Money Matters Class 3: Banking

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Finding the right bank account, understanding options and fees are covered in Part 3 of the 6-part Money Matters series created by the Athens-Clarke County Library. Money Matters is part of Smart investing @ your library®, and is brought to you by a joint grant from the American Library Association and FINRA, the Financial Regulatory Authority Foundation.

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  • Checking Accounts allow you to transfer money by check or electronic payment to a person or business Savings Accounts pay interest on your deposit Cashier’s Checks are guaranteed by the bank and treated like cash because banks clear instantly. However, banks can take the money back in 1-2 weeks if subsequent processing finds the check fraudulent. Fraud Alert: fraudulent schemes have arisen to entice an innocent third-party to cash a fraudulent cashier’s check and then part with part or all of the money received. Money Orders are payment orders for a pre-specified amount of money. The funds are pre-paid so more secure for the merchant than checks which can bounce. International Money Orders are convenient for travelling, widely recognized, and provide protections from theft. They require identification for cashing and you can report a theft, have the money order cancelled and reissued. Safety deposit boxes: copies of home and auto polices birth, marriage and death certificates mortgages, leases and other contracts stock and bond certificates and certificates of deposit valuable jewelry
  • Why No Bank Account? Mistrust, cultural and language barriers, belief that by the time bills are paid there will be nothing left for an account, lack of understanding of banking and accounts Disadvantages: fees; having a bank account can be expensive if not managed wisely Advantages : safe storage of money your money is safe from loss, theft or fire. your account is insured by the FDIC up to $250,000 canceled checks are proof you paid a bill direct deposit of paycheck Check cashing store fees and money order are more expensive than bank fees A bank account can help you keep track of how you spend your money convenience checking account makes money available through ATM, checks, online Bank Accounts are a first step toward building a financial identity which leads to further access to financial products, financial stability and security Credit unions: a credit union is a non-profit cooperative financial institution owned and controlled by its members, while a bank is a for-profit company that makes money from charging fees and lending money Credit unions serve groups that share something in common, such as their profession and location Credit unions provide checking and savings accounts and loans, often at better rates than commercial banks.
  • FDIC was established in 1933. Covers deposit accounts: checking savings, money market, CD’s (Certificate of Deposits) NCUSIF is similar to FDIC insurance but financed by credit unions
  • Limits are $250,000 per depositor per insured bank for each account ownership category. Account ownership categories include: single accounts, joint accounts, certain retirement accounts like IRA, employee benefit plans, trust account
  • Single checking and savings accounts, with one owner, are covered for a combined $250,000. John has a checking account with a value of $5,000 + a savings account valued at $245,000. Together John’s single accounts equal $250,000 and are completely insured by the FDIC. Joint Accounts owned by two or more people are covered up to $250,000 per co-owner. Unless otherwise noted John and Mary equally own the joint account and each would be assigned a value of $100,000 each for insurance purposes. Although, John has two trust accounts payable upon his death totally $400,000. They are insured separately because they have different beneficiaries.
  • Is this a single or joint account? Single Steve is only insured up to $250,000 in a single account. To better protect his money it would be wise for Steve to split the money and move ½ to another bank.
  • Check Cashing Fees vary on average from 1% to 4%. Some charge a flat fee. For example, Wal-Mart offers a flat fee of $3 for checks up to $1,000 and $6 for checks up $5,000 but will only cash government, payroll and tax checks. Money Orders can be purchased at the post office, banks, convenience stores, and grocery stores. The United State Post Office charges $1.15 for money orders up to $500, $1.55 for money orders between $500 and $1000, and $4.45 for International Money Orders
  • Direct Deposit - When your employer sends your pay directly to your checking or savings account rather than issuing you a paper check, you're participating in Direct Deposit. These deposits arrive and are made available to you more quickly than paper checks, and can be automatically divided among different accounts based on your direction. You don't even have to go to your bank. As many as 145 million Americans use Direct Deposit
  • Online Checking Accounts are often free. They usually offer electronic bill pay and direct deposit. Check out the online account system because some systems are easier to use than others. Also check on security systems and whether a real person is available for customer service if there is a problem Second Chance Banking can be used by people who have had trouble with frequently bounced checks or owed banks money in the past for overdrafts. Member banks share information about mishandled checking and savings account through the ChexSystem
  • In addition, the recipient of the check (merchant) may choose to take action against the writer. The action that is taken may be civil or criminal, depending on the amount of the check and the laws in the jurisdiction where the check is written.
  • There are lots of ways to bounce a check: You forget to enter a check, debit purchase, or automatic withdrawal in your checkbook and think you have more money in the account than you do. Your spouse forgets to tell you that he or she used the debit card. You write a check expecting to be able to make a deposit before it clears. You write a check knowing that you don’t have the money to cover it. Your bank or credit union makes a mistake and your account shows less money than it should. Your debit card is used by a crook (or maybe a friend or relative who decides they need your money more than you do). Someone writes a check to you, you deposit it, and their check bounces. You’ll probably pay a fee to your bank for depositing the bad check, and if you’ve written checks against that balance, your checks will bounce.
  • Interest Rates Currently .10% - 1.05%
  • In addition to checking and savings accounts, your local bank may offer you investment accounts that you can use to save for college or retirement or annuities to help you generate retirement income. But it’s important to remember that just because you’re buying these products from a bank doesn’t mean they’re FDIC insured. In fact, they’re not. Many banks now employ investment professionals, as well as tellers and account managers to help you coordinate your whole financial strategy. If you are unsure about which accounts are insured and for how much, be sure to ask. An annuity is a contract between the buyer and an insurance company. In general, the insurance company promises to do something with the buyer’s money -- like grow it or pay it out over a number of years. An annuity is not right for everyone They can have high fees and complicated terms making it difficult for the investor to know whether it is right for them May only be an appropriate investment in limited circumstances
  • Some disadvantages of credit unions are fewer branches, ATM and services. Each persons needs are different, look at both options before deciding which is right for you.
  • You will pay the check-cashing store more in fees and interest than you pay a bank for a checking account.
  • Payday loan create a vicious cycle. You are short on money this paycheck so your borrow from the next pay check which puts you behind again and again as the fees add up!!!
  • The following table provides examples of the cost to obtain a payday loan or online cash advance. The APRs are based on example loan terms of one payment ("Check Amount") due in 16, 14, and 7 days.
  • Short-term Loans (usually one month) with automobile or household assets as collateral. Collateral is an asset pledged to a lender until the loan is repaid. If the borrower defaults, the lender has the right to take the property and sell it to pay off the loan. 15% - 20% monthly fee
  • Purchases of big-ticket items, such as furniture, computers, washer/dryer, are paid for in monthly installments. The final purchase price can be 2 to 3 times retail cost. Customers forgo equity until final payment. Payments over time are not refunded if the item is returned.
  • Refund Anticipation loans were designed to offer the customer quicker access to funds than waiting for their tax refund. The truth is that RAL are short-term high interest loans. And with the ability to file electronically only enable the customer to receive their funds a few day earlier.
  • Many banks reduce or eliminate checking account fees when you have your pay check deposited directly to your checking account. You should receive your refund in three to four business days. Last year, the Massachusetts Department of Revenue issued 2.3 million refunds worth an average amount of $480.
  • Unlike other lenders, the pawnbroker does not report the defaulted loan on the customer's credit report, since the pawnbroker has physical possession of the item and may recoup the loan value through outright sale of the item.
  • Money Matters Class 3: Banking

    1. 1. MONEY MATTERS Class 3
    2. 2. Banking Banks offer two main products  Checking accounts: Transaction accounts  Savings accounts: Deposit accounts Other products:  Guaranteed Bank Checks, cashier’s check  Money Orders  Safety Deposit boxes  Foreign Currency Exchange
    3. 3. ??????????????????????????????????Why do some people choose not to have a checking account?What are some the advantages of having a checking account?What is the difference between a bank and a credit union?
    4. 4. Safety in BankingMoney in banks is insured by the Federal Deposit Insurance Corporation (FDIC)Credit Union Deposits are protected through the National Credit Union Share Insurance Fund (NCUSIF) As Independent agencies of the U.S. Government, your deposits are secure up to the amount that congress has approved.
    5. 5. Insurance LimitsTotal deposits in checking and savings accounts are insured up to  $250,000 per Single Account (owned by one person)  $250,000 per Joint Account (owned by two or more people)  $250,000 per IRA Account  $250,000 per Revocable Trust Account
    6. 6. John had the following accounts at one bank. Is he insured? Owner Account Amount
    7. 7. Are you insured? Owner Account AmountSteve Certificate of Deposit $ 300,000.00
    8. 8. Darren’s Story Check cashing fee $ 7.50 Money orders $ 4.65  $1.55 x 3 Bill-pay fee $ 6.00  $2.00 x 3 Total Fees $18.15
    9. 9. Direct Deposit of Paychecks Many financial institutions offer free checking when you use “direct deposit” Checking accounts are safe and insured, cash is not. Bills are easier to pay. Checking accounts cost less than buying money orders and paying check cashing fees.
    10. 10. Checking Accounts Basic checking  May charge a per check or per month fee. Student or Senior Checking  Usually a good deal if you qualify.  Often offers benefits like free checking or traveler’s check to attract college students or senior citizens Interest Bearing Checking Account  pay interest on your balance  Typically require higher balances and may limit transactions
    11. 11. Checking Accounts Joint Checking Accounts  Owned by two or more persons  All parties equally share rights and liabilities of the account Online Checking Account  Exclusively online Second Chance Checking Account  For people who have had banking problems in the past  Typically have higher fees
    12. 12. Choosing an AccountTo choose the best account for you, you’ll need to determine:  the average balance you plan to keep in the account  the number of debits, checks, online payments, and ATM withdrawals.
    13. 13. Fees Is there a monthly fixed fee to maintain your account? Is there a minimum balance requirement to avoid fees? What is the fee for checks?
    14. 14.  Is there a charge for paying bills electronically? Is there a charge for withdrawing money or getting checking account balances from the bank’s ATMs? Is there a fee for using an ATM from another bank? Is there a charge for using your debit card to pay for a purchase?
    15. 15.  What is the fee if I overdraw my account? Usually $35 Is overdraft protection available? Banks may check a standard credit report before opening a bank account, or they may check your credit if you request an overdraft line of credit.
    16. 16. Bounced ChecksWriting a check for more money than is in your account. The bank will charge you for each check that it must return unpaid. $35 The business you wrote the check to will also charge you a fee. $35 You hurt your reputation with the bank and with the people to whom you owe money.
    17. 17. Steps to prevent bounced checks Carrying a higher balance in the checking account; to always have a “buffer”. Balancing your checkbook regularly Overdraft Protection- A link to a savings account, credit card or line of credit that can cover overdrafts. Fees often apply.
    18. 18. Opening an Account Photo ID, 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
    19. 19. Balancing your checkbook Verifies that your records match the bank’s records. Banks CAN make mistakes If you make a mistake or forget to post a transaction in your register, you may start bouncing checks and incurring fees. If there’s a problem, you won’t need to wade through months of transactions to figure it out.
    20. 20. Balancing Your Checking Account Calculate the current balance of your checking account as of the last transaction you made.
    21. 21.  Write the new balance after each transaction Check Register: record the checks you write, check card purchases, deposits and automated teller machine (ATM) withdrawals
    22. 22. Balancing your Checking Account Statement, check register, pencil and calculator Check off, in your register, all items shown on your statement Add any fees to your register
    23. 23. Check Register Deposit/ Description of Payment/De CreditCheck # Date Transaction bit (-) Fee (+) Balance            500.00  12/5 Paycheck      470.50 970.50  12/6 ATM-cash 100.00      870.50 101 12/12 Sears-clothes 75.00      795.50 102 12/22 Best Buy - CDs 85.72       12/23 ATM-cash 75.00      634.78 103 12/24 West Apartments - rent 510.00      124.78 104 12/28 BP-gas 28.00     96.78  12/30 Paycheck     470.50 567.28  12/1 Service charge   6.00   561.28
    24. 24. 1. Enter the ending balance shown on the front $ of your statement.2. List all checks or other withdrawals recorded $ in your checkbook but not shown on your statement.3. Subtract the withdrawals shown in step 2 from the $ ending balance in step 1. Enter the difference.4. List all deposits in your checkbook register $ that are not on your statement.5. Add the amount in step 3 and all the deposits listed $ in step 4. Enter the total here. This figure should match your checkbook balance.
    25. 25. Savings PlanSAVE, SAVE, SAVE Start now no matter how small your savings Pay yourself first, use automatic deductions Put your savings into a separate account that does not have ATM access Put any pay raises, bonuses or tax refunds into savings after you complete your emergency fund.
    26. 26. Savings Products Basic savings accounts  pays interest at a lower rate than other savings products  Lower minimum deposit requirements Money market accounts  pay a somewhat higher rate than basic accounts  typically limit the number of withdrawals or transfers you can make each month  may impose fees or stop paying interest, or both, if your balance falls below a certain minimum  usually require a higher minimum balance.
    27. 27.  Certificates of deposit (CDs)  highest rates for savings products  specific term, or period of time, to earn interest.  forfeit some or all of the interest if you make an early withdrawal before the CD reaches full term.  generally, the longer a CD’s term, the higher the rate of interest it pays.
    28. 28. Beyond Banking Investment Accounts  Save for college  Retirement  Wealth Building Annuities Not ALL products available at banks are FDIC insured
    29. 29. Credit UnionsCredit Unions are financial institutions formed by an organized group of people with a common bond. Such as residents of Clarke County. Lower loan rates Higher savings rates Fewer service fees
    30. 30. Credit Unions vs Banks CREDIT UNIONS TRADITIONAL BANKS Not-for-profit  For profit Owned by members  Owned by outside stockholders Operated by mostly  Controlled by paid volunteer boards boards
    31. 31. Check Cashing Stores Cash Payroll checks for a fee (4-5%)  cost you $4-5 for every $100 cashed Cash Personal Checks (up to 15%)  Cost you $15 for every $100 = $85 Bill paying services Money Orders Money Transfers Phone Cards
    32. 32. Payday Lenders Short-Term cash advance on paycheck  Extremely high fees for short term loans  Additional fees apply if the loan is rolled overExample: a $500 payday loan at 15-25% for two weeks would cost you $75-$125 that will reduce your paycheck.
    33. 33. Payday LendersLOAN TERM FEE PAYMENT APR (days)$100.00 16 $25.00 $125.00 506.94%$100.00 $25.00 $125.00 651.79%$100.00 7 $25.00 $125.00 1303.57%$200.00 16 $50.00 $250.00 506.94%$200.00 14 $50.00 $250.00 651.79%$200.00 7 $50.00 $250.00 1303.57%$300.00 16 $75.00 $375.00 506.94%$300.00 14 $75.00 $375.00 651.79%$300.00 7 $75.00 $375.00 1303.57%
    34. 34. Title Lenders Short-term loans  Usually one month Collateral  Car  Household asset Example Monthly Fee 15-20% per month  APR 180% - 240% Default  Lender has the right to take and sell your property
    35. 35. Rent-to-Own Purchase big ticket items such as  Furniture  Electronics  Computers  Washer/Dryers Payments overtime are not refunded if the item is returned
    36. 36. Rent-to-own a $400 TV at $15 a week for 65 weeksWeekly Rental $15 x 65 weeks $975.007% Sales Tax $1.05 x 65 weeks $68.25Delivery Fee $30 once $30.00Total Cost $1,073.25 Total cost to $400 + purchase TV ($400 x .07) $28 = $428.00 Difference Overpayment $645.25Save to own $428 / $16.05 27 weeks
    37. 37. Tax Preparers – Refund Anticipation Loans (RAL) Quicker access to Tax Refund High Interest rate loan Refund is available in 1-2 days vs. 3-4 days with electronic filing
    38. 38. Alternatives to RALs Open a bank account and take advantage of direct deposit for both your tax refund and your pay check. File your tax return electronically (E-file)  Deposit refund directly into your bank account  3-4 business days
    39. 39. Pawn Shops Provide quick loans Must leave property at Pawn shop Receive only a fraction of what the item is worth Pawn brokers can sell the item if the loan is not repaid with interest in the specified time Pawn brokers do not report loan defaults to credit reporting agencies

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