Personal FinanceSavings and Checking Accounts

How Banks (Do Not) Work

Banks do not hold all of our money when we deposit it

How Banks Work Customers deposit money (Bank pays interest)

Bank loans money (Bank collects interest) Bank keeps “fractional reserve” on hand

Fees ATM Bounced Checks Account Maintenance Many, many more

Banks v. Credit Unions For-Profit Business Anyone can be a

customer Higher fees and rates

on loans Lower rates on

savings

Non-Profit Must be a member of

a certain group to join Employer Community

Lower fees and loan rates

Higher savings rates

What your bank can do for you Main types of accounts

Checking Accounts Savings Accounts Money-market Accounts Certificates of Deposit (CD’s)

Other services (we’ll discuss later) Insurance Investing Loans

Checking Accounts Similar to savings accounts Deposit and withdraw money (checks & ATM) May or may not earn interest Debit Cards FDIC Insured Online Banking

Writing a Check

4/25/13

$1,200.00Jacob Deer

One thousand, two hundred and 00/100

May rent Jane Doe

Savings Accounts FDIC Insured

Up to $250,000 (through 12/31/13) Deposit money & it earns interest

0-2% typical interest for a savings account Weekly changes in interest rate possible

Withdraw money whenever, with no penalty Interest rate

Generally low May be higher if you keep more $$ in your account

Money-Market Accounts Similar to savings account, but more restrictions

Fewer withdrawals allowed Higher minimum balances required Interest rates could change weekly

Pays a higher interest rate than regular savings But not MUCH higher

Certificates of Deposit (CD) Agree to keep money deposited for certain amount

of time 3-month, 6-month, 1-year, 2-years, 5-years Guaranteed interest rate for life of CD Penalties if you withdraw money before time is up

Highest interest rates of any bank savings product

Generally, NOT for short-term savings

Rate Comparison of APY (Annual Percentage Yield)

Bank of America APY Checking Account – N/A Savings Account – 0.01% Money-Market Account –

0.10%+ 6-Month CD – 0.10% 1-Year CD – 0.25% 5-Year CD – 0.45%

Metro Credit Union APY Checking Account – N/A Savings Account – 0.15% Money-Market Account –

0.25%+ 6-Month CD – 0.30% 1-Year CD – 0.55% 5-Year CD – 1.70%

Rate Comparison of APY

Bank of America APY Based on $5,000

Checking Account – N/A Savings Account – 0.01% ($50) Money-Market Account – 0.10%+

($500) 6-Month CD – 0.10% ($500) 1-Year CD – 0.25% ($1250) 5-Year CD – 0.45% ($2250)

Metro Credit Union APY Based on $5,000

Checking Account – N/A Savings Account – 0.15% ($750) Money-Market Account – 0.25%+

($1250) 6-Month CD – 0.30% ($1500) 1-Year CD – 0.55% ($2750) 5-Year CD – 1.70% ($8500)

When Selecting a Bank

Features of accounts Overdraft protection, ATM, Online

Banking What are the interest rates

offered? Compare APY (Annual

Percentage Yield) Read the fine print for restrictions and fee information

When Selecting a Bank

How will you bank Online? Use ATMS? Use Tellers?

Where will you bank Do they have convenient locations?

Selecting an Account

Beating Bank Fees Checking can cost $200-plus a year ($5-$20 a month) Buy cheap checks by ordering direct from printer Avoid Overdraft and Maintenance Fees ($5 - $40) Avoid ATM fees by using your bank’s ATM ($1 - $3) Find out what “Free” means

Balance requirement? Direct-deposit required? Know what is allowed with your account

Some accounts charge for things like teller visits

Calculating interest paid for loans When you borrow money from a bank, the amount you borrow is called

the Principal, P. The amount you pay for the use of the money you borrowed is called

the Interest, I. The amount of interest you pay depends on the amount you borrow,

the interest rate in percent, R and the Time, T, or length of time you borrow the money in years.

Simple interest is paid on the principal only To calculate interest, banks use the following formula:

I=PRT "P" is the Principal and is the amount you borrow; "R" is the interest Rate

in percent; "T" is the Time in years.