Financial Institutions will provide you with a secure place to keep your money. These institutions offer many different options and opportunities to meet your needs. In the community, financial institutions serve several important roles: they protect the assets of individuals who deposit money with them, they provide loans to individuals, organizations, and businesses, and they help facilitate many day-to-day transactions. There are three main types of financial institutions: Banks: Banks are organizations licensed by the government to provide services to customers while enriching investors. Banks are insured by the Federal Deposit Insurance Corporation (FDIC) Credit Unions: Credit unions are typically not-for-profit cooperative financial institutions that are owned and controlled by the members. Credit Unions are insured by the National Credit Union Association (NCUA) Savings and Loan Associations (S&L): S&Ls are financial institutions which specialize in accepting savings deposits while making loans, such as mortgages. Even within the same categories, every financial institution will differ somewhat in poliices, services offered, and products available. Advantages of using a financial institution: *Convenient access to your money *Security-less risk of theft, deposits are insured *Cost Efficiency-a bank account is generally less expensive than using other sources to obtain cash or make transactions *Access to knowledgeable people who can assist you with financial needs *Building block of credit *Earn Interest *Creating Records of your transactions Choosing a Financial Institution When choosing a financial institution, select based on: *Convenience and proximity to your location or your daily/weekly routine *Checking & Savings options *Costs-what fees are associated with joining *Customer Service Also consider the institutions’ funds availability policy
Regular Savings Account-primary purpose is to allow you to safely store & accumulate money. It is an excellent vehicle to accumulate money for those non-monthly expenses, emergencies or short term goals. Also called share accounts at some credit unions. Interest is paid monthly. The bank may require a minimum deposit. (This means the amount of money you put into the account each time.) There may be limits on the number of deposits and withdrawals you can make. Some banks charge fees.
Electronic Transfer Account (ETA) Electronic transfer accounts (ETAS) have been established by the US Treasury for accommodating direct deposits of federal government payments and are an option for those who are not comfortable with or do not qualify for other accounts. Learn more about ETA accounts in publication B3812 Get Checking.
Stored Value Cards Individuals receiving various government transfers may, instead of receiving checks, be given what looks like a credit card or debit card that would have a balance reflecting the transfer. Read more about stored value cards at: http://fyi.uwex.edu/financialseries/ . Click on the Savings Product Category and read the Issue Brief titled “Financial Service Alternatives to Traditional Accounts” by J.M. Collins.
Certificates of Deposit (CDs) Your money must remain in the account for a fixed period of time, called the term. The more money you deposit, and the longer you keep it in the account, the more interest you’ll earn. You’ll have to pay a penalty if you withdraw your money before the term is completed. Rates of interest on CDs are typically higher than on regular savings accounts.
Money Market Account Also called Negotiable Orders of Withdrawal, share-draft accounts, or interest-bearing checking accounts. This type of savings account allows limited check writing. Higher minimum balance typically required You may have limited withdrawals each month. Generally these accounts pay higher interest rates than regular savings accounts. Interest is calculated at the end of a fixed time period, for example, every month. Interest rate may change.
U.S. Government Securities for more information on savings bonds, Treasury bills, and other securities, go to the government’s website: www.savingsbonds.gov
Use the questions below to help choose an account that is right for you: How much will my savings earn? The interest rate is usually expressed as an annual rate, even if your interest is compounded or calculated monthly or quarterly. The terms “annual percentage yield,” “rate of return,” and “APR” all refer to this amount of interest earned on your savings account after one year.
How easy is it for me to access my money? Sometimes the number of withdrawals allowed every month is limited. Other accounts come with checks or debit cards to allow you access to your money.
What’s the minimum amount needed to open the account? Some accounts may require a minimum, such as $100, to open an account, while others may require $1,000 or more. Sometimes, savings accounts opened for children require a smaller amount of money to first open up the account.
Is there a minimum balance to keep the account open? After you first open your account, some accounts allow you to keep a lower balance. Other accounts lower your interest rate, stop paying interest, or even start charging a fee if your account balance falls below a certain amount.
Does this account have a maturity date? Maturity refers to the ending date of your savings contract, for example, the date when a 12-month certificate of deposit stops earning interest. Other accounts, like a savings account, let you keep adding money to your account for as long as you want.
Is the account “liquid” or “long-term”? Certain “long-term” accounts, like CD’s, may have penalties, such as losing some interest payments, if you take money out too soon. “Long-term” accounts usually pay you a higher interest rate in exchange for limiting access to your money. Make sure you have enough “liquid” savings — that is, savings you can withdraw anytime without a penalty — to cover emergencies and big upcoming expenses.
Checking accounts, like savings accounts, are part of an individual’s personal money management system. Some checking account users will exclusively use electronic transactions. Checking accounts are very similar to savings accounts. Both types of accounts keep your money safe, and both are very easy to access if you need cash.
The difference, however, is that checking accounts are designed to be used regularly and frequently, while savings accounts are intended to be for long-term money management. For example, financial institutions expect their customers to be making regular withdrawals and deposits from a checking account. These withdrawals can be made in person or they can be made with an ATM card, debit card, or checkbook.
Most savings accounts earn interest. Checking accounts may or may not— checking-with-interest does exist at some financial institutions. Advantages and Disadvantages of a Checking Account There are distinct advantages of opening a checking account, but there are also some disadvantages:
A checking account can be a great way to make your transactions easier. Use the questions below to help choose an account that’s right for you. As yourself the following questions to determine if the financial institution you’ve found is the right one for you:
What types of checking accounts are available? There are several types of checking accounts varying in names: Basic checking, “Free” checking, Express checking, “No Frills” checking, Interest bearing, Money Markets. These vary in nature. For more information on the various types see Choosing a Financial Institution at www.aboutchecking.com or www.bankrate.com.
What types of account ownership options are available? Individual Account-you alone have acce3ss to the money Power of Attorney Payable on Death Joint Account-you and one other person have access to the money right of survivorship Community or Marital Property similar to joint ownership but specific to married couples Custodial-used for minor children
Is a minimum balance needed on an account and is it able to earn interest ? You must be able to maintain a minimum balance in order to earn the interest.
Does the account have ATM or Debit cards available? Sometimes a yearly fee may be charged for this convenience and fees may be charged at locations other than the financial institution that holds your account. It is important to record all fees from these transactions.
Are overdraft protection plans available? Fees for overdraft protection may vary, but is typically not free. Funds must be available in some form of savings or an arranged line of credit to cover exceeded amounts. A significant amount is usually charged - $25 to $35 - each time a check is processed through your account. Once you make a deposit, the fees will be deducted before checks are honored jeopardizing current transactions. This snowball effect may leave you owing a significant amount of money.
What are account disclosures? A financial institution is required to disclose in writing all policies and practices impacting your account. This would include which services have fees and how much, fund availability, deposit account rules, and features of the accounts. These disclosures help you to make informed decisions.
How to Maintain a Checking Account Record all transactions in your register (checks, debits, and ATMs). Make it a habit to subtract checks and ATM withdrawals from your checkbook right away so that you don’t think you have more money than you actually do. Keep a running balance of your account. Balance your checkbook with your monthly statement.
Avoid Overdraft Spending more than you have in your account is also known as “overdrafting” or “bouncing a check.” Some financial institutions will offer “overdraft protection,” which can help move money from your savings account or a credit account in the case that you spend more than you have in your checking.
It is important to understand that checking accounts can’t be used like credit accounts. In order to write a check, there must be sufficient funds in the account to cover the amount being spent. It is illegal to write “bad” checks when you know there is not enough money in the account to cover the amount being spent. Violators of this law may be fined or punished, and financial institutions may keep information about your negative history for up to five years.
Getting your ChexSystems report Call ChexSystems Consumer Relations: 1-800-428-9623 https://www.consumerdebit.com Or write to: Consumer Relations 12005 Ford Road, Suite 600 Dallas, TX 75234
ChexSystems ChexSystems is a consumer reporting agency which collects information on account activity and reports to member financial institutions, much like how credit bureaus report on and record your credit history.
Under the federal Fair Credit Reporting Act, you are entitled to a free copy of your report. You may dispute the completeness or accuracy of any information by contacting ChexSystems. According to ChexSystems policy, it will not remove accurate information under any circumstances and it will keep information for five years.
Financial institutions will use ChexSystems to determine whether you will be a safe or risky customer. Using this information, the financial institution, not ChexSystems, makes the decision to open your account or not.
Overdraft Protection Many financial institutions will now offer “overdraft protection,” or a link from your checking account to another account or line of credit that can be pulled from in case you spend more money than you have in your checking. This is a great way to add some security to your account so that you do not accidentally make a costly mistake. However, overdraft protection should not be overly relied upon. Safe and smart financial management means that you keep track of your funds and transfer them manually.
Overdraft protection options include: Monitor account Transfer from savings Line of credit Tied to a credit card New Rules: In the past, some banks automatically enrolled you in their standard overdraft services for all types of transactions when you opened an account. Under the new rules, your bank must first get your permission to apply these services to everyday debit card and ATM transaction before you can be charged overdraft fees. See http://www.federalreserve.gov/consumerinfo/wyntk_overdraft.htm for more information.
Opening an account You have many options in choosing an account. In fact, you may decide that you would like to have more than one account, each for a different purpose. Knowing what you want and need in an account will help you find the types of accounts best for you. It is recommended that you contact the financial institution before you go in to open an account to make sure you have everything the institution will need to open the account. Proper identification – Typically you will need two forms of identification, at least one with a photo. Social Security Number – Bring your Social Security card with you. Money to put in the account – Find out in advance the minimum amount of money required to open an account. Using a ATM ATM cards provide you with access to your account through Automatic Teller Machines (ATM). You have the ability to check your balance and make deposits and withdrawals. An ATM card may be linked to your savings or checking account, or both.
Direct Deposit and Electronic Transfer Account – Electronic Transfer Accounts (ETAs) have been established by the U.S. Treasury for accommodating direct deposits of federal payments and are an option for those who are not comfortable with or do not qualify for other accounts. ETAs offer the same insurance protection as other deposit accounts and are open to all recipients of federal government payments. Pre-Authorized Transactions – Monthly charges/withdrawals from an account to be used to pay bills. This can be convenient because you can be assured bills will be paid on time. Be sure to set up the date for the withdrawal only when you know you will have the funds in the account to cover the amount of the bill. Online Banking – When selecting on-line banking that has no physical offices, make sure it is FDIC insured. Keep personal information secure and private. Passwords or PINs (personal identification numbers) should be used when accessing an account online. Make it unique to you and change it regularly.
Go Direct All federal benefit and non-tax payments are moving to electronic payments rather than paper checks.
People applying for federal benefit payments must choose an electronic payment option at the time they apply for the benefit. People currently getting federal benefit checks must switch to electronic payments by March 1, 2013.
There are two options (1) direct deposit to a bank or credit union account or (2) a Direct Express® card account. The Direct Express® card will be the default for anyone receiving a paper check who has not designated an option as of March 2013. Social Security (including Old Age, Survivors, Supplemental Security Income and Disability), Veterans Affairs (VA), Railroad Retirement and other benefits will all move to electronic payments.
The Direct Express® card is a prepaid debit card payment option for federal benefit recipients. Cardholders can make purchases, pay bills and get cash back at thousands of locations nationwide. No bank account or credit check is required to enroll. There are no sign-up fees or monthly account fees. Many other card services are free, but not all. For example, using multiple ATM withdraws per month could incur a fee. See: Fee_Schedule.pdf. Other services are helpful and free, but optional such as email or text message notifications and alerts.
Being unbanked maybe a good choice – have to weigh options carefully.
Basic Financial Services
• 3 Main Types
– Credit Unions
– Savings and Loan
– Convenient access to
– Saves money
– Access to knowledgeable
– Building block of credit
– Earn interest
Types of Saving
• Regular Savings Account
– Interest paid monthly
– May require a minimum
• Certificates of Deposit (CDs)
– Money must remain in
account for a term
– Higher interest rate than a
• Electronic Transfer Account
– Direct deposits for
• Money Market Account
– Limited check writing and
– Pay higher interest than
regular savings accounts
– Interest rate may change
• U.S. Government Securities
– Often offers highest
return with lowest risk
Choosing a Savings Account
• How much will my
• How easy is it for me to
access my money?
• What’s the minimum
amount needed to
open the account?
• Is there a minimum
balance to keep the
• Does the account have
a maturity date?
• Is the account “liquid”
Checking Account Basics
• Cost of over-drafting
account can be costly
• Safer than carrying cash
• Greater responsibility for
• Proof of payment
• Easier budgeting
• Minimum balance or fee
Choosing a Checking Account
• What types of checking accounts are
• Is a minimum balance needed on an account
and is it able to earn interest?
• Does the account have ATM or Debit cards
• Are overdraft protection plans available?
• What are account disclosures?
Maintaining a Checking Account
1. Record all transactions in your register
1. Keep a running balance of your account
2. Balance your checkbook with your monthly
3. Subtract checks and ATM withdrawals from
your checkbook right away
• “Overdrafting” or “Bouncing a check”
– Spending more than you have using a check
• “Overdrafting” with ATM or Debit Card Use
– Spending more than you have using your card
– Your ATM/Debit Card is not a Credit Card
• Standard overdraft practices
– Transaction covered for a flat fee-$20/$30 each
time you overdraw
• Overdraft protection
– Offered by some financial institutions
– Moves money from savings to checking in cases of
• Options Include
– Transfer from savings, line of credit, tied to a
• New Rules:
– Rather than auto enrollment in overdraft plans
customers must “opt in” to this coverage for
ATM/debit card use
Savings and Checking Accounts
• Opening an account
– Social Security number
– Money to put in the account
• Using an ATM
– Deposit money
– Withdraw money
– Check your balance
– Transfer money between accounts
Savings and Checking Accounts
• Direct Deposit and Electronic Transfer
– Automatically deposit checks directly into a
savings or checking account
• Pre-Authorized Transactions
– Scheduled payments automatically pulled from
• Online banking
– Manage all accounts with a secure website
• All federal benefit payments are moving to electronic
payments by March 1, 2013.
1. Direct deposit to a bank or credit union account or
2. Direct Express® card account (default)
Prepaid debit card
Make purchases, pay bills and get cash back
No bank account required
No sign-up fees or monthly account fees, but…
Optional text message notifications and alerts.
• Electronic Wallet (smart phone transactions)
• Continued movement from paper
– Fewer paper checks or statements
• Electronic monitoring and management
• Shifting fees – al la cart – need to watch
• Blurring of banked and under-banked
– Retail financial services at stores
– Convenience services – check cashing, bill
payment—more popular and competitive