Banking (p)


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Banking (p)

  1. 1. Eastbourne Citizens Advice BureauFinancial Literacy BANKING sponsored by 1/39 BANKING
  2. 2. There are a variety of bank accounts available and some terminology to get used to. This section explains the most common areas of banks and building societies.2/39 BANKING
  3. 3. Types of bank accountsBanks have two basictypes of accounts:• current accounts• savings accounts.Each bank may have itsown names for types ofaccounts within thesecategories but the basicprinciples remain thesame. 3/39 BANKING
  4. 4. Current accounts Current accounts are used for day-to-day transactions with money coming in, such as wages, and money going out, such as cash withdrawals, bill payments, cheques etc.4/39 BANKING
  5. 5. Current account services Most current accounts offer: • a cheque book • a debit card • a cashpoint card • statements • standing orders (SO) • direct debits (DD) • interest • overdraft • loans.5/39 BANKING
  6. 6. Cheque book A cheque book is a set of printed forms which allows you to pay amounts of money to a named individual or company.6/39 BANKING
  7. 7. How to write a cheque You complete: • the name or company to be paid • the quantity in words and numbers • the date and signature7/39 BANKING
  8. 8. Using chequesSome cheques have a maximum limit –usually £50 without a guarantee card.In shops, cheques have to be presentedwith a cheque guarantee card. This is usedto confirm your signature.As well as using cheques to pay otherpeople, you can put cheques into yourcurrent or savings accounts by presentingthem at the bank’s counter as a deposit.Cheques are not accepted by many highstores & supermarkets.On some occasions there is a possibility ofcheques being withdrawn by banks, ifthere are insufficient funds in the account 8/39 BANKING
  9. 9. Clearing cheques Cheques take a few days to clear in order for the funds to move from one bank to another. There needs to be enough money in the account from which the cheque is paid to cover the amount. Otherwise the cheque will be refused by the bank. This is known as a ‘bounced’ cheque.9/39 BANKING
  10. 10. Cheque numbersEach cheque in your book is individually numbered.This is one way of keeping a track of where chequeshave been sent.Also you can use the cheque stub to write down thedetails of the cheque such as the date, amount andwho it is made payable to.10/39 BANKING
  11. 11. Debit cardsAnother way to pay for things without using cash is by debit card.• Debit cards allow for payment to be made in a shop or to a companydirectly from your current account.• Debit cards are not a way to borrow money.• Banks don’t normally charge for this service.• You have to make sure that there are sufficient funds in your accountto cover the payment.• Debit cards are used with card readers in shops that contact yourbank electronically to confirm the transaction.• They can also be used to pay for things via the internet or telephone.11/39 BANKING
  12. 12. Cashpoint cards Cashpoint cards allow you to withdraw money from your current account at a cashpoint, sometimes referred to as an ATM (Automated Teller Machine). •This provides easy, round-the-clock access to your money. •A cashpoint requires a personal identification number or PIN to access the account. •This is a four-digit code which you will need to memorise and keep secret. •It is also possible to withdraw money from cashpoints provided by other banks. But be aware that some charge you for doing this.12/39 BANKING
  13. 13. Credit cardsCredit cards are not the same as debit or cashpointcards.• Credit cards have a separate account.• They allow you to borrow money as well as pay forgoods and services.• You can apply for a credit card from any provider aswell as your own bank.• Often banks issue multi-function cards which combinea debit card and cashpoint card in one.For more information about credit cards visitBorrowing.13/39 BANKING
  14. 14. Lost or stolen cardsIf you lose a debit, credit or cashpoint card, or it is stolen, you mustreport it to your bank, building society or credit company as soon aspossible.•You will find a telephone number for reporting lost or stolen cards onthe reverse of your bank statement.•You will only be liable for a maximum £50 for any criminal use of thecard before you report it as missing.•You will not have to pay for any misuse of the card after you havereported it.•If the card is lost or stolen before you receive it, you will not beresponsible for any misuse of the card.Banks suggest that you never keep your card and PIN numbertogether in case they are stolen. Also you should never tell anyoneelse your PIN number.14/39 BANKING
  15. 15. Chip and PINCredit and debit cards contain a smallmicrochip which hold your accountdetails.•You are sent a four-digit personalidentification number (PIN) separately.•Instead of signing when you buy goodsin shops you enter your PIN number on akeypad just like at a cashpoint.•It is important to keep your PIN numbersecret to protect your account.For more information 15/39 BANKING
  16. 16. Overdraft facilitiesMost bank accounts offer an overdraft facility. This allows you to spendmore than the total balance in your account and go overdrawn.It is a way to borrow money short term.You will need to agree with your bank an overdraft limit, for example£100, which would then allow you to borrow up to this amount. 16/39 BANKING
  17. 17. An overdraft can be useful ifyou know that you are about torun out of money but will soonreceive some income.Banks charge you interest onyour overdraft. This is anotherpercentage rate and variesfrom one account to another.You will need to find out fromyour bank what your overdraftlimit is and what interest youwill pay to borrow this money. 17/39 BANKING
  18. 18. Overdraft chargesIf you go overdrawn without the bank’s agreement they may imposecharges.Banks and building societies currently charge around £25 tocustomers who exceed their credit limit, go overdrawn withoutauthorisation, or bounce a cheque.This charge can be made each time a debit is made from theoverdrawn account adding up to a large amount of money.Although banks will tell you about these charges it can be arguedthat excessive charges are unlawful. If this happens to you seekadvice.You can find more information about overdrafts in Borrowing.18/39 BANKING
  19. 19. Bank statementsA bank statement is a list of transactions made fromyour account.Your bank will regularly send you a bank statement andyou can sometimes obtain one from a cashpoint.The statement will•list each transaction in date order•show who the transaction is made with•show the amount as either a credit (paid in) or debit(paid out)•show the total amount of money in your account afterall transactions. This is known as the balance.19/39 BANKING
  20. 20. Your bank statement can be a useful tool for budgeting as it provides a record of yourmonthly income and spending.You can use it to predict the amounts that will need to be paid in the coming months. 20/39 BANKING
  21. 21. •If at any time you notice an item on your statementwhich seems incorrect you should tell your bank,building society or credit company immediately.•It could be an error or it could be an incidence offraud if someone has used your card details.•Be vigilant and report anything unusual.21/39 BANKING
  22. 22. Making regular paymentsYou can arrange with your bank for a regular payment to be madefrom your account to a company or other account.This can take the effort out of having to make the payments inperson and having to remember to pay on a set date.This is especially useful for paying bills such as electricity, gas,telephone etc.You could also arrange for an amount to be transferred to asavings account.There are two ways to do this:•standing order (SO)•direct debit (DD).22/39 BANKING
  23. 23. Standing ordersStanding orders allow you to pay a set amount toanother bank account on a regular date, such as on the10th of each month.You can use this to pay money to companies orindividuals or to pay money into a savings account.23/39 BANKING
  24. 24. Direct debits A direct debit is used to allow a company to take amounts from your account, to pay for bills etc. The amounts may vary but will usually be at the same intervals. You will be informed by the company how much and when the money will be taken from your account.24/39 BANKING
  25. 25. Keep your account in creditYou will need to make sure that thereis enough money in your account tocover the amounts to be paid by bothstanding orders and direct debits,otherwise you may becomeoverdrawn.If you have not agreed an overdraftlimit with your bank they will chargeyou for the uncleared direct debit.This can happen more than once andthe charges can mount up. 25/39 BANKING
  26. 26. InterestThe bank pays you for keeping your money with them. Thisis called interest.• It is paid as a percentage rate based on the balance inyour account.• Interest can be paid on some current accounts and allsavings accounts.• Interest rates vary so it is a good idea to shop around andcompare the interest rates that banks are currently offering.• Due to the economic downturn, the bank base rate hasbeen low so as to boost spending rather saving. Howeverthis has a knock on effect on loans and mortgages. 26/39 BANKING
  27. 27. Calculating interestTo calculate interest you multiply the current balance by the interest rateExample: If you had £100 in a savings account that paid 6 per cent (%) simpleinterest, during the first year you would earn £6 in interest.£100 x 0.06 x 1 = £6At the end of two years you would have earned £12. The account wouldcontinue to grow at a rate of £6 per year, despite the accumulated interest.Interest is paid on the original amount of deposit, plus any interest earned.Example: If you had £100 in a savings account that paid 6 per cent interestcompounded annually, the first year you would earn £6 in interest.£100 x 0.06 x 1 = £6 £100 + £6 = £106With compound interest, the second year you would earn £6.36 in interest.The calculation for the second year would look like this:£106 x 0.06 x 1 = £6.36 £106 + 6.36 = £112.36 27/39 BANKING
  28. 28. Telephone and online bankingMost bank accounts offer telephone or onlinebanking.• Telephone banking allows you to phone a callcentre and ask for an operator to make paymentsand transfers from your account.• You can set up standing orders and ask for anupdate on your account balance. Usually this coststhe price of a local call. • Online banking allows you to access your bank account details via the internet and make transactions yourself. It is free, apart from the cost of using the internet. These facilities can help you manage your money more effectively and are useful tools for budgeting. Ask about these options when you choose a bank. 28/39 BANKING
  29. 29. Savings accountsSavings accounts, also known as deposit accounts, are intendedfor money to be paid in but not often withdrawn.• Some allow instant access to your money but others require thatyou give the bank notice before making a withdrawal or incur apenalty.• They don’t offer the same access facilities as current accountssuch as cheque books and cashpoint cards.• They usually offer higher rates of interest than current accountsbut these too can vary so it is worth shopping around.29/39 BANKING
  30. 30. Individual savings accounts (ISAs)Individual savings accounts or ISAs are a governmentscheme to encourage more people to save or invest theirmoney without paying any tax on the interest earned noron any capital gains.• With an ordinary bank or building society account youpay tax on the interest you earn.• There is a limit to how much you can invest in an ISAeach year.For more information 30/39 BANKING
  31. 31. Student and young person accountsStudent and young person accounts are designed to help young people andstudents to get control over their money. Many student accounts have interestfree overdraft facilities and have no charges for using the account.There is usually a student adviser to help students with any money managementproblems. They may also offer a credit card.Student and young person accounts offer incentives like cash payments, mobilephones or gift vouchers, discounts on CDs, DVDs, computer games, concerttickets, books and entrance to night-clubs.Although incentives are tempting they usually apply when you first open theaccount only. Good interest rates and low charges are usually more helpful inthe long run.Graduate accounts offer facilities to assist graduates with their money and debtmanagement for time periods of up to three years after graduation. 31/39 BANKING
  32. 32. Choosing a bank accountWhen choosing a bank account, you may find it useful to consider:• how much interest is paid when your account is in credit.• how much is the interest free overdraft limit.• charges for agreed overdrafts and loans – these vary.• charges for unauthorised overdrafts. These are overdrafts whereyou have not received permission from your bank in advance and thecharges are much higher.• the qualifying period after graduation (to stay in the same account,which will probably have better rates than other accounts).Many of the banks now have an option to move to a graduateaccount which may also have better terms of interest or charges thanan ordinary account, especially if you are still paying off an overdraftor loan. 32/39 BANKING
  33. 33. How to choose a bank accountOther issues you may want to consider when choosing a bankare:• the location of cashpoints and branches• telephone banking service• online banking service• can you use other bank’s cashpoints, do they charge?• Saturday or late night opening• where can you make cash and cheque deposits• personal banking advisers• standing orders and direct debits• what other services are offered, eg ethical approach to banking,share dealing, small business advice etc.33/39 BANKING
  34. 34. Opening an accountTo open a bank or building society account, you will usually have to:• complete an application form• provide proof of your identity and address• put some money in the new account.Wherever possible, the bank or building society will want to verify your identityand address through official documents that contain a photo and ideally asignature, for example:• a current valid full passport• national identity card or• driving licence.If you do not have these documents, the bank or building society may ask forother proof of identity. To check the address, the bank or building society mayask for a recent utility or council tax bill.A student may provide a letter from her/his college. The same documentcannot be used to prove both identity and address. 34/39 BANKING
  35. 35. Joint accountsYou can open a bank account in your name only or open a jointaccount with one or more people.This can apply to either current or savings accounts.Some couples decide to do this and agree to have equal access tothe funds, regardless of whether they pay in different amounts.Other couples choose to have separate accounts.You could set up a joint account from which bills are paid by directdebit or standing order. Both of you can pay into the account. Me Direct Debit £££ Direct Debit JOINT ACCOUNT You Standing Order £££35/39 BANKING
  36. 36. Banks and building societiesAlthough we have referred to banks in this subject, buildingsocieties now offer many of the same features in their accounts.As well as the well-known high street banks there are now severalonline banks which don’t have premises. These can offer thesame kind of features as the high street banks.36/39 BANKING
  37. 37. Understanding your bank’s servicesUnderstanding the range of services offered by banks cangive you better control over your money.It is worth checking out the various offers to make sure youare getting the best deal from your bank. 37/39 BANKING
  38. 38. ActivityResearch and compare current and savings accounts from four local banks or buildingsocieties.You could do this by visiting each bank and asking counter staff and collecting leafletsgiving details.Or you may find the internet can give you answers via each bank’s website.Find out about:• current accounts and savings accounts• facilities available such as cashpoint cards, overdrafts and interest rates• bank charges• special accounts for students.Consider also:• ease of access• location of branches• opening times• online and telephone banking.Use this information to decide which bank is best for you.Highlight anything you are impressed by or disappointed by.38/39 BANKING
  39. 39. Banking End39/39 BANKING