Introduction to banking


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Introduction to banking

  2. 2. WHY DO WE HAVE BANK ACCOUNTS?  Safety and Security: A bank is a safe place to keep your money when you are not using it. Your money and your personal information are protected.  Savings: A savings account is a way to save your money so it will be available for both your short-term and long- term needs.  Earn interest: On some bank accounts, the bank pays you a sum of money called interest. This interest helps your money make more money. The more money in your account and the longer you leave it in, the more interest you will earn.
  3. 3. WHY DO WE HAVE BANK ACCOUNTS?  Access to a variety of banking services: A bank account is not just a place to store money. Many people use banks to process transactions and do other financial activities. For example, if you have an account called a “chequing account,” one of the ways you may pay bills is by cheque. This is a written order to the bank to pay a certain amount of money from your account. To pay your rent, for instance, you can write a cheque and mail it – rather than go to a bank, take out cash and bring it to your landlord yourself. There are many different banking services you can use, including getting assistance from your bank's customer service representatives, paying bills, using banking machines, making direct debit purchases and having direct deposit of money owed to you. Many of these services are discussed in this booklet.
  4. 4. WHY DO WE HAVE BANK ACCOUNTS?  Record-keeping: With a bank account, you receive account records to help you keep track of your money. This way, you know how much you spend and what you spend it on.  Convenience: A bank account offers convenience in helping you manage your money. For example, with a bank account you will be able to get a bank card, also called a debit card, which allows you to use over 16,500 banking machines across Canada. Banking machines provide 24-hour access for making deposits, withdrawals, paying bills and transferring money. A bank account also gives you access to telephone or Internet banking, where you use your phone or computer to do things like pay bills, transfer money between accounts and get updates on your account.  It's a good reference: When you need a loan or want to apply for a credit card, your bank account shows how you have handled your finances in the past. This is a good reference that may help you get your loan or credit card application approved.
  5. 5. Types of Accounts  There are three types of accounts 1. Savings Accounts 2. Chequing Account 3. Combination Account
  6. 6. Chequing Account  If you want to keep some money handy for paying bills or personal expenses, you should think about opening a chequing account. This type of account is good for money you expect to need from day to day. You may take your money out at any time in person, at a bank machine, by writing a cheque or by direct payment. Chequing accounts usually have lower service fees than savings accounts. Some chequing accounts do not pay interest and some do (a chequing account usually pays a lower rate of interest than a savings account). Ask your bank for more information.
  7. 7. Savings Account  If you want to save some money for your short-term needs, think about opening a savings account. This type of account is a good choice if you don’t need to use your money right away or you don’t intend on having much account activity in a month. The bank will pay you interest. The amount of interest will vary, depending on the type of account you choose and interest rates in general. You may take your money out any time.
  8. 8. Combination Account  If you want to save some money but you also want to keep some handy to cover expenses and manage your day-to-day finances, you should consider opening a combination account. This type of account is part savings and part chequing. You may take your money out any time in person, at a bank machine, by writing a cheque or by direct payment. Interest is usually paid on these accounts on amounts above a set level.
  9. 9. Banking Terminology  Account Money deposited with a financial institution for investment and/or safekeeping purposes.  Assets Items of monetary value (e.g., house, land, car), owned by an individual or a company.  ABM Acronym for automated banking machine.  ATM Acronym for automated teller machine.  Balance An outstanding amount of money. In banking, balance refers to the amount of money in a particular account. In credit, balance refers to amount owed.
  10. 10. Banking Terminology  Bank An establishment for lending, issuing, borrowing, exchanging, and safeguarding money.  Certified cheque A cheque issued by a bank, drawn on its own funds rather than on one of its depositors.  Chartered bank Non-governmental financial institutions. Sometimes called full- service banks because they provide a wide range of services, such as chequing and savings accounts, credit and loan arrangements, and safety deposit box rentals. Chartered banks also sell and redeem savings bonds.  Cheque Any written document instructing a bank to pay money from the writer’s account.  Chequing account An account for which the holder can write cheques. Chequing accounts pay less interest than savings accounts, or none at all.
  11. 11. Banking Terminology  Credit Union A member-owned financial institution, either provincially or federally chartered. Often more competitive than banks and trust companies because its nonprofit status makes its operating costs lower.  Debit Card A banking card enhanced with ATM (automated teller machine) and point-of-sale (POS) features that can be used to purchase goods and services electronically. The card replaces cash or cheques. Transactions are deducted from the cardholder’s bank account either immediately or within one to three days. Depending upon the type of card, a debit card may require a signature or entering a PIN number into special equipment. Debit cards may also be used to make Interac® Direct Payments (IDP).  Internet banking (cyberbanking) Allows a person to conduct banking activities such as transferring money between accounts or paying bills from their personal account using the Internet.
  12. 12. Banking Terminology  Interest The fee paid for the use of money. Interest may be paid, for example, by an individual to a bank for credit card use, or by a bank to an individual for holding a savings account; interest is expressed in terms of annual percentage rate (APR).  Joint account A savings or chequing account established in the names of more than one person (e.g., parent/child, wife/husband).  Mortgage A long-term loan obtained by individuals to buy a home that legally transfers ownership from the debtor to the creditor until the debt is paid.
  13. 13. Banking Terminology  NSF Non sufficient funds  NSF cheque (bounced cheque) A cheque that a bank has refused to cash or pay because there are not enough funds to cover the amount written on it, in the account of the person who wrote the cheque.  Overdraft A cheque written for more money than is currently in the account. If the bank refuses to cash the cheque, it is said to have “bounced.”  Passbook (Bankbook) A booklet given by the bank to the depositor to record deposits, withdrawals, and interest earned on a savings account.
  14. 14. Banking Terminology  Personal identification number (pin) It is a unique number or code entered by a customer when using an ATM, or accessing INTERAC®, PLUS® or CIRRUS® service.  Reconciliation Checking all bank account papers to make sure that bank’s records and yours agree.  Savings account A bank account that accrues interest in exchange for use of the money on deposit.
  15. 15. Banking Terminology  Service charge A monthly fee a bank charges for handling an account.  Stop payment A request made to a bank to not pay a specific cheque. If requested soon enough, the cheque will not be debited from the payer’s account. Normally there is a charge for this service.  Withdrawal An amount of money taken out of an account in cash, by cheque or debit card, or by automatic withdrawal.