit you can use in an emergency.

Overdraft privileges

You can, be sure that all the checks you write Will be paid if you have overdraft protection: on your account.

Automatic transfers

You can make regular monthly investments or pay your bills by using electronic transfers.

Though most banks offer similar products, there may be important differences -- so be sure to read the fine print in any agreement. For example, some banks do not pay interest on small savings accounts of less than $100 to $250, Others impose large service charges, or monthly files, or limit your withdrawals from certain accounts.

You'll probably want to pay particular attention to ATM charges if you use cash machines frequently. Some hanks charge a fee for every, use and some whenever you use a machine at a different hank. But others have a more generous policy, allowing you to use any ATM that's part of a regional network.

UNDER THE MATTRESS

According to Consumer Reports, about 20% of all U.S. families are without bank accounts, either because there is no bank close enough to where they live or because the fees to keep an account are higher than they can afford. Five states -- Illinois, Massachusetts, Minnesota, New Jersey and New York -- require banks to offer basic accounts with minimum fees.

WHAT YOU NEED TO APPLY

Banks make it easy to Open basic accounts like checking and savings, if you can provide what they require.

You'll need:

Money to deposit

To open an account, you need to deposit money in cash, check or money order. Many banks set minimum amounts.

Identification

Banks require you to have some form of identification. Documents such as a driver's license or passport are best, but you can also use business letters or financial statements sent to your current address.

Social Security number

You need a Social Security number in order to open a bank account.

Signature

The bank will ask you to sign a signature card, which identifies your handwriting when you cash a check or require other bank services.

BEYOND PAYING BILLS

You can handle much of your other financial business through a bank, too, using either the same bank where you have your basic checking account or a number of different ones.

Most banks offer certificates of deposit plus a wide range of investment opportunities including mutual funds annuities and sometimes access to brokerage accounts. Some also offer financial planning advice.

LIKE MONEY IN THE BANK

Most people think of banks as the safest place to keep their money. One reason is the Federal Deposit Insurance Corporation (FDIC), which was established by the government in the wake of the banking disasters and the depression that followed the stock market crash of 1929. The FDIC guarantees each bank depositor against losses of up to $100,000 in the event of bank failure. If you have more than $100,000 in anyone bank, even if it is in a number of different accounts, the same ceiling applies. But if you have $100,000 in each of seven banks, for example, the insurance would cover all $700,000.

However, money you invest through a bank that's not actually in bank accounts -- such as investments in mutual funds, annuities or life insurance -- is not covered by FDIC insurance.

Banking Opportunities

You've got some real choices when you're ready to open your bank accounts.

Most of the differences between banking at a traditional commercial bank, a savings bank or a savings and loan (S&L) disappeared with deregulation, which allowed all kinds of banks to provide check-writing services. In fact, the differences that do remain -- like whether a bank is under state or federal regulation -- matter very little to the average person.

In addition, you aren't limited to banks if you're looking for banking services such as a checking account or a mortgage loan. There are many financial institutions, sometimes called non-bank banks, that may provide what you need. You might want to consider using one of them instead of, or in addition to, a bank.

Many people find, though, that it's handy to have a relationship with a local bank even if they do most of their business elsewhere. If you need a signature guarantee, for example, or a bank check, the nearby bank can provide it conveniently.

BANK FEES

Knowing what it will cost to do business there may help you identify the bank to use, or even encourage you to shift your accounts to a bank where you can get a better deal.

In addition to per-check charges, you'll want to find out about other fees a bank imposes before you decide where to open your account. In recent years, many fees have increased, sometimes dramatically, and a range of others have been added. In fact some banks have experimented with charging you a fee to talk to a teller.

But fees are not uniformly high at one bank and low at another, so it pays to find out what the differences are. You'll probably want to pay particular attention to the particular services you expect to use. Start with asking about minimum monthly balance requirements and fees on plain checking and interest-bearing checking accounts. Then check:

ATM fees
Debit card fees
Check printing fees
Stop payment order fees
Money order and bank check fees
Balance inquiry fees
Bounced check fees
Money market checking fees

COMPARING BANKING CHOICES

BANKS PROS CONS

COMMERCIAL BANKS
PRO
They serve individuals and businesses, usually have multiple, well-located branches and offer the full range of banking services. Deposits are FDIC-insured up to $100,000 per depositor.
CON
Fees for checking and other services are generally highest, and service is often impersonal.

SAVINGS BANKS AND SAVINGS AND LOANS (S&Ls)
PRO
Their fees may be lower than at commercial banks. Personal service may be better, especially at the smaller banks. They may be open evenings and Saturdays. Most are FDIC-insured.
CON
They can require you to notify them before withdrawing from checking. Most have only a few branches, so using an ATM card may be less convenient.

CREDIT UNIONS
PRO
Their fees and loan rates are usually lowest because they are non-profit. Earnings are paid out to members at year's end.
CON
About 3% aren't federally insured. Checks aren't returned to you; instead you keep a carbon copy for your records.

MUTUAL FUNDS, BROKERAGE FIRMS AND INSURANCE SUBSIDIARIES
PRO
They offer limited banking services, usually low-cost or free checking lined to interest-paying money-market funds. Some brokerage firms provide loans against investment balances.
CON
They tend to require larger minimum balances. They are not FDIC-insured, but may have private insurance.

PRIVATE BANKS AND PRIVATE BANKING DEPARTMENTS
PRO
They provide full-range, individualized financial services, as well as banking, to affluent clients. A personal representative handles all your banking needs, including loan authorization.
CON
Services can vary. You need substantial assets to qualify for the full range. You're usually expected to generate a certain amount of business or pay a minimum annual fee, or both.

THE BOTTOM LINE

Shopping around can save you money on what it costs to bank -- sometimes lots of money. For example, if you wrote 25 checks one month and used your ATM 15 times with an account that charged a $7 monthly fee and 30 cents a transaction, it would cost you $19 a month or $228 a year. If you can get free checking by keeping a minimum balance in your checking savings account you'll save the charges plus earn a small amount in interest. Or, the bank might count money in a higher-interest certificate of deposit or other investment account. But if it means keeping $3,000 or more in low-interest savings, you might want to weigh the alternatives. Here are some questions you can ask yourself:

Do I write enough checks or use an ATM often enough to worry about the charges?

Could my money be earning more if I invested elsewhere than I'll be saving on fees?

Is there another bank that requires a smaller balance but provides the same level of service and convenience?

Checking

Checks are the hub of the banking system. You may be paid by check, and you probably pay your bills with checks.

Originally, checks were hand-written notes telling your banker how much money to pay out of your account, and to whom. Today's standardized, computerized, magnetically imprinted forms are so common, we can't imagine a penciled note having the same effect -- though technically it could.

The average American writes 270 checks a year against a checking account, also called a demand deposit or transaction account. Demand means that your money is available when you want it. Transaction means that you can tell the bank to give your money to someone else.

READING A CHECK

There are three kinds of information on the front of a check -- some preprinted, some written in, and some added when the check is processed.

Pay to the order of makes a check negotiable, or transferable, which means that the person il s made out to can demand the amount the check is written for. No, other wording requires your bank to pay out the money.

The name of the person or company who can demand the amount of money from your bank. To gel money yourself, you can make the check out to yourself Making a check out to "Cash" is risky because the bank may honor if -- even if the check is stolen.

The amount to be paid written both in numbers and in words. If the two don't agree, the words usually lake precedence -- though the bank may return the check. If you correct an error on the check, initial the correction; that may satisfy the bank's questions. If the check is altered by somebody else -- like making a $10 check a $110 by inserting a "1" -- and the check is cashed, the bank must refund your money -- provided you were not negligent (like signing a blank check) and if you notify the bank within a year.

The checking routing number is used when me check is processed. It identifies your bank, the collection arrangement for its checks, and the Federal Restore Bank for your area.

Your bank account number and the check routing number are printed in magnetic characters tidal bank scanners use when processing your check.

MICR CODES

The strange computer digits you see on checks are called MICR codes (Magnetic Image Character Recognition). The digits actually have iron in their ink so that a scanner can read them magnetically. The numbers have this unusual shape because each image must be a certain height and width to hold enough iron in the ink to be readable.

TRUNCATION

American banks have a routinely returned your cancelled checks to you. Some are experimenting with truncation (also called check safekeeping), which means your checks stop either at the bank where they are deposited or at your bank. The checks themselves are photocopied and then destroyed. Banks like the process because it saves money.

The date your bank debited your account, or your check clears. The number of days between when you write a check and when it clears is called a float.

The date and bank where the check was deposited are important proof against claims a check was late -- or that it never arrived.

Endorsement, or signature, is required -- and by federal law must appear within the top inch and a half, on the left end. To be sure that checks you deposit are credited to your account, write "For deposit only," and the account number above your signature -- if you can fit all that in the space you're allowed. You also have the option of using a stamp with the relevant information.

The check number makes your record-keeping and the bank's processing easier.

The date is important because a time limit -- usually six months -- can be imposed on how long a check is fresh, or valid. The bank can refuse to pay stale, or old, checks. If you postdate a check by writing in some future date, it may be paid sooner than you intended because the electronic scanning equipment can't read the date.

Your check number and the amount of the transaction are MICR-printed when your check is processed so that bank computers can read them. Now the bottom of the check contains all of the information necessary to debit your account and record the transaction.

Your signature authorizes the transaction. It can be legible or illegible -- as long os it corresponds with the signature card you signed when you opened the account. If someone else signs your name, it's forgery. If the bank honors a forgery, you are usually not responsible and can demand that the bank credit your account.

How Checking Works

Knowing how checks are paid and when deposits are credited can help you manage your money better.

When you deposit a check in your account it's sent to the bank of the person who wrote it. The bank debits, or takes money out of, that person's account and transfers it electronically to your bank.

If you both use the same bank, the amount is credited to your account the next day. If another local bank is involved, the process takes a day or two. And if the two banks are far apart, the transfer usually goes through the Federal Reserve System.

WHEN CREDIT IS DUE

Before 1988, banks made their own rules determining when checks had to be credited, or added to your account balance. Now Federal Reserver regulations determine when your money must be available.

Banks can require that you deposit checks with a teller to make the money available promptly. That means deposits in ATMs are usually credited more slowly, especially when you use a machine that isn't owned by your bank.

Your bank can charge you a fee for paying checks that you write against uncollected funds -- deposits that haven't been credited yet. Correctly estimating your float, the time lag between when you write a check and when your bank clears it, lets you figure out when your checks will clear.

For example, if your paycheck is deposited directly into your checking account on the 15th, checks you mailed to an out-of-town address on the 13th probably won't clear before there is money to cover them.

BOUNCING CHECKS

If there's not enough money in your account to cover a check you write, your bank can refuse to honor, or pay, it. The person who cashed it gets the bad check back, and may have to pay a fee. You're also charged a fee -- sometimes as much as $30. If several checks bounce on one day -- as they might if you've made an error -- the charges can be staggering. It can hurt your credit rating as well.

The best way to avoid rubber checks is to apply for overdraft protection, a special line of credit that covers checks you write when there isn't enough money in your account. The bank automatically transfers money to your account to cover the check -- and it charges you interest on the amount transferred. In the long run, though, overdraft protection can save you money and aggravation.

STOP PAYMENT

If you write a check you don't want the bank to pay, or write a check and lose it, you can -- for an extra fee -- put a stop payment order on it. An oral order -- either in person or on the telephone -- is good for 14 days. A written order lasts for six months. The bank must honor your order if it's timely, which generally means before the check is paid. If the bank pays the check anyway, you can demand your money back, but you'll probably have to show written proof that you ordered the payment stopped.

WHEN YOU CAN WITHDRAW

If you deposit a $1,000 check in your account, when and how much you can withdraw depends on the type of check and where it's from.

A federal, state, or local government check $1,000 -- 1 day later
A bank, certified, or travelers check $1,000 -- 1 day later
A check from your own bank $1,000 -- 1 day later
A local check $100 -- 1 day later; $900 -- 2 days later
A non-local check $100 -- 1 day later; $900 -- 5 days later
Electronic transfers $1,000 -- 1 day later

Checking Variety

With so many types of checking accounts available, you can target the one that's best for you.

Banks offer a range of checking accounts to appeal to different customers. Some are bare bones, basic accounts for people who write only a few checks a month. Others may offer interest on your account balance, or links to brokerage accounts.

When you're choosing an account, you may also want to think about whether it will be in your name alone or joint, which means having two names on the account, each with access to the money in it. Married couples often have joint accounts, allowing either of them to write checks against the balance. But you can have a joint account with anyone you wish, whether a family member or not.

Checking Accounts How They Work Fees and Balances

REGULAR CHECKING
You can write as many checks as you want, but you earn no interest on your account.
Banks impose a fee for each check, or monthly charges, or both. Typical charges are $2.50 to $15 a month and 30¢ a check. If you keep a certain minimum balance in your checking or savings account, you may get free checking.

NEGOTIABLE ORDERS OF WITHDRAWALS (NOWs)
You can write as many checks as you want. You may earn less on your balance than you would an a regular savings account. NOWs may be package deals, with small discounts on loans, or no credit-cards fees.
If you don't keep the required minimum balance, the fees are usually higher than those on regular checking accounts.

MONEY MARKET DEPOSIT ACCOUNTS
You earn a changing rate of interest to reflect market conditions. When rates go up, they pay well. Banks may offer high initial rates to attract business.
You need a large minimum balance, and fees are high if you keep less than the minimum required. Some accounts limit you to three checks per month and restrict money transfers.

MONEY MARKET FUNDS
Available through mutual fund companies, these accounts pay market-rate interest and rarely charge fees for checks. There is usually no limit on the number of checks you can write.
The funds may require a minimum balance. Checks must be far a minimum of between $250 and $500. You may have to wait 14 days to write checks against deposits.

ASSET MANAGEMENT ACCOUNTS
Brokerage houses or banks that handle your investments may also offer checking accounts. You can write an unlimited number of checks and you get a comprehensive year-end statement, plus the advantage of using one account for all your banking and investing.
You need a relatively high balance, often $5,000-$25,000, to open an account, and you usually pay an annual fee, plus fees for investment services.

MINIMUM BALANCES

A minimum balance is the least amount of money a bank requires you to keep on deposit to qualify for certain benefits like reduced fees or free checking, or to earn the stated rate of interest.

Some banks figure your average minimum balance for the month. That means the total amount of money on deposit during the month must average above the minimum. Other banks charge a fee if your balance drops below the minimum at any time during the month.

Some banks define the minimum as the combined amount in all your accounts (checking, savings, money market, even CDs). Others don't.

Taking advantage of minimum-balance options can save you money on bank fees. But you'll want to compare what you save with what you could earn by investing your money elsewhere. And you want to be careful not to sign up for accounts with required minimums for earning interest or avoiding fees if you're not likely to meet them. These accounts could cost you a lot.

The Art of Checking

Choosing personalized cheeks today no longer means deciding between pale blue, pale yellow and pale green -- although those old standards are still available. Banks offer checks in multiple patterns, type faces and sizes, and often charge extra for special orders. You can also get checks directly -- and often more cheaply -- from other sources, like printing companies and non-profit organizations. As long as the checks have the correct information, format and MICR coding, they work the same way as the checks, a bank supplies. In fact they may be printed by the same company.

Special Checks

There are times when your personal checks are just not good enough.

Though your personal check will fill the bill in most cases, there may be times when you'll have to use a check that comes with a payment guarantee. That's usually the case when a large amount of money is involved -- when you buy a home, for example -- or when an out-of-town merchant ships you an expensive product. Though you can sometimes use credit cards in these situations, your payments can be cancelled or delayed if you dispute the charges -- something the seller wants to avoid.

Several types of special checks are available from banks, sometimes even if you don't have an account with them. You can get other checks or check substitutes from the U.S. Postal Service, or from credit card or travel companies.

Cashier's Checks

Cashier's checks, sometimes called bank checks, guarantee that the check is good because it is drawn against the bank's account.

HOW THEY WORK

You give the bank money for the amount of the check you want written, along with your name and the name of the recipient. The bank officer makes out the check -- which is usually machine-printed so it can't be altered -- signs it and hands it to you. You also receive a carbon copy as a record, since the cashed check is not returned to you.

The charge for a bank check is usually less than the charge for a certified check. You can't stop payment once the check reaches its destination.

WHAT'S THE CHARGE?

A retailer can t charge your purchase to a credit card if the card number has been used simply os identification -- even if your check bounces. That's one reason you might have to use a check that your bank guarantees.

Certified Checks

Certified checks are personal checks that your bank guarantees it will honor.

HOW THEY WORK

After you write the check, your bank freezes, or puts a hold on your account for the amount of the check, and stamps the face certified.

There is a fee for each certified check, but there is no limit on the amount of the check, provided you have enough money in your account to cover it. However, you can't stop payment on certified checks after they reach their destination.

Traveler's Checks

Traveler's checks are issued by travel companies, banks and credit card companies to bo used in place of cash in places where you might have difficulty using a personal check.

HOW THEY WORK

You can buy the checks in various fixed denominations, or amounts, in local or foreign currencies. You sign your name when you receive the checks, and again when you cash them. Once you use a check, it is returned to the issuer. You have no official record of using it.

There is usually a 1% fee for buying the checks, unless you get them free for keeping money in a bank account or as a perk of membership in certain groups. They have one drawback and one great advantage. Sometimes you have to pay a fee to cash them, which can double their cost. But if the checks are lost or stolen, you can get them replaced almost immediately by simply calling the issuer.

Money Orders

Money orders are useful if you don't have a checking account. They cost about $3 at banks and 85¢ at post offices, making them the least expensive guaranteed checks.

HOW THEY WORK

You pay the teller or clerk the amount you want the money order made out for, plus the fee. The amount is printed on the money order. You fill out the requested information, sign it, and send it. (A bank will sell you a money order even if you don't have an account there.)

Money orders are a reasonable alternative to checks if you need them occasionally, but they have limitations. The money order is not returned to you, so you don't know if or when it's been cashed. Also, you can't stop payment once you've sent the money order, and there may be restrictions on the amounts. Post office money orders are capped at $700, though you can send up to five, or $3,500, at the same time. Many banks cap money orders at $1,000.

ATMs: Tellers Go Automatic

Automated teller machines have changed banking radically -- in most cases for the better.

Instead of having to wait for banking hours to make a deposit or get cash, you can do most basic banking transactions -- and even some complicated ones -- 24 hours a day, seven days a week. All you need is a bank account, an ATM card, a personal identification number (PIN) and a machine that accepts your card.

You can use the ATMs to complete as many separate transactions as you want. Usually the only limit is the amount of cash you can withdraw on any one day. Different banks have different limits, ranging from $200 to $500.

A WORLDWIDE NETWORK

Most banks are part of regional and international networks that let you withdraw cash from your accounts at ATMs around the world. If your bank is an international one, you may look first for a branch office. But most domestic banks are part of one or both of the two largest U.S. network systems, Cirrus and Plus. All you have to do is find one of those logos on a bank, airport or retail store machine. You can get cash anywhere the system exists: dollars in Utah, yen in Tokyo, or pounds in London, whether you bank in Atlanta or Timbuctoo.

You may pay a small fee -- often $1 -- for using an ATM outside your regional network. But many people consider it a small price to pay for the convenience. As an added bonus, the exchange rate for the foreign currency you get from an ATM is usually among the best you'll find.

WHAT IF SOMETHING GOES WRONG?

The most common ATM problems come from customers -- and clerks -- who records the wrong amounts on deposit or withdrawal slips. But if you spot a problem, contact your bank quickly. The bank must respond within ten days and resolve the problem within 45 days. If you still have a complaint, they must give you a copy of their report to review.

If you discover your ATM card is lost or stolen, report it immediately. You have two business days to report an unauthorized withdrawal listed on your monthly statement to limit your potential liability to the first $50 withdrawn. Waiting three to 60 days to report the problem extends your liability to $500. Waiting over 60 days can cost you everything in your account.

These rules are different than those for credit cards. That's because ATM cards are debit cards. The money is deducted from your account immediately.

FEES FOR EACH USE

Many banks charge for using an ATM, especially for using your card at another bank's machine. And that bank can charge a fee as well. Fees can range from 50¢ to $2, and are increasing despite customer resentment.

HOW ATMs WORK

1. The ATM card has your name and a 16-digit account number embossed on the front and a magnetic tape, or strip, on the back that identifies your bank and account number.

2. When you insert your card, the screen asks for your personal identification number (PIN). If you enter the correct one, you can access whichever accounts are tied to your card.

If a PIN is entered incorrectly three times, most machines won t return the card, because they assume an unauthorized person is using it. To get it back, you should notify your own bank. They'll return it or replace it for you.

3. The machine displays a series of screens that walk you through a number of transactions. For example, you can:

* Withdraw cash
* Deposit checks
* Transfer money
* Pay your credit card bill
* Check your account or credit card balance

4. The machine returns your card and a record of what you've done.

Check each receipt against your monthly bank statement and follow up immediately with your bank if you uncover any errors.

ATM CARDS AS DEBIT CARDS

Many retailers now have ATMs in their stores. The amount you purchase is automatically debited from your account and transferred to the retailer's. Stores like the arrangement, because they get their money immediately.

You may be more reluctant: some banks charge a fee for using your card this way -- plus you lose the float, or the time between your purchase and the time your check clears or your bill is due.

OTHER DEBIT CARDS

You may also be looks like your ATM or credit card but is used exclusively to make purchases, in effect replacing checks. These debit cards don't require a PIN number, which can make them more vulnerable to misuse, they have fewer liability protections than checks or credit cards if they're lost, and there may be an annual fee for the convenience, of not having to write a check or produce identification.

The Monthly Statement

Balancing your checkbook every month helps you keep tabs on where your money is going.

As banking services expand, monthly statements have become important records for managing your daily finances. Besides being a record of the checks you wrote, the statement shows your deposits and withdrawals -- both cash and ATM transactions -- and may also provide helpful information, such as when your CD will mature or what current loan rates are. Some banks have developed relationship statements, which report on all the accounts you have with the bank -- checking, savings, CDs and even loans. The advantage is convenience: you have a monthly snapshot of your dealings with the bank all on one document.

KEEPING TRACK OF CHECKING

All checkbooks come with ledgers to record the checks you write as well as your deposits and withdrawals. They let you keep a fairly accurate record of your financial transactions. And they help you locate errors by comparing your records against your monthly statement. You can choose from three types of checkbook ledger system.

Separate ledger uses a separate booklet that fits into your checkbook. It lets you keep a running balance alongside the details of each check.

IF THERE'S AN ERROR

In most cases, bank statements are right. But you should compare your records -- such as ATM receipts and deposit slips -- since errors do occur. Generally, you have 60 days for questions involving electronic transfers, but only 14 days for other kinds of mistakes. The sooner you notify the bank, the better.

KEEPING CANCELLED CHECKS

You should keep your cancelled checks as long as you need proof that payment was made. Credit card statements, as well as phone and utility bills, show when the payment was credited to your account. But insurance and mortgage companies usually do not send confirmations. Your cancelled check is your receipt. You should keep checks you write for income taxes until they can no longer be audited, usually three to five years. And you should always keep checks for items that are part of your tax records, such as home improvements.

GETTING HELP

Most banks will help you cope with problems you're having balancing your checkbook or following up on a check you've written. Sometimes the easiest thing to do is visit your branch and talk to one of the bank representatives. If you take your checkbook and other records, someone there will usually help you sort out the problem. Since banks have computer records of their customers' accounts, finding the point at which you -- or your check -- went astray should be relatively easy.

You may also be able to find out whether a certain check has cleared your account or been credited to it by calling the bank's customer service number. Beware, though, that in some cases there may be a fee for the information if it's given over the phone.

Balancing the Pluses & Minuses

On the back of your monthly statement you'll find a worksheet for balancing your account.

If the bank's balance doesn't tally with your checkbook -- and it often doesn't -- here's what to look for:

Fees the bank charged for checks or other services

Checks or withdrawals you forgot to enter or entered incorrectly

Missing debit amounts for automatic payments, like your mortgage

Transposing numbers (writing $97.50 instead of $79.50)

Check stubs are attached to checks that are usually packaged in a ring binder. The stub is left in the binder after the check is detached.

Carbon-copy system provides a copy of each check you write, but you have to figure your balance separately. It's the standard in credit union checking accounts.

CD: Certificate of Deposit

CDs are popular investments because they live up to their promises of safety and income.

When you put money into a bank CD, you expect to get it back at a specific time, plus the interest it's earned. In return for that security, you agree to leave your money on deposit for a specific period of time, typically six months to five years. The minimum deposit is often $500, but there's rarely a ceiling, or upper limit. In investment terms, the money you put in is known as your principal. The length of the CD is its term, and the time it matures, or ends, is its date of maturity.

CHOOSING CDs

One of the first things you look for in a CD is the interest rate, since that affects what you earn. Generally, the longer the term, the higher the rate, to make tying up your money more attractive.

You can buy CDs through almost any bank, and can often handle the entire transaction by mail and telephone. Many people, though, use a local bank for convenience. And unless the rates offered at a distant bank are substantially more, you may not earn enough extra interest to cover the cost of postage and phone bills. The table here, which appears monthly in The Wall Street Journal, lists the best rates offered around the country on CDs with the most common terms.

WHAT HAPPENS AT MATURITY

When a CD matures, you decide what you want to do with the principal, but you have to tell the bank in writing what you've decided within the time limit it imposes. If you wait too long or never give instructions, the bank can roll over, or reinvest, your CD into another one of the same length at the going rate.

You might ask for a rollover in any case, but if you need the money, or if the new rate will be lower than the interest you've been earning or can get on a different investment, you might decide to get out of CDs. In that case, the bank can sweep, or move, the money into another of your accounts, wire transfer it to another bank for a fee, or send you a check.

BUYING FROM A BROKER

You can also buy a CD through a stockbroker or other financial adviser. Brokerage houses, firms that buy and sell stocks and other investments, buy bank CDs in large denominations and then break them into parcels and sell them to individual investors. Because you own only part of a CD, you're not committed to holding it to maturity and can sell without penalty at any time. You may get a better interest rate, too, since the large underlying CD commands a higher rate. The tradeoff for the flexibility and the earnings often means paying a commission, or sales charge, to the broker, something you don't pay for a bank CD.

YIELD -- COMPOUNDING IS KEY

What you actually earn on your CD, in dollars and cents, is the yield or the annual percentage yield (APY). The yield depends on wheth
er the interest is simple or compound, and how it's compounded.

Simple interest is paid only once a year, while compound interest can be paid in a variety of ways, from daily to semiannually. Here's an example of how interest is compounded when it's paid quarterly:

First quarter
Base amount
+ Interest

Second quarter
= New base amount
+ Interest

Third quarter
= New base amount
+ Interest

Fourth quarter
= New base amount
+ Interest
= Value after one year

USING CDs

If you have regular costs, like tuition payments, or anticipate a large cost at a specific time, you can time your CDs to come due when you need the money. Banks may be flexible, too, if you ask for a special term. For example, if you are planning to buy a house in seven months, you may be able to get a custom seven-month CD at a better rate than a regular six-month variety.

Savings

Putting money away for a rainy day is the basic idea behind savings accounts.

You can put the money you don't need for everyday expenses into deposit accounts, better known as savings accounts. You can move the money in a deposit account into another account at the bank, your checking account for example. You can have it transferred to an investment account, or you can withdraw it. But you can't write a check against it.

Banks generally offer several varieties of savings accounts and pay interest, or a percentage of the amount on deposit, to encourage you to keep your money in the bank. But the appeal of traditional savings accounts has eroded because there are so many other ways for your money to grow faster. That's because the interest rate is low in relation to what you could earn by investing your money in stocks, bonds or mutual funds, or in bank CDs or money-market accounts.

WAYS TO SAVE

Passbook accounts are the traditional savings accounts. You get a booklet when you open your account showing the amount of your deposit.

Each time you deposit or withdraw, the teller records the amount, adds the interest you've earned and figures the new balance. Your booklet is your record. If you lose it, you'll probably be charged a fee to replace it.

Statement accounts are increasingly common. When deposit, withdraw or earn interest, the transactions are reported either monthly or quarterly on a statement. If you have more than one account with the bank, they may all be shown on one statement.

Holiday savings clubs require a weekly deposit of a fixed sum of money so you'll accumulate a desired amount in time for holiday spending. You can make the deposit yourself or have the amount transferred from another account. Some holiday clubs pay the same rate as a regular savings account, but others pay no interest.

FIGURING INTEREST

Some savings accounts, including money-markets accounts, may pay different rate is tiered, you earn the highest rate on your entire balance once you meet the minimum. If it is blended, you earn different rates.

Tiered means you earn the highest rate the bank offers on the entire $12,000.

Blended means you earn one rate on the first $1,000, a better rate on the amount between $1,001 and $9,999, and the highest only on the remaining $2,000.

NICKELS AND DIMES

The method of figuring compound interest can make a greater difference in the amount you earn than the frequency with which it is added to your account.

Banks use one of two basic methods:

* Day-of-deposit to day-of-withdrawal means that all the money in your account earns money every day it's there

* Average daily balance means that interest is paid on the average balance in the account for each day in the period

In many cases, the resulting interest is the same. But if you have a choice, experts suggest that the first method will pay you more. Either is better than the lowest balance method, or paying interest on the smallest amount of money on deposit in the period for which interest is figured.

It's also a good idea to check when interest is credited before you close an account. You don't want to lose several months of interest by taking the money out just before a quarterly payment, if you can possibly avoid it.

MONEY-MARKET ACCOUNTS

Banks also offer money-market deposit accounts, which usually pay a higher rate of interest than regular savings accounts as long as you maintain the required minimum balance. Money-market accounts also allow you to write a limited number of checks -- frequently three -- each month. You can also arrange to have money transferred from your money market into your checking account, either regularly or as you need to.

The chief advantages of a bank money-market account over its main competitor, a money-market mutual-fund account, are that the bank account is insured by the FDIC, while the mutual fund is not and there are no management fees for the bank account as there are for the fund account.

However, bank money-market accounts tend to pay less interest than mutual funds and impose more regulations on check writing and transfers.

SAFE-DEPOSIT BOXES

Safe-deposit boxes are designed for keeping important papers and objects such as deeds, jewelry, birth and marriage certificates, plus a list of your valuable possessions. Most banks rent them for anywhere from $15 to several hundred a year, depending on the size of the box. You can spend as much as $3,000 at one New York bank for a safety deposit box the size of a small closet.

However, you can use the box only during regular banking hours. And the box may be sealed if you die, limiting access to valuables for your surviving family -- including your spouse -- until your will is legally filed.

Technology: New and Old

Most of the innovations in modern banking are the result of increasingly sophisticated technology.

Tradition is probably what keeps you and other people writing checks to authorize payments or making trips to the bank to take money from one account and put it into another. If you choose, you can handle much of your day-to-day financial business by telephone or computer without ever leaving home -- except for an occasional trip to an ATM.

In fact, your bank -- or non-bank -- can be in another state or across the country if that's where you find the best service at the most reasonable cost.

THE COMPETITION KEEPS UP

Brokerage firms and mutual-fund companies are using technology the same way that banks are to make moving money quicker, and hands-free. Most of them will accept instructions by telephone or computer to move money from one account to another, buy or sell an investment, or send you a check for all or part of your cash balance. It's their way of providing -- usually at the end of the same business day -- the same kinds of financial services a bank provides.

Though you usually pay an annual management fee -- typically $100 a year -- on cash-management accounts, or CMAs, handled through a brokerage firm, you may find that the service costs at these non-banks are less than your local bank charges.

INSTANT CASH

If you want to get money to another person quickly, you may be able to use a Western Union Money Transfer or an American Express Moneygram. It's not cheap: usually around $20 to send $250 and up to $75 to send $1,000 -- but the money can be available across the country or around the world in ten to 15 minutes, fast enough to get somebody out of a financial jam.

Or, if the person has an ATM or American Express card, a pin number and an account you can get money into, he or she can withdraw as soon as the amount is credited to the account, as long as there's a teller machine available. Since these withdrawals come directly out of a linked account, there's no cash advance charge.

DIRECT DEPOSIT

Direct deposit of paychecks, investment earnings, pensions and social security payments speeds up access to your money because it eliminates any delay in checks getting to your bank. The amount is credited electronically to your account on the day of payment and is available either immediately or the next day. Banks are happy to have direct deposits. It cuts down on traffic and keeps money coming in regularly. Some even reduce checking account fees if your pay-check is direct-deposited.

You sign up with your employer, broker or the government by giving them your bank information. They handle the rest. It's also possible to have your check split between two accounts if you want to put money in an investment account as well as a checking account each month.

Problems are rare, but they happen, most frequently when you change banks or your bank changes hands. Dealing with a problem means:

1. Contacting the source of the check and your bank to have the amount credited

2. Being sure the problem isn't the result of wrong information, which means it will happen again

WIRE TRANSFERS

Wire transfers are another way to move money safely and quickly. For example you and your brother were buying property together and he were handling the transaction, you could have money moved from your account to his overnight.

You ask your bank to transfer the money and provide the name and number on the account to which it is going, plus the name and identification number of the bank. Usually, the transaction goes through at the end of the same business day you make the request and is available in the new account during the next day. You pay a fee for the transfer, usually around $20, a little more than you'd pay to send a check by overnight courier. But in that case, your brother would have to wait several days for the check to clear.

You can also have wire transfer privileges between a money-market mutual fund and a bank account, as long as the two are registered in the same name or names. It's usually easy to arrange in advance, at the time you open your mutual-fund account. And often there's no fee when the fund initiates the transaction.

Home Banking

Home banking doesn't mean stuffing your cash in the mattress.

Many experts feel that home banking is the next wave in personal finance. But it a far cry from keeping all the money you had in the world hidden somewhere in the house. Home banking lets you handle most of your bill-paying, account juggling and investing directly from home using a program on your personal computer or your telephone. And it keeps you out of the bank.

DIRECT PAYMENT

You may be able to pay some of your bills by having the amount due debited directly from your account and credited to the biller's account on a specific day each month. It often works best when the amount due is the same from payment to payment, as it would be with a mortgage, car loan or tuition payment.

Usually all that's required is signing a consent form supplied by the hiller, and sending a voided check or deposit slip from your account. There's no charge for the arrangement-in fact sometimes there's a small bonus for participating. But you do have to be sure that you have enough on deposit to cover the withdrawal -- or bank overdraft protection.

ELECTRONIC BANKING AROUND THE CORNER

Electronic banking in the future will streamline the current systems and give you up-to-the-minute information on account balances, transactions and a host of financial details. You'll be able to access your virtual bank -- whether it's web-based or the one on the corner -- using your computer or phone.

Your bills will be paid and amounts debited from your account electronically, at your direction, leaving little room for the errors that crop up when you handle sums of money or record numbers in your checkbook.

Plus, you'll have a single source of information on all accounts, giving you more control over your investments and adding a new dimension to the definition of a sweep account.

Its limitations, beyond the obvious ones of needing the hardware and learning to use the software, will undoubtedly unfold as the expectations come closer to being realities.

AMERICANS PAY 18 BILLION BILLS EVERY MONTH

NOW AND WHEN

When you authorize your bank or computer banking service to pay your bills, your instructions can be handled one of two ways:

* The bank or banking service prints and sends a check to the biller

* The bank or service debits your account electronically and credits the biller's. Checkfree, for example, aggregates, or lumps, together, all of its clients payments to a single vendor and makes one electronic payment. It then notifies your bank -- and the banks of all its other clients of the total to be debited from each individual account

The first is still more com more though obviously the second is iii the true spirit of electronic banking. When it becomes the morn. it should not only simplify banking but also save staggering amounts of paper and postage.

BANKING WITH SOFTWARE

You can use computer software, like quicken or Microsoft Money, in conjunction with your bank or an on-line service like Checkfree. to organize your personal finances and pay your bills.

The chief advantages, in addition to the primary one of not having to write and mail checks, are having accurate records that can be coded and sorted to simplify your record-keeping and tax preparation and provide an accurate overview of your budget and cash flow. And in most cases. you can authorize a payment to any hiller you include on your list.

This more sophisticated form of electronic banking shares some of the drawbacks of the simpler one, plus some of its own:

* You must give five days advance notice and lose the float on your money

* There's a regular monthly fee -- S9.95 is typical -- for the service, plus bank fees if they apply

* It requires extensive data entry and upkeep, including information on local checks you write, AIM withdrawals and deposits

Copyright © 1997 by Lightbulb Press, Inc. and Dow Jones & Co., Inc.

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