Banking Basics Banking 101

What will you learn today

• An introduction to common terms and concepts you will come across

• Basic accounts with common features

• What to think about when picking an account or institution

• Additional resources

Why should you bank?

• Protect your money

• Earn money by way of interest

• Save and manage your money for a better future

• Get a line of credit, mortgage, or a business loan

Bank

• A financial institution that handles money, including keeping it for saving or commercial purposes, and exchanging, investing, and supplying it for loans

Credit Union

• A non-profit financial institution that is owned and operated entirely by its members

• Provides financial services for their members, including savings and lending

• When a person deposits money in a credit union the deposit is considered partial ownership in that credit union

• Many have membership eligibility requirements

Savings Institution

• A financial institution that accepts deposits from individuals, makes homes mortgage loans, and pays dividends

Web Only banks

• No Brick and Mortar/ATMs

▫ No tellers just customer service

• Offers many of the same services and products as traditional banks

• Generally offer higher interest rates and different financial products

Deposits and Withdrawals

• Deposits

▫ When you put money into an account

Includes cash, check, direct deposit from employers

Cash is immediate

Checks can take several days to clear

• Withdrawal

▫ To take money out of an account

Includes withdrawals from ATM or teller, debit card purchases, checks you write, or online bill payments

Does not include credit card purchases

Transfers

• Can be automatic

• Online, mobile, ATM, at the bank

• International remittance (global remittance) ▫ Allows you to transfer money to family members

in other countries ▫ Not all institutions do this

• Not all transfers count as deposits or

withdrawals

Balances

• Balance

▫ The amount of money in your account

• Available Balance

▫ The amount of money in your account that you have access to (i.e. after waiting for a check to clear)

• Minimum Balance

▫ The amount of money you’re required to keep in an account to avoid fees or to keep the account open

Overdrawing your account

• Means you took out more money than you have in the in that account

▫ Checks can bounce

▫ Debit purchases can be denied

• Good banking habits will prevent this

• Overdraft fees can be costly

What is interest?

• The amount of money paid by a borrower to a lender in exchange for the use of the lender’s money for a certain period of time.

• Examples ▫ You earn interest from a bank if you have a

savings account ▫ You pay interest to a lender if you have a loan

• Interest you earn is taxable income

Types of Interest

• Simple interest ▫ Earn interest on the principal (the amount of

money you originally deposited)

• Compound interest ▫ Interest not only on your original deposit plus the

interest your deposit has earned over time

• APY (Annual Percentage Yield) ▫ The rate of return on an investment for a one year

period

Checking Account

• An account that allows a customer to deposit and withdraw money and to write checks

• Checking accounts allow you to ▫ Deposit your paycheck ▫ Pay bills ▫ Withdraw money to spend later ▫ Earn interest (not all institutions offer this)

• Can be linked to a debit or ATM card

Savings Account

• A bank account that allows a customer to deposit and withdraw money and earn interest on the balance

• May require a minimum balance

• Can be linked to a Debit or ATM card

ATM cards Vs. Debit Cards

ATM Cards Debit Cards

• Can be used to operate ATM, withdraw money, and access account

• Can be used to make in-store purchases if used at a merchant that uses one of the networks listed on the back of your card

• Can be used to operate ATM, withdraw money and access account

• Has a Visa or MasterCard logo on the front and is accepted where Visa/MasterCard are accepted

• Can be used to purchase items/services in-store and online

Credit Cards vs. Debit Cards

Credit Card Debit Card

• You are borrowing money and need to pay it back

• Paying your credit card bills on time can build good credit

• Can be used online/in store in place of cash or checks

• Safer to use online

• Deducts directly from bank account

• Does not build your credit history

• Can be used in an ATM

• Can be used online/in-store in place of cash or checks

Money Market Accounts (MMA)

• Pays interest like a regular savings account—generally higher interest

• May require a higher minimum balance

• Has checks you can use to make withdrawals

▫ restrictions on the number of withdrawals made by check

Certificate of Deposit (CDs)

• Requires that money stay in an account for a fixed period of time called a “term”

▫ i.e. a few months to five or more years

• Interest earned is generally higher than on a regular savings or money market account

• If money is withdrawn before the end of the term, penalties could be applied

Good Banking Habits

• Write all of your checks, withdrawals, deposits, and transfers in your register for each account ▫ That includes your debit card purchases too

• Verify the activity with your monthly statements

• Sign all of your cards once you get them

• Keep bank customer service numbers on file

• Report stolen/lost cards immediately

Will my money be safe? • Banks and Savings Institutions are insured by the

FDIC up to $250,000 • Credit Unions are insured by NCUA up to $250,000 • FDIC and NCUA Insure:

▫ Checking accounts ▫ Savings accounts ▫ CDs ▫ Money market accounts ▫ IRA’s and NOW accounts

• FDIC and NCUA do not insure: ▫ Safety deposit boxes ▫ Money Market Mutual funds ▫ Stocks, bonds, mutual funds ▫ Insurance products or investments ▫ Anything that is not a deposit

Picking an Institution

• Are the products this institution offers FDIC/NCUA backed?

• Is it convenient?

▫ Locations?

▫ Hours?

▫ Services?

• Is the staff friendly and helpful?

• Do they offer other products or services you are interested in?

What fees can I expect?

• Check with the financial institution about what kinds of fees they or their products have

• This list is not exhaustive: ▫ ATM withdrawals from “out of network” ATMs ▫ Mailed statements ▫ Not making minimum monthly deposits ▫ Too many or not enough withdrawals ▫ Too many transfers ▫ Not maintaining the minimum balance ▫ Maintenance fees

Other services:

• Investing resources (not FDIC/NCUA insured)

▫ Annuities, bonds, mutual funds…

• Online banking

• Mobile banking

• Home loans

• Business loans

• Lines of credit

Solid Advice

• Don’t sign something you don’t understand

• Always ask for clarification

• Always get written copies and take them home

• Have someone you trust go with you to the bank and review paperwork with you

Things you’ll need to open an account

• Two forms of Identification

▫ Ask your bank which forms they accept

▫ Common types:

State ID or Driver’s License

Alien Registration card

Passport

US military ID

• Money

▫ Ask if there is a minimum deposit

Online Banking Safety Tips • Use secure WiFi and your own computer

• Make sure your browser and virus protection software are up to date

• Don’t share your password and change it often

• Make sure you have a secure connection

▫ Look for the https:// and the security certificate

Things you can do with banking online

• Services vary by institution

• Set up new accounts

• Transfer money to other accounts or other people

• Set up automatic transfers to your savings or other accounts

• Pay bills or credit cards

• View statements and more…!

What if my bank is having problems?

• Read the news

• Massachusetts Division of Banks

• Your money will be insured up to the NCUA/FDIC will protect you up to their limits even if your bank fails

What can I use to bank better?

• Bank Rate Monitor or Bankrate.com ▫ Articles, bank rates, tips and more

• Mycreditunion.gov ▫ Find an NCUA insured CU and if your assets are

covered

• fdic.gov and Edie ▫ Find FDIC insured institution and if your assets

are covered

• handsonbanking.org ▫ Tutorials and lessons about banking for all ages