Banking

Banking Basics

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Class Objectives

The objectives of this session are to identify and discuss the following:

• What a bank account is and why it is important to have one• The two types of financial institutions and the accounts that

they offer • What is needed to open an account and the questions to ask

when opening one• Different types of checking and savings accounts• Other types of accounts that financial institutions offer• Tips for managing your accounts• Tips for budgeting your money

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What is a bank account?

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Why is it important to have a bank account?

• Keeps your money safe• Proof that you paid your bills• Makes it easier to track and manage your

money• Allows you to build a relationship with the

financial institution, which can make it easier to obtain a loan

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Choosing a Bank

What is important to you?

What benefits can the financial institution offer?

What are the bank’s fees and policies?

What kind of accessibility to they offer?

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What is the difference between a bank and a credit union?

• A credit union is a non-profit cooperative financial institution owned and controlled by its members.

• A bank is a for-profit company that makes money from charging fees and lending money.

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Credit Unions…

• Serve groups that share something in common, such as their profession, place of worship or neighborhood.

• Provide checking and savings accounts and loans, often with better rates than banks.

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Opening a Bank Account

What should you bring with you to the bank when you are opening a new account?

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Identification

When you go to the bank branch to open a new account, bring:• Photo identification, such as a driver’s license,

state ID card or passport• Proof of your address, such as a utility bill or

lease• Your Social Security number for tax purposes

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What to Ask When Opening an Account

What are some questions you should ask when you are deciding on a bank or credit union?

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Questions to ask:

What is the minimum to open an account?

What is the interest rate on the account?

Is there a monthly fee?

Is there any way to avoid monthly fees?

Is there a minimum balance requirement? What happens if my balance falls below the minimum requirement?

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Questions to ask:

Is there a maximum number of checks I can write each month?

Is there a fee for using your ATMs?

Does the bank offer online banking?

• TIP: Use the worksheet in your folders as a guide when you apply for an account at a bank or credit union.

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Checking and Savings Accounts

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Checking Accounts

• What comes with a checking account? What are the benefits?

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• Free checking• Direct deposit• Online banking and bill payment• Low cost accounts for seniors or students• ATM/Debit card• Checks

Checking Account Features

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Checking accounts allow you to:• Write checks• Use your ATM/debit card to get cash at ATM

machines and to make purchases at point-of-sale terminals (such as at the supermarket).

• In most cases, your ATM/debit card can be used to make purchases where credit cards are accepted

Checking Accounts

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Why is it important to enter the checks you write into your checkbook register?

Check Writing

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Keep a record of your checks:

• So that you don’t bounce checks.• So that you know how much money you have in

the bank.• So that you can track your spending and stick to a

budget.

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Debit Cards

You can use your debit card in two ways:• At an ATM or a point-of-sale (POS) terminal with

your person identification number, or PIN.• At stores and restaurants that accept credit cards,

without providing your PIN. You may be asked to show your ID and sign a receipt.

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Debit Cards

If your debit card is lost or stolen:• Alert your bank as soon as possible. The longer

you wait, the more money you might be responsible for if an unauthorized person uses your card to buy things.

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What is the difference between a credit card and a debit card?

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Credit Cards

• Every time you use a credit card you are borrowing money from a bank or financial institution.

• You must pay back the money that you borrow, in addition to any interest drawn on the amount borrowed.

• Allow you to build credit if used properly• Zero liability on fraudulent charges

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Debit Cards…

• Debit cards take funds directly from the money that you have in your bank account, preventing you from having to carry cash or checks

• Unlike with credit cards, if you do not report fraudulent charges to your account in a timely manner, you may be liable

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Savings Accounts

How is a savings account different from a checking account?

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What is interest?

Interest is the cost of lending money.• When a bank give you a loan, you pay interest to them.

When you keep your savings in the bank, they pay interest to you.

In a savings account, your money works for you by earning interest.

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How to Figure Interest

• The annual percentage rate (APR) is the amount of money you would earn if you left your money on deposit for one year.

• For example, if you left $100 on depot for one year at 2% APR, you would earn $2 in interest at the end of the year.

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Types of Interest

There are two types of interest:• Simple interest means that you earn interest on

your initial deposit.• Compound interest allows you to earn interest not

only on your initial deposit, but also on the interest you earn as you go along.

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Simple and Compound Interest

Example: You deposit $100 into your savings account and earn 5% interest annually for the next 20 years. Let’s compute the difference between Simple and Compound.

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Simple and Compound Interest

Simple Interest

Compound Interest

Principle + Simple Interest

Principle + Compound Interest

1 Year $5.00 $5.00 $105.00 $105.00

5 Years $25.00 $27.63 $125.00 $127.63

10 Years $50.00 $62.89 $150.00 $162.89

15 Years $75.00 $107.89 $175.00 $207.89

20 Years $100.00 $165.33 $200.00 $265.33

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Other Types of Accountsand Services

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Other Types of Accounts and Services

What are some other types of accounts that banks and credit unions offer?• Overdraft Protection• Certificate of Deposit (CD)• Safe Deposit Box• Online Banking

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Overdraft Protection

• An optional bank service called overdraft protection can save you from bouncing checks.

• It can work with a loan or line of credit or with your savings account.

• There is usually a charge for this service and you must signup for it.

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Certificates of Deposit (CDs)

What is a certificate of deposit?

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Certificates of Deposit (CDs)

• A CD is a kind of savings account in which you leave your money on deposit for a set period of time in order to earn interest.

• The longer the term of your CD, the higher the interest rate will be.

• If you withdraw your money before the term ends, you will lose the interest and might have to pay a penalty.

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Safe Deposit Boxes

What is a safe deposit box?

What are some things that you might keep in a safe deposit box?

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Safe Deposit Boxes

• Copies of insurance policies• Birth, marriage and death certificates• Mortgages, leases and other important contracts• Stock and bond certificates • Valuable jewelry• Hard drive

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Online Banking

What are some advantages of online banking?• Ability to view account balances and transfer money

between accounts 24 hours a day• Online bill pay

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Managing Your Accounts

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Common Bank Fees

• Overdraft charges• Minimum balance requirements• ATM fees• Monthly maintenance fees

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Example Bank Fees and Costs

A monthly fee without a minimum balance can average anywhere between $5 and $15 per month, this is $60 to $180 a year!

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Example Bank Fees and Costs

Many banks charge $2 to $3 dollars for using another bank’s ATM, plus the bank that the ATM belongs to will also charge the same fee. A withdrawal for $20 may end up costing you $26!

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Example Bank Fees and Costs

Overdraft fees can cost you between $20 and $35 dollars per transaction. That means if you overdraw your account by just $10 with 5 transactions of $2, bank overdraft fees can be as much as $175!

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How can you avoid these fees?

• Combine checking and saving balances to avoid monthly fees.

• Save on ATM fees by using your own bank’s machines.

• If you can’t avoid an ATM fee, take out larger sums less frequently.

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How can you avoid these fees?

• Keep track of your spending!• Set up direct deposit – many banks waive

minimum balance requirements with direct deposit.

• Ask the bank to reverse the occasional late fee or bounced check fee.

• Other ideas?

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Monitoring Your Accounts

Monitoring your accounts can help identify bank errors, unauthorized charges and identity theft.

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Banks make mistakes too!

If your bank or credit union makes a mistake, such as a mixed-up deposit, no-show bill payment or double debit, you have the right to speak with the bank about the error.

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Solving a Bank Problem

• Contact the bank as soon as you can.• Always write down the name of the person who

helped you.• Offer a solution and ask the back to correct the

problem.• Don’t lose your temper.• Send a summary letter (registered mail receipt

requested) to prove you took timely action.

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Identity Theft

What is identity theft and how can you avoid it?

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Keep Your Account Information Safe

• Shred unneeded bank documents rather than simply throwing them away.

• Be careful who you give your account information to.

• If you notice changes to your account that you did not make, contact your bank as soon as possible.

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Maintain a Good Relationshipwith Your Bank

It is important to maintain a good relationship with your bank. Failure to do so can affect your ability to have an account in the future.

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Account Verification Services

How do banks find out about your past account history?

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ChexSystems…

Is the major national account verification company.• When you apply for a new checking account, the bank

finds out if you are in the ChexSystems database.• If you ever abandoned a checking account with a

negative balance, you are probably listed in the ChexSystems database.

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Money Management

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Cutting Back on Expenses

What are some ways to cut back on expenses?

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Ideas to help you cut back

• Shop around and compare prices.• Make a shopping list and stick to it.• Prepare meals and bag lunches at home.• Don’t shop recreationally – you could be tempted to

buy things you don’t need.• Use the public library for books, magazines, videos.• Walk instead of drive.• Look for a free bank account.

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Check Writing Activity

In this activity you will practice writing a check and entering it into a sample checkbook register.

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Banking BINGO

Banking BasicsInterest$20$60Direct DepositDebit CardAPRFinancial BeginningsCompound InterestSimple Interest

ATM

Withdrawal

Savings Account

Checking Account

Bank

Credit Union

Balance

Deposit

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