Banking Services
What do we know about banks? How do
they work?
•
For-profit. Make money through:
1.
Loaning money out at a higher
interest rate than they give to
people who deposit money
2.
Fees – many types
•
Credit unions are different; they're
not-for-profit and established by people
who share a common aspect (ex:
3 MAIN PURPOSES OF BANKS
Security
Lending
1. Banks provide security
•
They protect your purchasing power from inflation by paying
interest on your deposits.
•
Most deposits are insured by the FDIC. Protects balances up
to $250,000. Credit unions are insure by the NCUSIF
2. They make borrowing possible
•
They are the middle person between borrowers and savers.
They are in a position to evaluate the risk of the borrower.
•
Individuals borrow from banks for cars, homes, credit cards,
home improvement and other.
•
Businesses also borrow money to start or expand or manage
3. They simplify money management
•
We can use them to:
•
have our paycheck automatically
deposited
•
transfer money between accounts
•
track our spending
•
pay our bills
•
get cash
•
hold money in different accounts
Turn to a neighbor and share:
Are banks the same?
•
In a lot of ways, but differences include:
•
fees
•
interest rates
•
customer service
•
locations
•
services provided/online banking ease
•
Different enough that you should “shop”
for them.
•
Q: Who has a checking account? Savings?
How to open an account
•
To open an account, you’ll
most likely need:
•
an initial deposit ($5-50)
•
photo identification
(drivers license, ID card)
•
personal information (SS
number, address
birthdate)
•
sign a signature card at
What’s the difference between checking and
savings accounts?
•
Savings
:
•
for setting money aside
•
can access it whenever
•
not connected to your debit card
•
you can find “online” banks that
offer higher interest savings
accounts
•
Savings accounts, money market
accounts and certificates of
Checking
•
Helps manage your
day-to-day/monthly spending
•
It’s attached to your debit
card and allows for electronic
payments
•
Built-in record keeping system
•
Can also write checks.
What are checks?
•
Checks are a written order to pay an amount
out of your account. Advantages:
• Safer than cash
• Can only be legally cashed by the person to whom the order was made
• It gives you a record of the transaction.
•
Check clearing process:
• Maker (payer) writes a check • Payee cashes the check
• Payee's bank returns check or sends electronic copy to your bank
• Your bank withdraws money from your account and sends it to the payee's bank
Managing a Checking Account
•
Many tools for keeping track of your inflows/outflows and your
balance:
• checkbook register
• using your bank’s website or app (only shows processed transactions) • Using a spreadsheet (like H&R Block’s Budget Challenge)
• Using a 3rd party app like “Checkbook – Account Tracker” or “Balance my
Checkbook”
Problems:
•
Overdraft/nonsufficient funds (nsf)/bouncing a check – Using more
money than is in your account. Charged a fee (~$35) if this happens.
$32 bilion paid in 2012. Up $700 million from 2011. (ABC News)
Electronic Banking Services
•Online bill pay/automatic withdrawals –
set up payments to be deducted the same day each month
•Electronic Funds transfer – moving funds
between accounts
•Direct deposit – automatic paycheck
deposit (will need routing, account # to set up)
•Online banking – multiple services
including ones listed above. Can view all transactions and electronic copies of checks.
•View past statements •ATMs
Be Careful
• Don't sign the back of a check until you're at the
bank
• Keep your extra checks in a safe place
• Keep your PIN secret, not in wallet
• Check your account regularly to make sure there are
no unauthorized withdrawals or other mistakes
• Don’t fall for phishing/pretexting scams where crooks
pose as financial institutions
• Keep receipts to check against your statement
• Immediately report lost or stolen cards. Max $50
liability for stolen/lost cards reported in 2 days.
Special-Order Checks
•
Different Check Types – offer more security to the
payee over regular personal checks
• Certified Checks – personal check stamped and
signed by a bank officer. Fee is ~$5-10. Bank will withdraw the money to cover the check.
• Cashier’s Checks – similar to certified check but is
written on the bank’s funds and guaranteed by the bank. Paid for by a withdrawal from your checking account.
Fees and Additional Services
• Safe Deposit Boxes
• Banks rent boxes of various sizes to customers to store valuable and documents. Annual cost between $50-100.
• Fees for checking and savings accounts
• Monthly service fees ($5-15)
• Overdraft fees ($25-$35)
• ATM fees ($1-5)
• Stop payment, certified/cashiers checks (~$5-20)
• Overdraft protection (free -$10)
• Overdraft Protection – bank will cover any shortfall by transferring money from your linked savings account for a fee (less than an overdraft fee) OR provide you with a short term loan with interest.
Additional Savings Options
•
Money Market Account – Kind of savings account
that requires larger balances but may offer
higher interest rates. Higher balances may
increase your interest rate.
•
Certificate of Deposit (CDs) – earns a fixed rate
for a specific length of time, called term (ex: 3%
for 6 month) Early withdrawal penalty. The
maturity date is when the CD is paid back.
•
Savings Bonds – federal savings option that
APR v. APY
• Annual Percentage Rate (APR) – The yearly rate of interest paid on savings or credit expressed as a percentage.
• Annual Percentage Yield (APY) – A more accurate way to
compare savings interest rates. Considers how often interest is compounded (Daily, Monthly, Quarterly or Annually)
Example:
$1000 earning 10% APR that compounds daily = $105.16 in interest
$105.16/$1000 = 10.52% APY
$1000 earning 10% APR that compounds annually = $100 in interest.
