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Finance 101

How do I keep a Checking Account Journal?

With today's online and on-the-go technology, you may be wondering if it's necessary to keep an "old school" checkbook journal anymore. The answer is a resounding YES, and here's why.

For starters, if you are only relying on your financial institution to tell you the "funds available," you may get yourself quickly into financial trouble. Although cash withdrawals show up instantaneously, not all other transactions will. When you use your debit card at some retailers, there may be a delay. It could be as short as a few hours or it could be as long as a few days.

Other areas where you could misjudge the funds you truly have available include if you've written out a check or have funds electronically transferred on certain dates. If you aren't keeping an accurate checking account journal, both can cause your "funds available" and your true funds available to be off. This can result in a lot of headaches, and possibly bounced checks and costly fees.

Finally, keeping a checking account journal prevents mistakes. When you are reconciling your checking account each month, you'll quickly notice any discrepancies. The sooner you fix those, the more accurate financial picture you have.

The above document(s) is in Portable Document Format (PDF) which can be read by Adobe's Acrobat Reader. If you do not have Acrobat Reader, you can download it free from Adobe's download site.

What's the difference between APR and APY?

We hear the terms APR (annual percentage rate) and APY (annual percentage yield) used all the time, but what do they really mean and how are they different? The difference lies in how hard your money is working for you; it's all about the rate in which your investments are compounded.

APR is the annual interest rate that is paid on an investment; it doesn't take into effect how your interest is applied. APY, on the other hand, is all about the frequency (how often) the interest is applied to the balance. This can be daily, monthly or annually.

Here's an example:
You deposit $10,000 into an account that has an APR of 5%. If interest is only applied once per year, you would earn $500 in interest after one year.

Let's see how it differs if you apply the interest to the balance on a monthly basis. The 5% APR will now be broken down into twelve smaller interest payments for each month, or in this case around 0.42% per month.

With this method, your $10,000 deposit will actually earn $42 in interest after the first month. That means in the second month, 0.42% will be applied to the new balance of $1,042. The second month, after the 0.42% is applied you will have earned more than the first month: $42.18. After the end of the year, with the interest compounded monthly, you'll end up with $515.79, which is a $15.79 gain over if interest is only applied annually.

When shopping for a new savings or certificate account, make sure you take the time to uncover the terms, and compare them, so you can get find accounts that yield the most favorable interest. Pay attention to the fine print in the disclosures so you understand any penalties, conditions or restrictions that could have an effect on your earning money on your money.

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*APR=Annual Percentage Rate   **APY=Annual Percentage Yield
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