If you have an account opened with a financial institution, you will periodically receive a statement for that account. What is an account statement? In simpler terms, this is a summary of transactions and other activity for that account over a period of time. Depending on the type of account, it can also display important information like interest rates, credits, fees, etc. This is a summary document designed to give you a thorough understanding of how you used the funds in this account or how they performed.
Types of account statements
While account statements generally serve the same purpose – to describe account transactions over time – they can take different forms. It depends on the type of account you have. Here’s a look at some of the account statements you can expect to see on your holdings:
- Cash account statement. This type of statement concerns your checking or savings accounts, and occasionally the money markets. They are issued by your bank.
- Investment account statement. These statements relate to your investment accounts and your retirement accounts. Your brokerage or trustee will provide them to you.
- Debt account statement. This is your credit card statement, mortgage statement, or whatever. It is a representation of your efforts to pay off unpaid debt over time.
- Declaration of interest. It is a representation of the accrued interest for a particular account or of the dividends paid therein. It is usually issued at the end of the year for tax purposes.
One of the other differentiating elements between bank statements is how often they are issued. Interest statements are generally only issued once a year (sometimes quarterly). Cash and debt accounts usually generate monthly account statements. Investment or retirement accounts may vary and issue statements monthly, quarterly, semi-annually or annually.
It is important to note that some accounts Will not do generate a regular account statement unless they are active. This usually means at least one transaction per month. Don’t expect regular statements for dormant accounts.
What’s on an account statement?
You don’t need a finance degree to understand an account statement. In fact, most are very simple and straightforward, often succinct. The key is knowing what information to expect and look for:
- Period. This is the date range for the transactions displayed on the statement. Each new instruction will resume at the end of the last, to represent the same interval.
- Transactions. This is a comprehensive list of money in and out, whether it’s debit and credit or deposit and withdrawal. It will also include amounts and dates of execution.
- Balanced. This is the current account balance, representing the funds available after accounting for all debits and credits.
- Account Information. This is usually your personal information, as well as the account number. Many statements also include interest rates and, for debt accounts, terms.
Some statements will contain more information. For example, your 401 (k) statement may include a breakdown of your current funds. Take the time to read the statement and review the information, regardless of the type of statement.
How to read an account statement
Reading an account statement—also called reconciling– is simple and should become routine for anyone tracking their wealth. It’s a quick process that should only take you a minute or two (unless something goes wrong).
Start with balance and make sure it is within the range of what you would expect. If it’s higher or lower than expected, start investigating why by looking at the list of transactions below. Look for any debits or credits that seem out of place and note any unexpected gains or losses. After you’ve reviewed the transactions, review any unnecessary details to check for changes, such as the interest rate or the split.
If it all adds up, use the knowledge you gained from reviewing the statement to inform financial decisions about that account or for your greater financial situation.
The benefits of reading statements
Why take the time to read an account statement? In the age of digital data, you can retrieve your account data at any time. Reading a statement each month gives you a focused and specific view of your account during that time, so you can get informed information. It’s a great way to focus and take control of a specific segment of your finances.
The other main advantage of reading account statements is the ability to spot errors or fraud. Bank errors can credit transactions twice, or you might find an incorrectly typed amount affecting your account balance. Worse yet, you might find that someone has taken money from your account or made an unauthorized transfer. Account statements are a transparent overview of what happened in the past month (or other period). Exploring the details gives you a direct opportunity to correct an error that might otherwise go unnoticed or worsen over time.
Learn from your account reports
What is an account statement? Beyond a list of transactions, it’s a wealth of information on patterns and behaviors. It can provide valuable insight into cash flow, account performance or transaction sources. Or, it can tell you about spending or saving behaviors that you weren’t immediately aware of. Ultimately, it’s an important tool for understanding your current wealth (or debt) and how it came about.
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There is a good chance that various account statements will appear in your inbox or mailbox each month. Instead of throwing them in the trash, take the time to inspect them closely and look for information beyond the area numbers. A little investigation of your account statements can go a long way towards explaining the current balance.