BANKING AND CREDIT

UNIT 3 – MRS. GRAY

Keeping your Money Safe & Secure

FINANCIAL SERVICES

Three primary types:SavingsPayment ServicesBorrowing

FINANCIAL SERVICES & INSTITUTIONS

Banking in America began in 1791, soon after the United States declared independence.

Today there are more than: Banks – 5,847Thrifts (Savings & Loans) – 929Credit Unions – 6,554

SAFETY FIRST! Most savings plans at banks, savings and loan

associations and credit unions are insured by a government agency. Each agency insures each account up to $250,000.

FDIC – Federal Deposit Insurance Corporation NCUA – National Credit Union Administration

COMMERICAL BANKS For-profit institution that offers a full

range of financial services, including checking, savings and lending.

These banks serve individuals and businesses.

Commercial banks are organized as corporations with individual investors, or stockholders, contributing the capital banks need to operate.

Examples: Chase, TD, Bank of America

THRIFT / SAVINGS & LOAN ASSOCATIONS

A financial institution that traditionally specialized in savings accounts and mortgage loans but now offers many of the same services as commercial banks.

Services include checking accounts, business

loans, and investment services.

Examples: USAA , Windsor Federal Savings & Loan

CREDIT UNIONS A nonprofit financial institution owned by its

members and organized for their benefit.

A credit union’s members have some common bond, such as membership in a labor union, college alumni association or employment by the same company.

CREDIT UNION CONTINUED….

Most Credit Unions offer a full range of services, including checking accounts, loans, credit cards, ATMs, safe-deposit boxes and investment services.

Credit unions usually offer lower fees and lower loan rates than those at commercial banks.

Examples: Fairfield County Federal Credit Union, Teachers Credit Union, Stamford Hospital Credit Union

NON-DEPOSITORY INSTITUTIONS

Life Insurance Companies Investment Companies Finance Companies

Regardless of how well you plan, you may sometimes need more cash than you have available.

NEED MONEY??? Two options:

Use your savingsBorrow the money

Types of Financial ServicesSavingsPayment ServicesBorrowingOther Financial Services

SAVINGS Safe storage of funds for future use is a

basic need for everyone

Savings plan selection is commonly based on:Interest RatesLiquiditySafetyConvenience

Financial Services for Short-Term NeedsDaily Purchases Living ExpensesEmergency Fund

Daily Cash Needs

Check Cashing

Automated Teller Machines (ATM)

Prepaid Cards

Savings Regular

Savings Account

Money Market Account

Checking Regular Checking

Account Online Payments Automatic

preauthorized payments

Payment by phone Cashier’s checks Money orders

Credit Cards Short Term

Loan Rewards Plan

Financial Services for Long-Term Needs

Major Purchases Long-term financial security

Savings Certificate of

Deposit (CDs) US Savings

Bonds

Credit Services Cash loans for

cars, education

Home Loans

Investment Services

Stocks & Bonds

Mutual Funds Financial

Advice

Other Services Tax

Preparation Insurance Budgeting

Electronic Banking Services

Direct Deposit – An automatic deposit of net pay to an employee’s designated bank account.

Instead of a paper paycheck, employees received a printed statement that lists deductions and information about their earnings.

Direct Deposit saves time, money and effort – and offers a safe say to transfer funds.

Electronic Banking Services

Automatic Payments – With your authorization, or permission, your bank will withdraw the amount of your monthly payment or bill from your bank account.

Examples: Utility companies, lenders,

health clubs.

Electronic Banking Services

Automatic Teller Machine (ATM) – Computer terminal that allow a withdrawal of cash from an account. You can make deposits and transfer money from one account to another.

Locations: Banks, Shopping Malls, Grocery Stores, Sports Areas, Convenience Stores.

DEBIT CARD To use an ATM for banking, consumers

must apply for a debit card from their financial institution.

A debit card allows you to withdraw money or pay for purchases from your checking or savings account along with access to ATM for other purposes such as:DepositTransfersBalance Inquiry

Electronic Banking Services

ATM Fees: Some financial institutions charge for the convenience and some companies charge for use of their ATM.

Compare ATM fees before

opening an account.

Get a list of fees in writing. Use you bank’s ATM machines to avoid the additional

fees that other banks charge when you use their machines.

Use traveler’s checks, credit cards, personal checks and prepaid cash cards when you are away from home.

 

LOST DEBIT CARDS Notify your bank IMMEDIATELY

Most card issuers, or providers, will not hold you responsible for stolen funds yet check with your card issuer

Some institutions require you to notify them within two days of losing your card.If you wait longer, you may be held responsible

for up to $500 for its unauthorized use for up to 60 days. Beyond that time, your liability may be unlimited.

Comparing Financial Institutions

Ask yourself these questions to help choose the

best Financial Institution for you:

Where can you get the highest rate of interest on your savings? Where can you obtain a checking account with low (or no)

fees? Will you be able to borrow money from the institution – with a

credit card or another type of loan – when you need it? Do you need an institution that offers free financial advice? Is the institution FDIC or NCUA insured? Does the institution have convenient locations? Does it have online banking services? Does it have any special banking services that you might

need?

Truth in Savings Law

Financial Institutions have to inform you of the following information:

Fees on deposit accounts Interest Rate Terms and conditions of the savings plan Annual percentage yield

SAVINGS PLANSType of Account Benefits Drawbacks

Regular Savings Accounts – ideal for frequent deposits or withdrawals. Offer monthly or quarterly statement.

Low or no minimum balance

Ease of withdrawal Insured

Low rate of return

Certificates of Deposit (CDs) – Money is left on deposit for a stated period of time to earn a specific rate of return. The period of time is called a term. The date the money becomes available to you is the maturity date.

Guaranteed rate of return for time of CD

Higher interest rate than savings accounts.

Insured

Penalty of early withdrawal

Minimum deposit You must leave

your money in account for one month to five years.

SAVINGS PLANSType of Account Benefits Drawbacks

Money Market Accounts – Savings account that requires a minimum balance and earns interest that varies from month to month bases on market rates.

Good rate of return Some check writing Insured

Minimum balance (usually $1000)

No interest and possible service charge if below a certain balance

U.S. Savings Bonds – Series EE Savings Bonds from the federal Government in amounts that range from $25 to $5000 (Also known as Patriot Bonds)

Low minimum deposit

Guaranteed by the government

Free from state and local taxes

Lower rate of return when cashed in before bond reaches maturity date

BORROWING

Credit Cards

And Loans

Answer the questions using prior knowledge of credit cards?

What is a Credit Card?

Credit cards are a form of open-end credit.

It is pre-approved credit which can be used for the purchase of good & services now and payment of them later.

Individuals can borrow as long as they do not exceed their credit limit.

WHAT IS A CREDIT LIMIT?MAXIMUM DOLLAR AMOUNT THAT CAN BE CHARGED

What is a Credit Card? Amount of credit limit varies based upon an

individual’s creditworthiness.

Card Interest is charged to the account each month the balance is not paid in full.

The rate at which interest is charged on a credit card account each month is usually expressed in terms of the annual percentage rate (APR) – the cost of credit expressed as a yearly interest rate.

WHAT IS THE DIFFERENCE BETWEEN A DEBIT CARD AND A CREDIT CARD?

Debit cards allow you to make purchases with funds from your checking account

Credit cards are a form of open-end credit – a LOAN.

Close-end credit are loans such as a mortgage that have an end date for the loan.

WHAT DO YOU BELIEVE ARE THE ADVANTAGES TO USING A CREDIT CARD?

Convenient payment tool Useful for emergencies Often required to hold a reservation Able to purchase “big ticket” items and spread

out payments Protection against fraud Opportunity to establish a positive credit rating Online shopping is safer than using a debit card Possibility of receiving bonuses or rewards

WHAT DO YOU BELIEVE ARE THE DISADVANTAGES TO USING A CREDIT CARD?

Interest can be costly when a balance is revolved or carried over to the next month

Additional penalty fees may apply Tempting to overspend Risk of identity theft Responsible for lost/stolen cards Applying for multiple accounts in a short

period of time can lower your credit score.

CAN CREDIT CARDS POSITIVELY AFFECT AN INDIVIDUAL FINANCIALLY?

When used properly, it can help consumers develop a positive credit history and therefore, earn a high credit score.

WHAT IS A CREDIT REPORT? A record of a consumer’s credit history that includes

information about credit card use as well as the use of other types of credit (Car, home and student loans)

WHAT IS A CREDIT SCORE? A number that summarizes an individual’s credit record and

history.It is a numeric “grade” of a consumer’s financial reliability. Using credit properly assists consumers with increasing their

score.

HOW CAN CREDIT CARD INFORMATION BE KEPT SAFE?

When using a credit card, sign the back with a signature and “Ask for ID”

Do not leave credit cards lying around home or office Close unwanted cards in writing and by phone then cut

up the credit card Never give out the card number unless making a

purchase Keep a list of all cards account numbers and phone

numbers separate from cards Report lost or stolen cards IMMEDIATELY If a pre-approved credit card, application or solicitation

is delivered, shred unwanted documents.

IF CREDIT CARDS ARE NOT USED PROPERLY, HOW CAN THE NEGATIVELY AFFECT AN INDIVIDUAL?

Making late credit card paymentsPenalty FeesHigh Penalty Interest RateMay hurt individual’s credit score

Paying only the minimum payment increases the total amount paid for a purchase

Exceeding the card’s credit limit usually triggers a penalty fee

Charging items that can’t be paid off immediately increases total debt

Owning too many credit cards may affect an individual’s credit score

Pay your credit cards off quickly!!!!

15%Interest

Payment Made

Time to pay off

card

Total amount of

interest paid

Total Amount

Paid

FullPayment

$1500 1 month $0 $1500

Partial Payment

$135 1 year $125 $1625

MinimumPayment

$30 11 years $1413` $2913

Credit Card Statement Example1. Summary of Account Activity

2. Payment Information

3. Late Payment Warning

4. Minimum Payment Warning

5. Notice of Changes to your Interest Rates

6. Other Changes to your Account Terms

7. Transactions

8. Fees and Interest Changes

9. Year to Date Total

10. Interest Charge Calculation

Class Assignment Understanding a Credit Card Statement

Worth 30 points

You can work with a partner yet each student turns in their own worksheet

Bonus points

Define the “RULE of 72” Give three examples

BANKING AND CREDIT

Keeping your Money Safe & Secure