Managing your bank account | Banking | Financial Literacy | Khan Academy

In this video, we're going to talk about how it can be very valuable to automate your deposits and your withdrawals into a checking account, and why that actually might be useful.

So in the old days, what would typically happen is someone might cut a check that looks like this to you, and then you would have to go to your bank and then you would have to deposit. Or if you wanted to pay something to someone else, you would go to your checkbook, write a check that looks something like this, and then hand it to that person or mail it to that person. Who knows what might happen in the mail? Then they have to deposit it, and it can be slow and cumbersome. You might lose track of things, and so you could imagine it might be really useful to automate all of that.

In today's day and age, of course, you can get paper checks and then deposit them, or you can write paper checks and send them out to someone. But we can also do things a lot more efficiently, and the way that we do it efficiently is by having what's known as a routing number and, of course, your account number.

So how does this work? Well, let's say you go to your employer. Let's say today your employer is actually sending you paper checks, and then every week or every two weeks you're going out there and depositing it, and you need to keep track of them. But most employers will allow for you to have direct deposit. This means that if you give your employer the routing number for your bank so they know where your checking account is kept, and your particular account number, then your pay will go directly into your bank account. You don't have to worry about checking the mail on the right day and then going to deposit it, either on an online account or directly at the bank.

So the next question is: where do you get this routing number and account number? Well, there are a couple of places. One, if you have access to a check, it's on your check. So this first number on a check is the routing number right over there, and the second number right over here is your account number. Some of you might be wondering: what is this number here? This is actually your check number, and so no one is usually going to ask for this type of thing.

Now, this isn't just about direct deposit, and by the way, some employers might just ask you for a voided check. What I mean by voided check is that you would take a check out of your checkbook that looks like this, and then in big letters, you would write "void" here so that no one can actually use that check. Your employer, or whoever wants to do direct deposit, will then be able to use that information to do the direct deposit.

But it isn't just about direct deposit; you can also automate payments. Let me write that down: automate payments. For example, for my utility payments, I've given the utility company my routing number and account number, and when the utility bills are due, it just automatically goes from my checking account to the utility company, I should say. Now, what's the value of that? Well, one, it's just one less thing for me to do every month and for me to keep track of and to have to put things into the mail. It also helps avoid a late fee, or especially with something like utilities, avoid my utilities somehow being cut off because I forgot to write the check. It will happen automatically.

Now, when you do all of this, there is one thing to keep in mind. In fact, most of my things I have direct deposit from my employer, and I also automate payments out. But when you're doing that and everything's automated, you have to make sure that you don't lose track of what's going on in your bank account, or especially in your checking account. Because if you keep automating payments and they're going out faster than they're coming in, at some point, your account could go to zero or even go negative.

For example, say your account only has $200 in it, and you have just automated a payment for $300. Then you've done something called overdraft, and most banks, or many banks, will have some type of penalty for overdraft. So you don't want to have to pay more than what you're already paying. You have to be very careful that when everything is automated, you're still paying attention to what's happening in your bank account.

I try to check my bank account at least once a week just to make sure everything is running smoothly, and there aren't any weird transactions on it, so that I have a good handle on things.