How to Read Financial Statements

woman checking computerwoman checking computerBy MP Dunleavey

Get Statement-Savvy

Your bank statement arrived! Hurray! You can't wait to review your transactions, enjoying that warm feeling of...yeah, no, I don't feel that way either. I've been writing about money for a long time, and even I don't want to open that envelope of mumbo-jumbo. But knowing what to look for is a good way to gain control of your cash-and keep more for you. Photo by Getty


Stop Overdraft Charges

As you peruse your day-to-day transactions, some will be clear ("ATM withdrawal...$60") and some may not. One confusing abbreviation that you'd be wise to look out for is ODP, or overdraft protection.
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First of all, you should know that ODP is hardly "protection," but a way of charging you a bundle if you spend more than what's in your checking account. Let's say you have $100 in your account but pay a bill for $150. Many banks will transfer the extra $50 from a linked overdraft account that often acts as a line of credit. Once upon a time, that check might have bounced, but now it won't, thanks to handy-dandy ODP. Right?

Of course you don't want your check to bounce, but the price you pay to prevent it is mighty steep: Banks charge an average of $35 per transfer from the overdraft account. So now that extra $50 is costing you around $85, plus interest on the $50 "loan" the bank is granting you. Even more horrifying: If you are overdrawn and don't notice for five days or more, Bank of America, for one, will charge you a $35 "extended overdrawn balance charge" on top of their $35 fee!

In fact, Americans pay astronomical amounts in fees-in part because many don't realize they are signed up for ODP. New rules now prevent banks from automatically signing you up for ODP on your ATM withdrawals or debit card purchases. The trouble is, you might still have it for checks and other charges.

DO THIS: Opt out of ODP. Call your bank and tell them to cancel ODP-for ATM and debit card transactions, as well as checks and repeating charges. Then ask to have a savings account linked to your checking. If you ever overdraft, the cash will be transferred from your own account, and the fee is typically much lower.

Not spending more than you have, of course, is the smartest move. I signed up for my bank's free low-balance alert, which emails a heads-up if my balance drops below a certain amount.


Fees, Fees Everywhere

It used to be relatively easy to read through the transaction list to see what kinds of services your bank was charging you for. Now, that list might have some head-scratchers.
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These days, you could be charged for any number of services that were free in the past. Depending on your bank and type of account, you may be penalized for calling customer service, for not maintaining a minimum balance-or even for making deposits or withdrawals with an actual human teller, instead of online or at an ATM.

Worse, these charges may show up under vague labels. A "monthly maintenance fee" might bundle fees for online banking as well as your paper statement and other services-but it depends on the account you signed up for. An NSF (Non-Sufficient Funds) Return Fee could kick in when your check is returned because you don't have ODP or a linked account to cover the shortfall.

DO THIS: Call the bank and question any baffling fees. It's also smart to familiarize yourself with random abbreviations (PPD, for instance, stands for Prearranged Payment or Deposit, such as a paycheck coming in or a bill payment going out). Once you're aware of what triggers a charge, you can avoid it. Some abbreviations, such as ATF (Automatic Transfer of Funds, indicating money transfers between accounts that you've previously arranged), typically don't involve fees, but are good to know about so you can catch errors.


Say "Debit" and Mean It

Tap, swipe, sign or punch in your PIN number-there are so many ways you can shop with your debit card. How you used your debit card usually shows up in the ATM or Debit Card Withdrawals section of your statement, and that's likely where you'll find most fees.

But be careful: Shopping with debit cards is tricky. If you use your PIN for the purchase, your bank may assess a fee. Also, you leave yourself vulnerable to identity theft if someone scams your account numbers, since debit cards offer little fraud protection. Signing used to be the much better option, because your debit card acted like a credit card through Visa or MasterCard (meaning the bank didn't charge you a fee), even though the money came from your account.

Now, however, new rules allow stores to charge you a fee for using a credit card. That means that when you use your debit card and you sign, the retailer may mistakenly assume you're paying with a credit card, and you could get charged an additional amount (a percentage of your purchase amount).

DO THIS: Double-check that the cashier knows you're paying with debit and that you'd like to sign, not punch in your PIN. Those little fees add up.


"I Made a Small Change"

Hadassah Sabo Milner, 39, of Spring Valley, NY, is glad she took the time to examine her bank statement.

"I found small debits from a mystery company-adding up to $100! After I talked to my bank, they agreed it was fraud and I was reimbursed. Now, for every statement, I sit down with a cup of coffee, my checkbook and receipts, and go through it with a fine-tooth comb."
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Financial Expert

MP Dunleavey writes monthly in WD about easy moves you can make to improve your finances. She is the editor-in-chief of DailyWorth.com, a daily email about getting more out of your life and your money.

"How to Read Financial Statements" is part 1 of a multipart yearlong series.


Original article appeared on
WomansDay.com.

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