The plan is to introduce banking concepts and terminology. The goal is to understand basic banking products and services and importance of saving money. The takeaway is to know various banking products and services and create a savings strategy. Additionally, understand the importance of saving money and the concepts around saving such as interest, compound interest, rule of 72 and various savings vehicles.

1. Introduction to Personal Finance
Banking Basics and Saving Money
Jason Vitug
@jasonvitug

2. Introduction
• The plan is to introduce banking concepts and
terminology.
• The goal is to understand basic banking
products and services and importance of
saving money.
• The takeaway is to know various banking
products and services and create a savings
strategy.
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3. Financial Institutions
• A number of financial institutions exist such as:
– Commercial Banks
– Investment Banks
– Insurance Companies
– Brokerages
– Investment Companies
– Savings and Loans
– Credit Unions
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4. Credit Unions and Banks
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5. Deposit Insurance
• Banks and the FDIC
– The Federal Deposit Insurance Corporation (FDIC) is an independent
agency of the United States government that protects the funds
depositors place in banks and savings associations. FDIC insurance is
backed by the full faith and credit of the United States government.
The standard insurance amount is $250,000 per depositor, per insured
bank, for each account ownership category.
• Credit Unions and the NCUA
– The National Credit Union Administration (NCUA) is the independent
federal agency that regulates, charters and supervises federal credit
unions. With the backing of the full faith and credit of the U.S.
Government, NCUA operates and manages the National Credit Union
Share Insurance Fund (NCUSIF), insuring deposits up to $250,000 per
depositor, per insured credit union for each category of ownership.
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6. Banking Products – Deposits
• Checking Accounts
– A checking account offers access to your money for daily
transactional needs. A debit card or checks can be used to
withdraw money, make purchases or pay bills.
• Money Market Accounts
– A money market account is a type of savings account
offered by some banks and credit. They are similar to
savings account but usually pay higher interest, have
higher minimum balance requirements and only allow
three to six withdrawals per month.
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7. Banking Products – Deposits
• Savings Accounts
– An account in a bank or credit union that earns interest.
• Certificates of Deposit (CDs)
– CDs are savings products. The key difference between a regular
savings account and a CD is that early withdrawal from a CD in
advance of pre-specified term leads to penalty fees. Interest earned in
CDs typically are higher than regular savings accounts.
• Individual Retirement Accounts (IRA)
– An IRA is an account that allows an individual to save for retirement
with tax-free growth or on a tax-deferred basis. There are three main
types of IRAs—Traditional, Roth, and Rollover—each with different
advantages.
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8. Banking Products – Access
• ATM
– An electronic banking outlet which allows customers to access their
cash and complete basic transactions without the aid of a branch
representative or teller.
• ATM Card
– An ATM card is a PIN-based card. That means that in addition to using
to withdraw money at ATMs, you may also be able to use it to make
purchases (by entering your Personal Identification Number)
• Debit or Check Card
– A card that resembles a credit card but debits a checking account for
purchases. Can also be used to withdraw money from an ATM.
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9. Banking Products – Access
• Branch Banking
– A bank or credit union branch or financial center is a retail location
that offers a wide array of face-to-face and automated banking
services to its customers.
• Online Banking
– Also known as internet banking which enables customers to access
bank accounts and information about transactions through the
financial institution’s web site.
• Mobile Banking
– Mobile banking refers to the use of a smartphone or tablet to perform
online banking tasks such as monitoring account balances, transferring
funds between accounts, bill payment and locating an ATM.
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10. Opening a Banking Account
• Deposit Requirement
– A minimum deposit might be required to open a savings or checking account.
• Identification
– A government issued ID along with social security card may be required.
• Contact Information
– Address and telephone which may require proof of residence through a billing
statement.
• Chexsystems
– A consumer credit reporting agency. It’s very similar to credit reporting
bureaus but information is strictly about your banking history. Many financial
institutions use Chexsystems to determine whether or not to open a checking
account.
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11. Reading a Check
Routing Number is the number used to identify the financial institution in a transaction.
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12. Banking Products – Terms
• Direct Deposit
– Direct deposit (also known as payroll direct deposit) electronically deposits
your paycheck, pension, Social Security, or other regular monthly income into
a checking, savings account, or Money Market account. There is typically no
charge for direct deposit, funds are available on payday (some financial
institutions make them available the night before) and many financial
institutions require a direct deposit to avoid account maintenance fees.
• Withdrawals
– Removing funds from your deposit accounts.
• Deposits
– Any money in a savings or a checking account or in a certificate of deposit
(CD).
• Principal
– The total sum of money borrowed plus any interest that has been capitalized.
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13. Banking Products – Terms
• Banking Fees
– Banks and credit unions charge fees for various services on a transactional, monthly or annual basis. These fees
typically contribute a major portion of a financial institutions revenues
• Interest Rate
– The percentage rate of interest charged to the borrower or paid to a lender, saver, or investor.
• Annual Percentage Rate
– A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all
lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides
consumers with a good basis for comparing the cost of loans.
• Rate of Return
– How fast money in savings account or investment grows. Annual earnings on an investment expressed as a
percentage of the amount invested; also known as yield. Example: A $3 annual dividend divided by $34 share cost =
0.088, an 8.8% rate of return.
• Simple Interest
– Interest calculated periodically on loan principal or investment principal only, not on previously earned interest.
• Compound Interest
– Interest upon interest, where accrued interest is added to the principal sum, and the whole treated as new principal,
for the calculation of the interest for the next period.
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14. Banking Products – Loans
• Loan
– a sum of money that is borrowed and is expected to be paid back with
interest.
• Credit
– the ability of a customer to obtain goods or services before payment, based
on the trust that payment will be made in the future.
• Types of Loans and Credit
– Credit Cards
– Personal Loans / Lines of Credit
– Debt Consolidation Loans
– Auto Loans
– Boat/Recreational Vehicle Loans
– Home Equity Loan / Lines of Credit
– Mortgages
– Student Loans / Lines of Credit
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15. Plastic Cards
• Credit Card
– A plastic card that authorizes the delivery of goods and services in exchange for future payment with
interest, according to a specific schedule.
• Secured Credit Card
– A secured credit card is a credit line that is not tied to collateral such as a cash deposit, auto or home. They
are typically given to consumers based on credit history and the ability to repay the debt.
• Debit or Check Card
– A card that resembles a credit card but debits a checking account for purchases. Can also be used to
withdraw money from an ATM.
• ATM Card
– An ATM card is a PIN-based card. That means that in addition to using to withdraw money at ATMs, you may
also be able to use it to make purchases (by entering your Personal Identification Number)
• Advantages of using debit cards?
– Using your own money.
– When using a debit card as a “credit” or “pin-based” transaction, money is still debited from checking
account.
• Advantages of using credit cards?
– Earn rewards and purchases may benefit from extended warranties or price guarantees.
• ATM Fees and Surcharges
– Access ATMs using the financial institutions ATM network to avoid paying fees.
– Use cash back at registers when prompted.
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16. “A penny saved is a
penny earned.”
- Benjamin Franklin

17. Why Should You Save?
1. Build a safety net to weather unforeseen
circumstances.
2. Reach financial independence where income
is derived from interest and returns.
3. Stop reliance on credit and accumulation of
the debt “ball and chains.”
4. Having money when you need it or want to
use it.
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18. Savings Options and Choices
There are many options to save your money so
which option is right for you?
1. Determine what you’re saving for.
2. Decide on how much access to the savings
which is called Liquidity.
3. Determine how much money you need to
deposit.
4. Choose an account with the best interest rates,
lowest fees and best liquidity.
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19. How Much to Save?
• What’s the magic number? Is 3%, 5%, 10% or
more?
– Depends on your lifestyle choices and spending
habits.
– The more you save today the more you’ll be
secure when you’re unable to work.
• Income comes and goes but lifestyle is sticky.
– Assess spending habits to find money to save.
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20. What to Save?
• Emergency fund
– Calculate monthly living expenses and save 6 months in
a liquid savings account.
• Short-term goals
– Holiday spending, vacations and big ticket items.
• Mid-term goals
– Mortgage down payment, car purchases, etc.
• Long-term goals
– 401(k), IRA contributions, investments.
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21. Savings: Where to Save?
More liquid
Zero or low interest rate
Immediate availability
Checking account Savings account Certificate of Deposits
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Less liquid
Higher interest rate
Less Liquid
Whatever savings or investment strategy, starting
earlier can help you maximize long-term savings and
increase wealth.

22. Simple Interest
Calculating simple interest:
principal x interest rate x time = interest earned
Example: You open a savings account with $1,000 at a 5%
simple APR, how much will you earn the first year?
$1,000 x .05 x 1 = $50 interest earned the first year.
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23. Compound Interest
Compound interest is what makes savings really grow. When your interest
compounds, it gets added back to your account and becomes part of your principal.
With more principal, the account earns even more interest, which continually
compounds into new principal. It’s a powerful cycle that really adds up.
Example: If you’re $1,000 at 5% simple (Annual Percentage Rate) APR, earns $50
each year but if that interest compounds then the interest becomes part of the
principal. When this happen you’re beginning to earn interest on interest.
$1,000 x .05 x 1 = $50 interest earned in year one
$1,050 x .05 x 1 = $52.50 interest earned in year two
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24. The Rule of 72
How long will it take for your money to double?
• The Rule of 72 is a simple way to figure out how long it will
take for your money to double with compound interest.
72 divided by the interest rate = the number of years needed to double your money
• Example: 10% interest rate and want to know how long it
will take to double your money would be:
72 divided by 10 = 7.2 years
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25. Learn more about banking and saving money at
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