A bank statement is like a copy of your medical history.
It’s an important collection of information, but most of us don’t actually look at it unless something is wrong. You may take a quick glance at your balance every month, but chances are that piece of paper goes straight in the trash shortly after.
However, if read correctly, your statement can tell a much more interesting story than you may realize. It can offer a close look at your financial habits, highlight potential problems, and prove your worthiness as a borrower. Your bank statement can also help you build a detailed budget.
The key to understanding your bank statement is learning to speak the language.
What is a Bank Statement?
A bank statement is a record of your transactions from a checking or savings account over a certain statement period.
It shows all the deposits and withdrawals that occurred in your account, including checks you wrote, credits you received, and more. The bank statement also shows your beginning and ending balance, as well as how every transaction affected your balance.
Bank statements are useful for monitoring your spending and your deposits. A mortgage lender might also ask to see your bank statements to make sure you have enough to make monthly payments or to ensure that no suspicious deposits have occurred recently.
How to Read a Bank Statement
If you’ve never actually checked your bank statement, reading it for the first time is like translating hieroglyphics. Thankfully, understanding a bank statement is simple once you learn what each part represents. Here are the most important terms to know:
Starting balance: This is the amount you had in your account during the beginning of the statement period. In other words, it’s the balance of your account before any deposits or withdrawals were made.
Ending balance: This is the amount in your account when the statement period ends. If you save more money than you spend, your ending balance will be higher than the starting balance. If you spend more or transfer more to a different account, you’ll have a lower ending balance than you started with.
Deposits: These are individual installments of funds into your account. This can include direct deposit from your employer, cashed checks, wire transfers, money you transferred from PayPal or Venmo, and other credits.
Withdrawals: This portion of the statement shows the transactions where you withdrew funds from your account. This can include both online transfers, like a payment to your credit card, and transactions that occurred with your debit card.
Interest: Some banks pay interest on their checking accounts. If you earned interest during the period, your bank statement will show how much you earned. If you have multiple savings accounts under the same umbrella account, the statement may show the total interest paid as well as the total interest for each account. Some banks will also list the amount of interest you’ve earned over the life of the account.
Fees: This portion reveals the exact fees you paid during the statement period. That can include fees for overdrafts, returned checks, ATM withdrawals, and a monthly maintenance fee. If you went abroad and used your debit card, you may have been charged a foreign transaction fee or ATM withdrawal fee.
Daily balance detail: Your bank may also show your balance for each day of the statement period. This allows you to see how your balance fluctuated throughout the month. It can be useful for anyone who likes to examine their spending habits in detail.
Overdraft protection: Your bank statement may reflect if you have overdraft coverage on your account and whether it had to kick in at any point during the statement period.
Statement period: These are the dates during which the transactions occur, usually a month-long period. However, if the statement says, “January 2019,” that doesn’t necessarily mean the statement period was actually for the month of January. It may begin at the end of December and end a few days before the end of January.
How to Use Your Bank Statement
Knowing what a bank statement is and how to properly use it could help further your financial goals.
Reconcile Your Accounts
You may remember your mom or dad sitting down at the dining room table with their checkbook in front of them. They were probably reconciling their accounts, evaluating how each transaction changed their account balance. This is simply to assure that the bank calculated the figure correctly.
You can still do this with your bank statement by going through each deposit and withdrawal. These days, this can all be done digitally — no checkbook required.
Track Your Spending
You can also use your bank statement to track your spending. Either manually input the data or sync your bank account to an online system like Mint or Tiller. Tracking your spending is the single most important step in creating an airtight budget.
If you don’t currently have a budget and want to start one, you can use previous bank statements to determine how much you’re spending in each category. Just divide up each expense into a specific classification, like food or entertainment.
Correct Any Errors
Always be watchful for any errors when checking your bank statement, like a check that was deposited when you issued a stop payment or a fee charged erroneously. The bank is unlikely to be as vigilant about your account as you are. That means it’s your responsibility to notice any mistakes.
It’s usually only possible to correct mistakes with your bank within a certain period of time. Therefore, it’s best to review your statement upon receipt. If something seems off, call your bank’s customer service line immediately.
Keep a Record
By law, banks have to keep your statements available for five years. Still, it might be a good idea to store your statements separately in a cloud-based system like Dropbox or Google Drive.
You can save bank statements as PDFs or scan in your paper statements.
Your Bank Statement Says a Lot
All the information contained in your bank statement tells a story. Once you learn how to read the story, you can use your bank statement to track your spending, create a budget, and reach your financial goals faster than you thought possible.