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Why Is It Important to Reconcile Your Bank Statements?

Catherine Hiles • February 2, 2024

Holding phone looking at bank statement

You may have heard the term “reconciliation” regarding bank accounts. But what is bank reconciliation, exactly?

Reconciling your bank account is a simple but important process that involves comparing your bank statements with your financial records. This lets you quickly identify discrepancies, like missing deposits or unauthorized transactions, so you can address them quickly. Account reconciliation can also help you better understand monthly bank statements and balances, helping you become more familiar and comfortable with your finances.

Learn why bank statement reconciliation is essential and how to do it right so you can start taking control of your finances.

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4 reasons why it's important to reconcile your bank statements

The primary purpose of bank reconciliation is to identify mistakes, late payments, or unused subscriptions so you can address them quickly. Although it’s rare, banks can make mistakes, hence the importance of reconciling your bank statements.

  • Saving money. One of the biggest reasons to reconcile your bank statements is that it can save you money by identifying duplicate payments, outdated subscriptions, or other payments you’ve forgotten. Once identified, you can correct automatic payments and cancel subscriptions you no longer need, putting that money back in your pocket.
  • Preventing fraud. You could miss potentially fraudulent payments if you don’t closely monitor your bank account. Bank statement reconciliation lets you quickly identify potential fraud so you can contact your bank and freeze your account before any additional payments are made.
  • Verifying your cash flow. Bank statement reconciliation helps you manage your finances by becoming familiar with your cash flow. For example, if an automatic payment causes you to overdraw your account regularly, you can change the payment date to prevent this from happening.
  • Avoiding late fees. If you pay bills with a check or automatic payment, you may not realize if the payment doesn’t reach its intended destination. By reconciling your bank statements, you will notice if a payment hasn’t gone through and can resubmit the payment before you’re charged a late fee.

4 steps to successful bank statement reconciliation

If you’re unfamiliar with the process, you’re probably wondering how to do bank reconciliation. Although it isn’t difficult, it can take time, especially in the beginning. Follow these four steps to start the reconciliation process.

1. Choose your method

First, decide how you will reconcile your statements. There are several ways to keep track of your incoming and outgoing payments so you can compare them to your bank statements. These include the following.

  • Checkbook ledger
  • Notebook or spreadsheet
  • Accounting software
  • Budgeting apps

If you don’t track your expenses using any of these methods, start doing so ASAP. It’s never too late to take control of your finances and be more aware of where you’re spending money.

2. Compare your deposits

Once you know which method to use, compare the deposits in your records to those in your bank statement. You can do this by checking that all deposits on your account statement are included in your documents and adding and reconciling items as you go.

Similarly, check to ensure all deposits on your tracker are on your bank statement. If any are missing, follow up with the person or entity who deposited the money to find out why it didn’t make it to your account.

The most common reason a deposit might not have made it onto your bank statement is that it cleared after the statement cutoff date. Look at your account using your bank’s mobile app to ensure the deposit arrives; if not, contact the bank to determine the issue.

3. Compare withdrawals

After you’ve checked your deposits, it’s time to compare withdrawals between your finance tracker and your bank statement. Set your statement and tracker side by side and check that all the withdrawals listed on your statement are reflected on your records and vice versa.

If you notice a withdrawal on your bank statement that doesn’t appear on your records, look to see what the withdrawal was for. You likely made a purchase and forgot to add it to your ledger. But sometimes, you might find signs of check fraud or other unauthorized withdrawals or purchases that need further investigation. Contact your bank directly if you notice anything like this.

Similarly, if you find that a withdrawal appears on your tracker but not on your bank statement, investigate why. It’s possible a check didn’t clear before the statement cutoff date, or the recipient hasn’t cashed it yet.

4. Look for adjustments

Bank account adjustments may not appear on your record, so you’ll want to add them to ensure your tracker is accurate. Some examples of bank adjustments include fees and interest payments.

For example, your account might charge a monthly maintenance fee, or you may have overdrawn your account and been charged an overdraft fee. If your account can earn interest, you may notice deposits for the interest you earned over the statement period.

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4 tips for successful bank statement reconciliations

Reconciling a bank statement isn’t difficult, but it can be time-consuming. Luckily, there are several ways to help ensure success and help make the process more efficient.

  • Keep track of your transactions. If you don’t already track your deposits and withdrawals, now’s the time to start. You can’t reconcile your bank statements without keeping track of your account finances. Consider logging the information in a spreadsheet or using a budgeting app.
  • Set a monthly budget and track your spending. Budgeting is an advisable practice for many reasons. It can help you become more conscious of where you’re spending your money and show you areas where you can cut back. Creating a budget can also help streamline the bank statement reconciliation process since you’ll be more familiar with your money from the start.
  • Use a system that suits you. Your dad might swear by manually tracking expenses using paper, but it’s not necessarily the right option for you. Choose a system you will find easy to use and keep up with, or you’ll risk falling off the budgeting wagon.
  • Get familiar with statements. Learn how to read a credit card statement and checking and savings statements to keep track of all your accounts equally.

When are bank statement reconciliations necessary?

Bank statement reconciliation isn’t mandatory. However, it can help catch missed deposits or fraudulent transactions, helping you to address and resolve them quickly. It can also help prevent you from overdrawing your account, often leading to added fees.

Consider reconciling your bank statements at least once a month. If you have a lot of deposits and withdrawals, it’s probably wise to complete the process weekly or bimonthly to stay on top of your finances.

What happens if I don't reconcile my bank statements?

If you don’t reconcile your bank statements, you risk missing potential issues early, making them harder to resolve.

For example, if someone steals your debit card number and makes a transaction, you’re more likely to catch it early if you regularly reconcile your statements. Catching fraudulent transactions early means you can report them immediately before the fraudster can make any additional charges on your account.

Bank account reconciliation helps keep your money safe

Reconciling your bank statements is an optional but important process. By regularly comparing your account statements with the deposits and withdrawals listed in your ledger, you can identify potential issues quickly and work to fix them before they affect your money.

Not sure how best to manage your money? Learn how to make a budget that you can successfully stick to.

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