- Personal Finance
Cashing your first paycheck without a fee and other pieces of advice.
You have finally received your first pay check and you’re all excited about having money in your pocket. You go to the nearest bank to cash it and discover that you can’t cash the check without an account with the bank. Try a check cashing store, they say. So you travel across town (on the 1/18th of a tank of gas left in your tank) only to discover that if you want to cash your check there you will have to pay them a fee (sometimes up to 10% of the check). What do you do now?
Banks today have a strict policy about cashing checks without an account because the check may take up to 2 weeks to ‘clear’ the bank and it might not clear. At that time, they do not have any information on you to recoup the money lost. Check cashing stores are in the same boat. If they cash your check and then the check doesn’t clear, they have no way to contact you to recoup the money. So they take the money up front ‘in case’ ; thus protecting themselves from loss and making a huge profit in the process.
Example of a check cashing store:
In a typical day at “Jerry’s Check Store”, Jerry cashes 250 checks amounting to $45,000. That makes the average check he cashed equal $180.00 each. At 10% for each check cashed he made approximately $4,500 during that day’s business. Now, if three of those checks were to bounce (not clear the bank), than he would lose the money those checks were cashed for ($540.00). If he has enough information on the check, he may be able to recoup his losses during the course of several months, however, more than likely there is not enough information and the loss is permanent. But, he made $4,500 that day alone which means he made a profit of $3,960 IN ONE DAY. Of course, this is a simplified example because it doesn’t cover overhead costs etc. but you can get the idea.
Being a very well informed person and knowing exactly what to do in such a situation, you speed off and cash your check without paying a single cost in fees, right? No? I didn’t either.
So, you can either not cash your check, or pay the fee to cash the check and lose out on that amount of money. But since my first time I have discovered a few shortcuts that can save you money and help you get the full amount of your FIRST paycheck.
1. Ask the company you work for to cash the check for you. Some companies carry extra cash in their petty cash account on pay days for that reason. It also helps them save fees because the checks don’t have to be processed more than once.
2. Banks know that certain corporations do not bounce checks and will often make exception if they know the corporation and have done business with them. So, look at the top or bottom of your check to find out what bank issued the check. Since corporations don’t like to travel to do their banking, the bank will usually be close by their business. Go to that bank and cash the check. Since the bank issued it, they can instantly check to see if the money is in the account and they usually will not charge you a fee since the money is already there and they don’t have to send the check to another bank to get their funds. Notice I said usually; don’t cash it if they insist on charging a fee because there are other options.
3. Calculate your payments that need to be made and go to the post office and purchase money orders for the amounts needed using your check. A post office will usually not charge an extra fee for cashing the check if they know the company and the majority of your check is being used to purchase money orders. If you don’t need to pay any bills, read on.
Hold On Your Funds
You and your friend should also be aware that the bank may ‘hold’ the funds in the account until the check clears. This means that the friend will not be able to use that amount until the check has successfully been processed by the bank. This could cause a great deal of strive for your friend if they were counting on those funds to pay bills.
4. Ask a family member or a friend to cash the check for you at their bank. If they have enough money in their account to ‘cover ’ the check, their bank will not charge a fee. However, be careful, if that check bounces your friend will be charged a fee as well as the amount of the check and will want you to pay the money back to them. So don’t try this if the check is for a small business that hasn’t been established yet.
5. Go to a bank that you like (ask family and friends who they bank with) and ask to set up an account with them. They will usually ask for ten percent of your check to set up the account and the money is usually held for seven to ten days until the check clears. The reason they are willing to do this is because they have all of your information to recoup their losses should the check not clear. In the meantime, you have the remainder of your check to spend and the amount held by the bank will be available shortly. NOTE: Be sure to ask the bank to open a no-fee account for you. They may want certain concessions like a minimum balance or direct deposit so be sure to find out all rules before opening the account. If it is something you don’t think you can do than this option should not be used.
6. Go to a grocery store and ask for their store card. Often stores will cash your check if you purchase a minimum amount of items from their store. Be careful and ask questions, though, because sometimes they will only do this if the company is established, does business with their own bank, or is one with which they are familiar. Also, they may want you to have the card for a minimum amount of time before they will cash payroll checks for you. Be sure to check up on this one well before you need to cash a check.
A bit of leg work ahead of time can save you a fortune in embarrassment when your friends say they are all going out and you can't because you couldn't cash your check.
Sometimes you just have to suck it up and pay the fee to cash a check, but if you have checked out things before your first paycheck and made arrangements, cashing your check can be a breeze. Ask questions of everyone one you know and go directly to the bank and ask them about their policies and procedures for cashing checks. Ask questions of the company that hired you to see if they will cash the checks either with or without a fee. Check with the nearest post office for their policies on check cashing. Check out the big grocery chains to see what their policies are. It may very well be possible that it is worth a fee in the long run depending on what the bank and stores are willing to do. The best thing for you to do is research before you need to cash a check.
Example of a post dated check:
If the company pays you a day ahead because of a holiday, but they have dated the checks for the next day.
What are starter checks?
Starter checks are checks that do not have your information preprinted on them.
There are some rules you will have to know so that you are not stuck with a check you can't cash:
1. Checks can’t be cashed if they are post-dated. This means if the check has a date for a day that hasn’t arrived yet. Most places will not cash the check until the next day. If the next day is a holiday, you should be aware of this glitch and make arrangements ahead of time to get the check cashed.
2. If you open a brand new account you will usually get starter checks and most companies will not take starter checks. This means you should NOT put the entire amount of your check into a new account because the money may not be available until your preprinted checks arrive.
3. If you have a new account and the bank hasn’t cashed many checks for you, they may insist the entire amount of the check be deposited and hold the amount of the check until the check clears the bank. If this happens over a holiday, you may not have access to your money until the first business day after the holiday. Be sure to ask the bank what their policy is before cashing or depositing your check.
4. If you have an established account with your bank and don’t get to the bank until it has closed, often you can deposit the check into the bank via the ATM (be sure to fill out the deposit form completely, sign your check and use their ATM deposit envelope). Many banks will allow a portion of the deposit to be immediately available even though your deposit will not be recorded until the next business day. Be sure to ask the bank what their policy is for ATM deposits before assuming the money will be available for you to use.
Debit cards are a catch 22!
5. If you establish your account with a debit card, be careful how you use it and when. Companies often charge fees if you use their ATM’s to get cash from your account, and the bank may charge you as well if it isn’t their ATM.
- If you do not record each transaction you conduct including any fees that are charged (an ATM will tell you if they are going to charge a fee and a bank will tell you in their policies list if they charge for foreign ATM’s), you could very easily overdraw your account without realizing it. This will cost you huge amounts of fees and overdraft fines.
- Many business won’t take the Debit card unless you put it through as a credit card which allows them access to your account number.
- When you use your debit card and punch in the PIN number, be careful to cover the card numbers and the numbers you punch in because people are watching.
- Another thing to remember is try not to use foreign ATM’s. In other words, try to use your own banks ATM whenever possible because foreign ATM’s can be tampered with causing every card and pin that is entered to be recorded for later theft of your funds.
- Many people put the card down on the counter so they can enter their pin or sign for the charge. This means others can see your account number and you risk leaving the card behind. People who have you account number and the expiration date of your card can use it for regular and online purchases without your knowledge!
- Be sure to ask the bank what their theft limit is on Debit cards before you start using your card, this way you will know how much the bank will hold against your account (most limit the amount to $50 as long as you report the theft of the card or number within 24 hours of discovery).
Now that you know:
Now that you know the ‘tricks of the trade’, you can cash that first paycheck and go have a ball, right? Well, I guess, but you might want to be a bit careful and put some of that money away for gas and lunches. They may become necessary before the next check rolls around. Also, you might want to put some away for emergencies. You never know when your car might break down or your coat might tear, etc. I know, I know, that sounds impossible. After all, it’s your first paycheck and you earned it, right? Yes, and if you are smart enough to use it wisely, you will prosper in the long run. Besides, the tricks you learn now to save money and keep aside what you need for bills will help you when you become an adult and have to live on your own. It’s not easy to live on your own without a few of these skills. Even if you share living space with friends, you will need money for utilities, gas for your car, rent, food, etc. Learn early and you will be ahead of the game (and it will be real nice to say you are going to the big game because you put the money aside weeks ago--your friends will be so jealous!).
© 2012 Cheryl Simonds