Money Management Q&A

November 16, 2007

Which checks do banks clear first?; protecting yourself when buying on margin; avoiding squabbles over Mom's keepsakes

Which checks do banks clear first?

Whenever several checks are drawn on my bank account on the same day, it seems that the biggest ones always get cashed first, even if reversing the order would help me avoid overdraft fees. I find that annoying. Do all banks handle checks this way?

It's a common practice, particularly among large banks. Some banks instead process checks in the order received, but few clear small amounts first, since doing so reduces revenues from overdraft fees. Sometimes banks disclose their procedures in the paperwork customers receive upon opening accounts, but not always. If you tend to delay balancing your checkbook, sign up for overdraft protection or consider having recurring bills automatically withdrawn from a savings account.

More than once I've been tempted to buy stocks on margin, but I'm leery of getting caught short if a stock tanks and the account's value drops suddenly. What can I do to limit that risk?

One possibility is to use a stop-loss order for each stock, which tells the broker to sell the security if the price drops to the level you specify. But you'd also be wise to monitor the prices of the securities in the account daily and be prepared to shift funds from a savings or checking account into it promptly, to make sure your equity in the margin account doesn't drop below the minimum maintenance amount required. And make sure you fully understand how a margin account works so you're not caught by surprise. For instance, by law you generally can borrow no more than 50 percent of the market value of the securities you're purchasing, and your equity can't fall below 25 of the market value. But the firm can set an even higher minimum-equity bar or raise it at any time without notifying you first. If your equity does drop below the required minimum, the firm will issue a "maintenance margin call" and can sell any of your stocks-without contacting you-to raise your equity in the account.

Avoiding squabbles over Mom's keepsakes

I'm the executor of my mother's estate, and she didn't leave clear instructions about how to divvy up items of sentimental value. My siblings are already starting to squabble over who gets what. Can you recommend an easy way to settle this?

One simple solution is for the heirs to take turns choosing items they want, one at a time, until everything has been distributed. You can draw straws to determine the picking order. Another option: You could hold a family auction and allow all potential heirs to bid on the items they want. You might take digital photos of all the items to be divided, write brief descriptions, and hand out copies of the inventory or post it on a website that everyone involved can access. Rather than bidding real money, which puts cash-strapped family members at a disadvantage, you could assign each person an equal number of points-say 10,000. Have each person review all the items, decide which ones they most want, and "spend" their points accordingly. Keeping the offers silent may help short-circuit the potential for bidding wars between relatives who don't get along. It's also best to discuss and agree upon the auction rules before the bidding starts.

Send your money management questions to: MMQA Editor, Medical Economics, 123 Tice Blvd., Woodcliff Lake, NJ 07677-7664, or send an e-mail to (please include your regular postal address).