Brandon Lee
Keeping bank records is essential for tax purposes, proof of transactions or payments, and other financial needs. While banks are required to keep records for at least five years, individuals should also maintain their bank statements and financial documents for a certain period. Generally, it is recommended to keep bank statements, either digitally or physically, for at least a year. However, for tax purposes, it is advisable to retain records for up to seven years, as the IRS may request returns filed within this timeframe. Additionally, certain vital records, such as those related to health, property, or major purchases, should be kept indefinitely.
| Characteristics | Values |
|---|---|
| How long to keep bank statements | At least one year |
| How long banks keep records | At least five years |
| How long to keep tax records | 3-7 years |
| How to store bank statements | Digitally as PDFs |
| What to do with physical documents | Shred to avoid identity theft |
| Documents to keep forever | Federal income tax returns, health records, house deed, vehicle title |
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What You'll Learn
How long to keep physical bank statements
The length of time you should keep physical bank statements varies depending on the purpose for which you may need them in the future. Most financial experts recommend keeping bank statements for at least one year, either in digital or hard copy form. After this, you may choose to discard them, but many sources suggest keeping them for longer.
The IRS recommends keeping records for at least three years, but they may ask about returns filed in the last three to seven years. Therefore, it is a good idea to keep bank statements for at least this long, as you may need them to verify your income, credits, or deductions claimed for a tax return. This includes any receipts, bills, cancelled cheques, legal papers, loan agreements, insurance reports, and employment papers.
Some sources suggest keeping bank statements for as long as they are relevant to the assets you own. For example, you should keep records pertaining to your house, vehicle, and other major purchases and investments for as long as you own them. This includes deeds, mortgages, closing documents, receipts for improvements, titles, registrations, proof of insurance, warranties, and service records.
To save space, it is a good idea to digitise your bank statements and other important documents. This makes them easier to store, organise, and access, while also protecting them from physical threats such as floods and fires. However, be sure to back up your data, as old technology is not always supported. You can store digital records on your computer's hard drive, an external hard drive, or a cloud service.
Finally, before disposing of any documents that contain personal or financial information, such as bank account numbers, be sure to shred them to avoid becoming a victim of identity theft.
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How long to keep digital bank statements
It is important to keep digital bank statements for at least a year. This is because you may need them to prove your income and savings on next year's taxes. After a year, you can delete them, but it is recommended to keep them for longer. The IRS may ask about returns filed in the last three to seven years, so it is a good idea to keep your bank statements for this long. If you are self-employed, keeping your bank statements can be useful for tax purposes, as proof of a transaction or payment, or for insurance purposes.
To keep your digital bank statements secure, store them on your computer's hard drive, an external hard drive, or a cloud service. Make sure they are password-protected and use complex passwords that are different from your other accounts. Protect your computer with antivirus software. It is also important to back up your data, as old technology may not be supported forever. You can store your data on CDs, flash drives, or use online cloud storage.
If you need to keep your bank statements for tax purposes, the general rule is to keep them for seven years. This is because the IRS can go back seven years to audit a tax return. However, the length of time you should keep a document depends on the action, expense, or event it records. For example, keep records relating to property until the period of limitations expires for the year you dispose of the property.
It is also a good idea to keep monthly bank statements for the current year and then shred them once you have reconciled them with an annual statement. You can shred credit card statements after 45 days, but keep those needed for business expenses, taxes, proof of purchase, or insurance purposes.
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What to do with bank statements after their retention period
Once bank statements have passed their retention period, it is important to dispose of them securely. Paper documents should be shredded, and digital files should be deleted using specialised software. If you have encrypted and stored your documents on a cloud service, follow the instructions for permanently erasing the files.
If you are unsure about whether to discard a document, consult your accountant, attorney, or another trusted advisor. It is also important to check if you need to keep documents for other purposes, as insurance companies or creditors may require you to keep them for longer than the IRS does.
Some documents, such as birth certificates, wills, medical directives, divorce decrees, and insurance policies, should be retained indefinitely. These documents can help financial advisors, attorneys, and other professionals understand your finances and assist with legal and personal decisions.
Additionally, it is a good idea to keep a permanent copy of each year's tax returns and any payments made to federal and state governments. While the IRS recommends keeping records for at least three years, they may ask about returns filed in the last three to seven years. Therefore, it is advisable to keep bank statements and other financial documents for up to seven years in case of an audit.
To efficiently manage your bank statements, consider converting them into Excel spreadsheets or PDFs. This allows for better organisation, analysis, and reporting. You can also utilise cloud backup services for offsite storage and syncing across devices.
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Why bank statements are important
Bank statements are important for several reasons. Firstly, they help account holders keep track of their finances and monitor their spending and current balance. This includes deposits, withdrawals, payments, transfers, and interest earned or charged. By reviewing bank statements regularly, individuals can identify errors, detect fraudulent activity, and recognize their spending habits to make informed financial decisions.
Moreover, bank statements are essential for tax purposes. They serve as proof of transactions or payments and can be used to verify income, credits, or deductions claimed on tax returns. The IRS recommends retaining records for at least three years, but it's advisable to keep bank statements for seven years or more to support tax-related inquiries.
Additionally, bank statements can be useful when applying for loans or mortgages. Lenders often require financial documentation, including bank statements, to assess an individual's financial health and ability to repay the loan. Keeping a record of bank statements helps provide the necessary information for loan applications.
Furthermore, bank statements can be valuable in disputing unauthorized transactions or incorrect charges. By reviewing the statements, individuals can identify any discrepancies and take prompt action to report and resolve these issues with their bank. This helps protect their accounts and finances from fraudulent activities.
Lastly, bank statements are important for record-keeping and personal financial management. They provide a snapshot of an individual's financial situation at a given time, allowing them to make informed decisions about savings, investments, and budgeting. Keeping bank statements helps individuals maintain a comprehensive financial history, ensuring they have the necessary documentation for future reference.
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How to store bank statements
It is important to keep your bank statements for at least a year, and financial experts recommend keeping them for up to seven years. This is because you may need them to prove your income and savings on tax returns, and the IRS may ask for supporting documentation for up to seven years after you file a return.
If you bank online, you will be able to access a year's worth of statements and can apply for up to five years' worth through your bank if needed.
There are several ways to store your bank statements:
- Keep physical copies in a designated safe place in your home, such as a locking file cabinet, a fireproof safe, or a safe deposit box.
- Store digital copies on your computer's hard drive, an external hard drive, a cloud service, or all three.
- Convert your bank statements to PDFs and merge and compress them to save storage space.
To protect your personal information, make sure your digital records are password-protected and use complex passwords that are different from your other accounts. Consider using antivirus software to protect your computer as well.
It is also important to periodically clean up and organise your financial documents to save time and hassle in the long run.
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Frequently asked questions
Most financial experts recommend keeping bank statements for at least one year. The IRS recommends keeping records for at least three years, but they may ask about returns filed in the last three to seven years, so it's a good idea to keep them for longer.
It is recommended that you keep bank statements for tax purposes for seven years.
Banks are required by law to keep most records for at least five years, but many banks keep records for up to seven years.
Bank statements can be stored digitally as PDFs or in physical form. If you choose to store them digitally, you can use your computer's hard drive, an external hard drive, or cloud services.
