Managing your bank account can be overwhelming at times. It’s easy to make mistakes and even the most experienced can overlook the finer aspects of banking. But these missteps can have serious consequences and affect your financial stability in both the short and long term.
There are several common mistakes you can make with your bank accounts. These include paying unnecessary fees, failing to open a savings account, failing to separate personal and business funds, and failing to track transactions.
You could also leave yourself vulnerable to fraud if you don’t take proper security precautions. It is important to remain vigilant to avoid unnecessary financial stress.
Financial professionals told Bankrate about the worst banking mistakes they made and how they recovered. They also provided tips on how to avoid these missteps.
Banking error: not tracking transactions
Adam Horvat, CFO of Digital Silk, is a person who did not control his bank account. It was a mistake he made years ago, but he will never forget it.
“One of the worst banking mistakes I made early in my career was not regularly checking the balances in my business bank accounts,” Horvat tells Bankrate. “This oversight resulted in a sizable check for a critical purchase being rejected due to insufficient funds, placing the company in a precarious situation. However, the problem was resolved by establishing an overdraft protection mechanism and working on immediate capital injection strategies.”
How to avoid this error
Being vigilant about transactions will help you avoid overdrafts and reduce your chances of becoming a victim of fraud. It’s important to get into the habit of tracking your expenses.
“My key advice is to diligently review all transactions and account balances to catch any potential problems before they become serious,” Horvat says. “Automation tools can also be very useful in providing real-time updates and alerts on your financial status.”
Horvat says he learned how important careful monitoring and timely intervention is in managing banking affairs. This experience taught him that establishing good banking routines is vital. He recommends establishing a routine for both personal and business banking.
Banking mistake: leaving your bank account vulnerable to fraud
Another mistake that could ruin your finances is trusting others too much when it comes to your sensitive banking information. Robert Persichitte CFP, CPA, CFE, founder of Delagify Financial, witnessed the consequences of this mistake. While helping a fraud victim during his employment with the Boulder County Economic Crimes Division, he saw the consequences of relying too much on banking information.
“The fraud victim unknowingly added a scammer as an authorized signer to the account,” Persichitte says. “The victim thought the scammer could step in if she was incapacitated and pay the bills. The scammer convinced them that it would be easier to give them full access.”
“After the scammer was listed as a co-owner, the checks went out without the victim’s knowledge,” Persichitte continues. “It was difficult to reverse or even retain banking transactions because both parties had legal title to all assets. “They put their trust in someone they shouldn’t have trusted.”
Persichitte was tasked with recovering assets after what he said was a lengthy criminal case. “At that point the money had already been spent, but we garnished the fraudster’s salary to return the money to the victim little by little,” says Persichitte. “As the transactions were technically authorized, the bank did not have to return anything.”
How to avoid this error
Persichitte recommends using caution if you decide to add a co-owner to your bank account. Choosing the wrong person for a joint bank account could end in disaster.
“Never give away your assets,” Persichitte emphasizes. “There is usually a better solution than transferring money to someone else. Talk to a lawyer or people at the bank who can recommend alternatives. Even if you are family, you never know how things will end. A power of attorney or trust can achieve the same goals as a joint account but with much more protection.”
Banking Mistake: Combining Business and Personal Finances
Starting a business is exciting, but that excitement can turn to dismay if you don’t manage your finances properly. Profit Leap co-founder Russell Rosario, CPA, says he found himself in a difficult situation early in his career when he combined personal and business finances.
“The worst banking mistake I made was not separating my personal and business finances in my early days as an entrepreneur,” Rosario says. “I continued to use a single account for personal and business transactions, which led to a chaotic accounting situation. Managing cash flow became a nightmare, and when it came time to file taxes, accurately identifying deductible business expenses was a Herculean task.”
Rosario resolved her mistake by opening an exclusive checking and commercial credit account. He moved all business transactions to these new accounts and began tracking every expense using accounting software designed for small businesses.
How to avoid this error
Don’t delay opening separate bank accounts. It’s tempting to do what’s easy, but this will complicate your finances.
“My advice to others facing a similar mistake is to immediately set up separate accounts for personal and business finances,” Rosario says. “Use accounting software to automate expense tracking and reconciliation. This will not only simplify tax time, but will also provide a clearer picture of your company’s financial situation.”
How to make smart banking decisions
Avoid common banking mistakes by making informed decisions. Below are some strategies for smarter banking:
- Set up account alerts. Most banks offer account alerts to notify you of a low balance or suspicious activity.
- Build a buffer. Keep a cushion of extra money in your account to protect against unexpected expenses or math errors.
- Monitor your accounts periodically. Keep an eye out for any transactions you haven’t made. Early detection can prevent a small problem from becoming a major one.
- Open separate accounts. It is important to open separate bank accounts for your personal and business finances. This will make it easier to track income and expenses for each account separately.
- Create a budget. A budget will help you track expenses and save money effectively.
Bottom line
It is important to properly manage your bank accounts so that you can have financial stability. Common banking mistakes, such as failing to monitor transactions and sharing sensitive information, can have serious consequences. Avoid these missteps by staying alert and making informed decisions so you can keep your finances under control.
