Understanding how to read a bank statement

When you have a bank account, every month you get a bank statement. This important document breaks down the activity on all of your accounts, showing the credits and debits throughout the statement period. 

Knowing how to read a bank statement is an important basic financial literacy skill. Not sure where to get started? Don't worry, this guide will help.

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Identify key components of a bank statement

Most bank statements contain the same basic components. If you know how to read bank statements from one bank, it should be fairly simple to read one from another.

• Personal information section: This section includes your name, address, and bank account information, including your account and routing numbers.

• Account summary overview: This section is an overview of your account during the statement period (usually one month). It lists your beginning and ending account balances and the total amounts of deposits, withdrawals, purchases, interest earned, fees, and other information. On a credit card statement, this is where you'd see the account's statement balance and current balance.

• Transaction history breakdown: This section details the individual transactions on your account during the statement period. It's basically the bank account activity for the period.

• Fees and charges explanation: If you have any fees or bank charges for over drafting the account, writing a bad check, or other penalties, they will be detailed in this section.

Both electronic statements and paper bank statements have the same fields, and often look identical if they're both issued by the same bank. If you can read one, you'll be able to read the other.

Step-by-step guide to reviewing transactions

When you receive a bank statement or credit card statement, it's important to review it for accuracy. Chances are your personal information is correct, but you should review your transaction history. To do this:

1. Check for errors: Since a bank or credit card statement shows you a month of financial activity, you probably won't have so many transactions that you can't check all of them. Look for charges that don't look right and, if you do see one, compare your receipt to the transaction you see on the bank statement. (On that note, it's a good idea to get a receipt after every purchase. Get a digital one if you want to save trees!)

2. Understanding deposits and withdrawals: Your bank account balance goes up or down based on your deposits and withdrawals. It's a good idea to check the math on deposits and withdrawals to make sure your final account balance is correct.

3. Identifying unusual transactions: Sometimes, merchants appear on bank statements with unfamiliar or confusing names. If you see a charge you don't recognize on any of your monthly statements, try Googling the name as it appears on your statement. There's a good chance you're not the first person to wonder who this merchant is.

If you're sure you didn't make certain purchases or withdrawals, contact your bank immediately. There's a chance you may be dealing with fraud.

How to reconcile your bank statement

Balancing a checkbook is an ancient art, and one that's almost disappeared with the rise of digital banking. You probably don't need to learn this skill, but it is important to know how to reconcile accounts — something very similar. Reconciling a bank statement means comparing the transactions and totals on your statement to your personal records and making sure everything matches. Basically, you need to keep a personal record of the money you made and the things you bought, know how to read a bank statement worksheet, and do the math to make sure everything adds up correctly.

Here are some tips for reconciling your bank statement:

• Organize your personal records: Keep your receipts and other transaction records (like a bill of sale if you sold something on your own) until you see your bank statement to make sure that everything is in order.

• Keep track of your budget: Effective budgeting is one of the best ways to avoid overspending and stay on track to meet financial goals. Proactive budgeting is also a good way to catch errors on your bank statement.

The importance of regularly reviewing statements

In the digital age, banking is pretty efficient. But that doesn't mean it's always accurate. Checking your bank statement is a quick, easy way to take a little more control over your finances. Here's a really easy step-by-step method to get it done:

1. Make it a part of your routine: Every month, when you get your bank statements, make it a habit to sit down on the weekend or one evening and read through them.

2. Review transactions for accuracy: Bank statements have a high accuracy rate. It's rare to find errors, but that doesn't mean they don't happen, so it's important to check for any obvious discrepancies.

3. Do the math: Use a calculator to add up the money coming in and going out of the account, and apply that number to the beginning balance to make sure the end balance is right.

4. Check for fees and interest rate charges: If you've been charged fees you shouldn't have or your interest award was lower than you think it should be, contact your bank immediately.

Improve your money management skills with Greenlight

Studies show that less than 60% of Americans are financially literate. If you feel lost when it comes to financial terms or bank documents, you're not alone. Greenlight is here to help you learn the basics, like how to read a bank statement, and even more. With financial literacy, you can start working towards your goals — whether that's paying for college or even buying a house. Use Greenlight's money management resources to improve your money management skills and supercharge your financial future!