Banking Basics

Cons of Cash Advance and Payday Loans

1. Always have to pay for the service. Some companies charge you a fee plus a percentage of the total check amount. 2. Are getting a very bad deal. A typical payday borrower ends up paying $520 in interest on a $375 loan. 3. Can fall into a payday loan cycle where you need to take out another payday loan to pay for the first payday loan.

Cons of Brick and Mortar Banks

1. Earn little interest on the money in your accounts. 2. Pay higher bank fees since banks have to pay to keep the physical building running. 3. Can't access the physical bank after hours.

Pros of Brick and Mortar Banks

1. Exchange checks for cash, get a debit card to use at ATMs, arrange loans, and deposit checks into your accounts. 2. Use the bank's website to pay bills, make deposits, and monitor your accounts. 3. Speak to someone in person to help with banking needs.

Pros of Credit Unions

1. Get a free checking account with a low initial deposit and lower bank fees. 2. Get better interest rates on your savings accounts and loans since credit unions reinvest their profits to improve your rates. 3. Access banking services online. 4. And join a credit union with members who have the same values as you.

Pros of Internet Banks

1. Get cash for checks, deposit checks into your accounts, and get a debit card to use at ATMs. 2. Earn a little more interest on your money in your accounts and pay a little less interest on your loans. 3. Use your debit cards at potentially thousands of ATMs around the world.

Pros of Cash Advance and Payday Loans

1. Get cash for your check immediately. 2. Have 24 hour access in many cases.

Cons of Credit Unions

1. Have to be eligible to join a credit union through your job, location, membership of certain groups, or a family member. 2. There may be fewer branches available in your area.

Cons of Internet Banks

1. May have a difficult process to deposit cash. 2. May temporarily lose access to your account if the bank website glitches. 3. May not have access to checking accounts.

Checking Account

1. Used for everyday transactions through checks or debit cards 2. Feels vary by account and institution 3. Free checking accounts are common but often include only basic services. 4. Earning interest on your money in checking accounts is less common than in savings accounts.

Savings Account

1. Used to store money for longer-term goals 2. Fees vary but are often waived if you maintain a minimum balance or make a minimum monthly deposit. 3. There's a limit to the number of withdrawals that can be made each month. 4. Interest can be earned either daily, weekly, monthly, or annually.

Bonds

A bond is a debt investment. When you buy a bond, you lend money to a company or government and get interest in return. When the bond is due for repayment, you get your full loan amount back. For example, if you buy a 10-year, $1,000 bond that pays 2% interest, you will get $20 in interest each year. At the end of ten years, you'll then get your $1,000 back.

Savings

A great way to earn a little interest while keeping your money safe. Better for short-term goals, such as buying a car or building an emergency fund. Involves minimal risk because your money is insured by the government (up to a certain amount). Usually averages 1%return each year.

Stock

A stock is a share of ownership in a company. When you buy a company's stock, you become a shareholder (or part owner) of that company. As a shareholder, you can make money on your investment if the price of the company stock goes up. For example, if you buy a company's stock at $25 and it goes up to $30, you can make a $5 profit.

Money Market Account

A type of savings account that can offer a higher interest rate compared to traditional savings. However, these accounts often require a higher minimum balance to be maintained.

Certificate of Deposit (CD)

A type of savings account that stores your money for a pre-set period of time. They often have higher interest rates compared to savings accounts because you typically cannot withdraw your money early without paying a penalty (depending on the financial institution).

Loan Officer

Advises, evaluates, and signs off on loans to individuals and businesses

Compound interest

Banks paying you on the interest they already gave you before.

Brick and Mortar Banks

Brick-and-mortar banks have physical buildings. These are the banks you may see as you drive through town.

Which type of bank account is best for everyday transactions?

Checking Account

Bank account that offers the least (if any) interest

Checking Accounts

Which of the following financial institutions typically have the highest fees?

Credit Unions

Credit Unions

Credit unions are not-for-profit institutions that are co-owned by their members who make decisions democratically. Credit unions typically offer all of the same services as traditional banks.

Which of the following is NOT a common feature of a financial institution?

Direct Deposit

Your financial rights are protected

Electronic transactions are protected. You may not be financially responsible for transactions you didn't give permission for.

Your financial rights are transparent

Financial institutions must tell you when the money you are depositing will be available for you to use.

Customer/Member Service Representative

Helps customers or members with any questions they may have

Teller

Helps with account transactions like depositing or withdrawing money

Your financial rights are accountable

If you have complaints about your financial institution, you can go to a financial regulatory agency such as the Consumer Financial Protection Bureau.

Internet Banks

Internet banks are only online. All services are done through an application or website using either a computer or mobile device.

Branch Manager

Manages all the employees at a specific location

Overdraft Protection

Most financial institutions offer overdraft protection for an additional fee. This means if you overdraft on your account, you will be charged a fee but your check will go though. If you do not opt-in to be charged fees for overdraft protection, your transactions will get declined if you don't have enough money in your account.

Mutual Funds, Index Funds, and Exchange-Traded Funds (ETFs)

Mutual funds, index funds, and exchange-traded funds are investments that invest in a mix of stocks, bonds, and other types of investments. These investments are convenient for investors who don't want to individually pick which stocks or bonds to invest in.

What do you need to open your account?

Official government identification and the money you want to deposit

Which savings account will earn you the least money?

One that earns (simple/compounds) interest (monthly/daily)****

Cash Advance and Payday Loans

People who don't have an account at a bank or a credit union may use a cash advance or payday loan company to get money quickly, but at a high risk.

Your financial rights are safe

The money you deposit into your account is federally insured (up to a certain amount). This means you are guaranteed to get your money back if something happens to the institution.

Account Number

The number assigned to one's bank account

Why is it important to reconcile your bank statements?

To avoid spending more than what is in your account, to detect any errors in your account, and to determine if you were charged any fees

Routing Number

Unique 9 digit number on a check telling which bank/financial institution you use

Overdraft

When you accidentally spend more money than is in your account.

What happens when you put money in a savings account?

When you put money in a savings account, you are letting the financial institution borrow your money. The financial institution pays you interest for every day you let it use your money. So you're getting free money!

Investing

When you put your money into something and expect to earn a profit in the future. Better for long-term goals like paying for your child's education or for your retirement. Always involves risk because you can lose money if the value of your investment goes down. Has historically averaged 10% return each year.

529 Plan

You can save your post-tax money for certain education expenses and the interest you earn will grow tax-free.

Special Savings Plan

You can use some special savings plans, like a 529 plan, to save money for something specific (in this case, for education).

What happens when you use an ATM outside of your network?

You get charged with a fee

If there is a mistake with one of your bank accounts, who should you contact to resolve the issue?

Your financial institution