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Banking and credit


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Banking and credit

  1. 1. Disclaimer • Andreas Rauterkus is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Andreas Rauterkus does not purport to tell or suggest which investment securities attendants should buy or sell for themselves. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision.
  2. 2. Objectives • Why should we have a bank account? • How to determine your banking needs • How to find the “right” bank • How to maintain a bank account • What is a credit report? • What is a credit score? • Basic features of credit cards • Credit card fees
  3. 3. Banking Basics • A bank (credit union, or thrift) is an institution that accepts deposits and makes loans • How can a bank account help you? • –Safety • –Convenience • –Recordkeeping • –Cost • –Security • –Financial future
  4. 4. Types of accounts • Checking account – For every day transactions • Savings account – Pays interest on balance – Limited withdrawals
  5. 5. Opening a bank account • Shop for a bank – Account features – Costs – Branch and ATM locations – Hours of operation – Other products • Account verification – Photo ID – Initial deposit – Acceptable credit history
  6. 6. Managing a bank account • Protect your money – Don’t allow others to access your account • Avoid overdrafts – Don’t make withdrawals or write checks that exceed the available balance in your account • Understand bounce protection – New rules that prevent customers from spending significant amounts of money on overdraft fees
  7. 7. Develop a bank relationship • Report errors on your bank statement – Write, call or visit your bank within 60 days to correct statement errors • Make sure to notify the bank of all address changes • If you close your account, make sure that all checks have cleared
  8. 8. Checking Accounts • Determine your needs – How do you plan to use the account? • Account fees – Be familiar with the fee schedule • Monthly service fee • Per check fee • Check printing fee • ATM use fee • Overdraft fee • “bounced” check fee • Stop-payment fee
  9. 9. Types of checking accounts • Free/low cost checking – Mostly free – Limitations on check writing • Electronic/ATM checking – Use only electronic services – Fee for in person teller service • Regular checking – Minimum balance to waive monthly fee • Interest-bearing checking – Negotiable order of withdrawal (NOW) account – Money market deposit account (MMDA)
  10. 10. Check Writing • Date – Write complete date • Pay to the order of – Beneficiary of the check • $ – Dollar amount in numbers • Dollars – Dollar amount in words • Memo – Optional field – Remind yourself of purpose of check • Signature line – Sign the check
  11. 11. Check Register • Check number – Record the number of the check you wrote • Date • Description of transaction – Purpose of the check • Payment/debit – Record checks written, ATM and debit card transactions • Fee • Deposit/credit – Record any deposits and credits to your account • Balance – Add any credits and subtract any debits to determine the new account balance
  12. 12. Reconcile your checking account • Make sure everything in your check register appears on the bank statement • Checks that do not appear have not been cashed yet • Any deposits made after the statement data will not appear on the account statement • After adjusting for non reported debits and credits your bank balance should equal your register balance
  13. 13. Additional Banking Services • Car loans • Credit cards • Mortgage loans • Student loans • Business loans and services • Money management services • Retirement savings accounts • Remittances and wire transfers
  14. 14. Consumer Credit Report
  15. 15. Information in a Consumer Credit Report • Identifying Information – Name, addresses, social security number, etc. • Account History – Specific information about each account • Public Records – Federal bankruptcy records, tax liens and monetary judgments • Inquiries – Record of those who reviewed your credit history
  16. 16. Credit Scores • Decision making tool for credit grantors • Numeric value applied to your credit history • FICO score – 300 to 850 • Applied in many situations – Credit applications – Apartment rentals – Employers – Graduate schools – Insurances – Phone companies – Utilities
  17. 17. Free Credit Reports • Entitled to one free credit report every 12 months • • Also entitled to a free credit report if… – An application was denied based on information on your credit report – Unemployed and planning to look for a job within 60 days – Receiving public assistance – Your report is inaccurate due to fraud (e.g. identity theft)
  18. 18. Credit Repair • No one can remove information from your credit report • It takes years to repair credit legitimately • You can dispute errors on your credit report
  19. 19. Credit Cards and Debit Cards Credit Cards Debit Cards Payments Buy now, pay later. Buy now, pay now. Interest Yes if you carry a balance or your card No. Charges offers no “grace period”. Other Freebies, such as cash rebates and Easier and faster than writing a check. Potential bonus points good for travel deals and Avoid debt problems. Benefits some purchase protections. Other Fees and penalties. Also, not all cards Fees on certain transactions. You may Potential offer grace periods (time to repay overdraw your account if you are lax Concerns without incurring interest). about recording debit card transactions Overspending can cause debt problems. and opted out of overdraft protection.
  20. 20. The CARD Act of 2009 • Legislation to provide consumer protection • Key provisions: – Applicants under 21 must prove sufficient independent income – Interest rates cannot be increased on an existing balance during the first 12 months of the account (some exceptions) – Credit card statement must be sent at least 21 days before due date – No charges for payments made by phone
  21. 21. Credit Card Costs • Annual fees • Interest – Interest is charged on average daily balance • Cash advances • Convenience checks • Payment allocation • Default rates • Balance transfers • Late fees • Over-credit limit fees • Currency conversion fees • Transaction fees
  22. 22. Shopping for a credit card • Look for low fixed annual rate • No annual fee and long grace period • Decide how you will use the credit card • Beware of introductory rates and balance transfer offers • Beware of application fees • Understand the difference between a fixed and variable rate
  23. 23. Responsible credit card use • Convenience user versus “revolver” • Protect your credit card • Carry only the credit cards that you will use • Pay off your balance each month • Read the fine print • Do not keep more than two or three credit cards
  24. 24. Schumer Box Annual Percentage Rate This rate only applies to purchases and can be a fixed rate or a (APR) for Purchases variable rate. Other APRs The “Other APRs” box contains information on APRs for balance transfers, cash advances, convenience checks, and default rates. These rates can either be fixed or variable. Grace Period for The grace period applies only to balances for purchases. You only Repayment of Balances for receive a grace period if you pay your new balance in full each billing Purchases period by the due date. Method of Computing the Most issuers use the Average Daily Balance Method, including new Balance for Purchases purchases. Annual Fees Many issuers do not charge an annual fee. Others may offer the first year with no annual fee with a charge thereafter. Minimum Finance Charge A minimum charge on any balance that remains unpaid. Usually, it only applies when the interest charge is less than the minimum charge. Transaction Fee for Balance An up-front fee assessed for making a balance transfer. Transfers Transaction Fee for Cash An up-front fee assessed for requesting a cash advance. (The same fee Advances typically applies to convenience checks.) Late Payment Fee A fee assessed when a payment is received by the issuer after the due date. Over-the-Credit Limit Fee A fee assessed when one chooses to exceed their credit limit. International Transaction A fee (usually 3%) assessed on each foreign currency purchase after it has been converted into U.S. dollars.