Checking, Savings, CD's

Checking

What is a checking account?• An account in a bank or

credit union that allows the owner of the account to make withdrawals using checks or a debit card.

• Checking accounts at banks are insured by the FDIC (Federal Deposit Insurance Corporation) for up to 250,000 until December 2014. Then the federal insurance will revert back to $100,000.

 

Restrictions on checking accounts

• Limits on withdrawals• Some Checking

Accounts have a restriction on the number of fund transfers between accounts

• There are usually minimum balance requirements on checking accounts

   https://www5.bankofamerica.com/deposits/index.action?body=check_overview

How to Open a Checking Account

• You must go to a bank or a credit union to open a checking account.

Types of Checking Account

• Basic Checking Accounts• Express Checking Accounts • Free Checking Accounts• NOW Accounts• Joint Accounts• Life-line Checking Accounts• Money Market Checking • Senior / Student Checking

CheckingWhat are the repercussions if you overdraft on a checking

account??•  Over draft fee• “Banks collect an estimated $7.8 billion in fees from overdrafts

triggered by debit and ATM transactions. These overdrafts could be prevented with a simple warning or if the transaction was declined. Instead, most banks let these transactions go through and charge consumers a fee for each overdraft. The FDIC found that the median fee for overdrafts is $27, even though the average overdraft is triggered by transactions totaling $17.”

• http://www.paymentsnews.com/2009/03/more-on-overdraft-fees.html

CheckingWhat is overdraft protection?•  protection for charges

cause by overdrawing your account or using money not currently in the account in order to pay a transaction.

  How to get overdraft

protection:•  You request it from the

company and pay a nominal monthly fee for the service

 What happens if you overdraw on a checking account?

•  If you have overdraft protection, funds are transferred from your savings or other available account to make up for the remainder of the transaction. If you do not have overdraft protection, then you will receive a significant fine and you will have to pay the original withdrawal amount as well. Fines vary from institution to institution. 

CheckingHow are checking accounts and debit cards related?• A debit card can be

used to quickly withdraw, deposit, and transfer funds to and from your checking account.

What kind fees are associated with checking accounts?• Withdrawal fees (ATM

fees)• Transfer fees• Checking writing fees• Monthly fees

What are debit accounts?•  A checking account in

which you can use a debit card at ATMs (automatic teller machines) and some businesses in order to access your money.

Debit vs. ATM

What is the difference between a debit and an ATM card?• A debit card is attached to a checking account and

can be used at an ATM machine as well as some business to access the funds in a checking account.

• An ATM (Automatic Teller Machine) card is attached to a savings account and can only be used at ATM machines to access the funds in the savings account.

Checking

Bank Terms• Overdraft• Withdrawa

l• Deposit• Transfer• Fees

Online Banking

How it works with checking:  Access your accounts on the internet through a bank or credit union website in order to transfer money, make payments or account related business.

CheckingAccounts that can be connected to checking account:

•  Savings accounts 

 Reasons for connecting accounts:•  Eliminate or reduce

fees for transferring funds between accounts

• Increase manageability of checking account

How to get checks?•  Request them from

the bank and pay nominal fee if necessary. Many banks offer their clients free checks. They are not fancy, but they get the job done.

CheckingDifferent types of checking accounts:• Basic • Free• Interest-Bearing • Joint• Express • Lifeline• Senior/Student • Money Market

 http://www.bankrate.com/finance/checking/types-of-checking-accounts-1.aspx

Life line checking account are for low balance accounts normally depending on low

income with little to no monthly fees. Allowing the use of a limited number of

checks per month.

CheckingHow to complete a Check:1. Current Date2.The amount to be paid to the recipient3. Name of recipient 4. Any additional information5. Your Signature

How to keep track of a checking account:1. Requesting monthly statements either in the mail or on-line2. Checking the online status of your account that is updated regularly3. Contacting your branch of your bank and requesting information on the status of your account4. Using Excel (or other program) to personally monitor your own transactions

Checking

How to balance a checking account:1. Calculate total income2. Calculate the total amount

of expenses3. Subtract the expenses from

the income. Be sure to include all expenses in your check register.

Ways your financial companies inform you of your account status:1. Paper Statements2. Emails3. Electronic account status

CheckingPayroll Transfers can be set up and managed in these ways:1. Request payroll transfer on traditional forms2. Arrange payroll transfers through electronic banking3. Manage the transfers using monthly statements mailed to you4. Manage transfers through your electronic banking account

Who can create payroll deductions?• Your employer at your

request

Checking

Do you get interest on checking accounts?              

Some checking accounts do give you interest

Rate of return: Hovering around .5%- 1.2% on average

A NOW account is aNegotiable Order of Withdrawal Account

It is a interest bearing checking account.

NOTE: BE AWARESome checking accounts charge you a inactivity fee on checking and savings accounts if the account has not been used for a certain amount of time (ex. 6 months). Check the terms of your account.

Certificate of Deposit

What is a CD?

Certificate of Deposit is a popular way to invest you money safely. It is insured by FDIC for the same amount as a checking and saving account ($250,000 until 2014, then $100,000). You must lock in your money for a certain time period (these time periods vary) and you are promised a certain interest rate for that time period. If you withdraw the money before the money matures (at the end of the term) you will lose all the promised interest, but you will not lose the principal that you put into the Certificate of Deposit.

Certificate of Deposit

Who can get a CD?

Anyone with a bank account can request and purchase a CD at their bank or credit union.

What is Interest and how is it related to a CD?

Interest is payment for the use of money by a bank or credit union. Typically, you get a higher interest for locking you money into a CD for a certain amount of time than you would if you kept it in a savings or checking account.

How Does a CD Work?

• “When you purchase a CD, you invest a fixed sum of money for a fixed period of time – six months, one year, five years, or more – and, in exchange, the issuing bank pays you interest, typically at regular intervals. When you cash in or redeem your CD at maturity, you receive the money you originally invested plus any accrued interest. But if you redeem your CD before it matures, you may have to pay an "early withdrawal" penalty or forfeit a portion of the interest you earned.”

• http://www.fdic.gov/deposit/deposits/certificate/index.html

Savings Accounts

• What is a Savings Account?– Savings Accounts are places at banks or credit unions that

keep your money safe while gaining interest. Interest is the money the bank pays you to keep your money with them.

• What are the benefits of having a Savings Account?– It’s a good idea to have a savings account because it’s a safe

and healthy way to keep your money when you want to save towards a goal (usually short term) or keep better track of your money. With a savings account, your money is insured by the FDIC so that if anything happens, you are refunded all of your money (up to $250,000 until 2014, then $100,000).

Saving Account info was taken from a presentation given in class in 2009-2010.

Types of Savings Accounts

There are a few different types of Savings Accounts that certain banks have to offer…

• Basic Savings Account/Passport Accounts– Basic accounts have minimum deposits of around 5-200

dollars. Your money earns a relatively low interest rate, but you are free to give and take money whenever you please.

• Money Market Accounts– Need a higher minimum deposit, around 500-2,500, and also

limits the amount of times you can withdraw monthly.

Savings Accounts

• Where Can I open a Savings Account?– You should shop around looking for a money institution that

fits your needs. Close to home, open the hours you need it to be, and also doesn’t require fees on a savings account.

• What are some disadvantages to a Savings Account?– Sometimes, there is a monthly fee ($3.50) for going under

your minimum balance.– Interest can be figured in many different ways.– It is safe, which gives little room for interest, especially when

inflation and state taxes are figured.

Security of a Savings Accounts

• If the bank declares bankruptcy, is the target of embezzlement or mismanagement of funds, the Federal Deposit Insurance Corporation (FDIC) insures your account, up to 250,000 US dollars (USD) until 2014 (then it reverts back to 100,000 US dollars). In fact, a requirement when shopping for a savings account is to look for one that is FDIC insured. If your savings account isn’t FDIC insured, you might have difficulty if the bank encounters financial problems. Most banks, credit unions and money markets funds do offer this insurance.

Interest and Savings Accounts

• All savings account acquire interest after you put money in the bank. Different banks can give you different interest rates at which they will pay you for keeping your money with them

• The bank then loans out there money to other people for slightly more than the interest they pay you, that’s how they make money.

Compound Interest

• Compound interest is when interest is added to the principal, so that from that moment on, the interest that has been added is itself earning interest. This addition of interest to the principal is called compounding (i.e. the interest is compounded).

• A loan, for example, may have its interest compounded every month: in this case, a loan with $100 and 1% interest per month would have a balance of $101 at the end of the first month, $102.01 at the end of the second month, and so on.

Savings Accounts

• Most savings accounts require you to make a minimum deposit when the account is initially opened. Most banks range from between 5-20 dollars, and some banks require a minimum balance to be saved at all times and the amount varies from bank to bank. Not all banks require these fees or minimum balances.

Savings Accounts

• Banks usually sends you a monthly statement in regards to your balance and history of the past month. Check these statements very carefully to make sure that they are accurate. If there is an error, contact the bank immediately to resolve it.

• Most banks also offer on-line statements as well.

Money Market Accounts

• A money market account is a type of savings account offered by banks and credit unions just like regular savings accounts. The difference is that they usually pay higher interest and have higher minimum balance requirements (sometimes $1000-$ 2500).

What is the difference between a bank and a credit union?

• “Banks and credit unions are more similar than they are different. Banks as well as credit union are financial institutions which provide variety of services to their depositors like home loans, saving account etc.The key philosophy behind credit unions and banks is different. The banks run for the aim of generating profits while credit unions are community based institutions which run as non profit.”http://www.differencebetween.net/business/difference-between-bank-and-credit-union/

Who insures credit unions and for how much?

• Credit unions are insured by the NCUA (National Credit Union Administration) which insures all savings, checking, certificates of deposits and IRA for up to $250,000 until 2014 and after that date $100,000. NCUA is a federal agency that insures credit unions.

• http://www.ncua.gov

Resources for Savings Account Information

• http://www.wisegeek.com/what-is-a-savings-account.htm

• http://turkey.thebeehive.org/Templates/Money/Level3Image.aspx?PageId=1.194.268.270.271

• http://urbanext.illinois.edu/ww1/06-11.html• http://urbanext.illinois.edu/ww1/06-12.html• http://urbanext.illinois.edu/ww1/06-13.html• http://urbanext.illinois.edu/ww1/06-14.html• http://www.christianpf.com/what-is-fdic/• http://math.about.com/library/weekly/aa042002a.htm

What is the difference between a bank and a credit union?

• “In credit union if you want to be a depositor then you need to have membership first. In applying for a membership, you need to have a simple account with minimum deposits. Each member becomes part owner in the credit union and is entitled to receive shares based upon his contribution. Thus, people having large amount of funds gets more number of shares and can receive larger share of profit.

• Board of directors of credit union are comprised of volunteers or elected members who participate in major financial decisions and elections; whereas a bank is owned by a private company. The bank’s Board of directors is appointed by the company or shareholders. Depositors receive some amount of interest on certain types of account.

• Credit union encourages people to save, promote thrift and also encourages them to use money wisely. Banks on the other hand is least interested in all the above mentioned.

• Credit union is more personalized and friendly in service and its strength lies in connecting with the community. Banks are standardized to a high degree and their focus is on professional services with consistency not essentially customizing the services according to their client.

• Credit Union usually finance small project related with community development and tries to keep money within the community. Bank on the other hand tends to finance big and mighty projects. The interest rate charged by bank is a bit higher than what credit unions charge.

• Credit Union’s area of work is not as large as a bank. Banks are usually based locally and have multiple branches across a large region.”

How to Open a Savings Account

• Its very simple to open a savings account at a bank. You simply set a meeting with a bank teller and you will go through forms of paper work, you also need to present a form of I.D. and will need a parent signature if you are under the age of 18.

What is the difference between a bank and a credit union?

• “A bank is a business, a credit union is a cooperative. A credit union is a financial institution that is owned by the people who use it and are its members. Usually, the members are people who share something in common, like an occupation or a church they belong to. They are non-profit organizations and so can charge lower fees and interest rates for loans and pay higher interest rates on savings. The idea is that you are borrowing your own money and/or the money of your friends and neighbors. That’s become a little bit stretched in recent years. For instance, Pacific Credit Union is "pleased to offer the benefits of credit union membership to anyone who lives, works, worships or attends school in Alameda, Contra Costa, Fresno, Marin, Napa, Placer, Sacramento, San Francisco, San Mateo, Santa Clara, Solano or Sonoma counties in California." I think that’s stretching friends and neighbors a little bit,  but they offered the best car loan deal I could find. And since I got a loan from them and thus became a member, when at the end of the year they had money left over, the gave some to me! Banks don’t do that. Banks are owned by shareholders and are expected to make a profit for their shareholders.”

• Source: http://www.cuna.org/cuna/index.html

Who insures the money in a credit union?

•  What is NCUA? NCUA -- short for the National Credit Union Administration -- is an independent federal government agency that charters and supervises federal credit unions and insures accounts in federal and most state-chartered credit unions across the country through the National Credit Union Share Insurance Fund (NCUSIF), a federal fund backed by the full faith and credit of the United States government.

• What is the purpose of NCUSIF?The NCUSIF protects members’ accounts in federally insured credit unions, in the unlikely event of a credit union failure. The NCUSIF covers the balance of each member’s account, dollar-for-dollar up to the insurance limit, including principal and posted dividends through the date of the failure.

• What is the NCUSIF insurance amount?Properly established member accounts in federally insured credit unions are insured up to the Standard Maximum Share Insurance Amount (SMSIA). The basic insurance amount is $250,000 per individual account holder, per federally insured credit union. This includes principal and posted dividends up to a total of $250,000. Joint account holders are insured up to $250,000 per joint account holder, per federally insured credit union. For example, an account with two joint account holders is insured for $500,000 separately from the holders’ individual accounts. This includes principal and posted dividends. IRA and KEOGH accounts are insured, separate from other accounts, up to $250,000 per institution, including principal and posted dividends.

REGISTER ALL TRANSACTIONS

IMPORTANT!!!!• Be sure to always keep a written (or electronic)

record of all transactions including deposits, withdrawals and transfers for checking accounts, saving accounts, ATM and Debit Card use. You will need these transactions to check your bank statements for accuracy. Remember it is your money and financial institutions do make mistakes from time to time.

Insurance for Credit Unions

• What does NCUSIF insure?The NCUSIF insures all types of deposits received by a credit union in its usual course of business. For example, savings accounts, share draft (checking) accounts, money market accounts, and share certificates (certificates of deposit “CDs”) are all insured by the NCUSIF.

• What is not insured by NCUSIF?The NCUSIF does not insure the money individuals invest in stocks, bonds, municipal bonds, or other securities such as mutual funds (including money market mutual funds, and mutual funds that invest in stocks, bonds and other securities); annuities (which are contracts underwritten by insurance companies that guarantee income in exchange for a lump sum or periodic payment); or insurance products such as automobile and life insurance, even if these products were purchased at a federally insured credit union or through an affiliated broker/dealer/insurance agent that is offering these products on behalf of a federally insured credit union.

Insurance for Credit Unions

The NCUSIF does not insure U.S. Treasury bills, bonds, or notes, but these are backed by the full faith and credit of the U.S. Government.

Also, the NCUSIF doesn't cover valuables in safe deposit boxes. These contents; however, may be covered by a box holder's personal homeowner's insurance.

• What types of financial institutions are insured by NCUA’s NCUSIF?NCUA insures accounts in all federally chartered credit unions and most state-chartered credit unions. All NCUA insured institutions must display this official sign at each teller window or teller station.

Source: http://www.ncua.gov/resources/shareinsurance/ncuainsurancefundfaqs.htm

MORE INFO.

• Please read Block A’s presentation on Checking, Savings and CDs for descriptions of the different types of accounts that are available. You are responsible for knowing them.

Questions 1-5

1) List 2 restrictions on Checking Accounts. 2) Name 2 places you can apply for a Checking or Savings            account. 3) How would one obtain overdraft protection for their policy?  4) Ways your company informs you of the status                          of your account? 

5) How to get Checks?

Answers 1-5

1)• Limits on withdrawals•  Fund transfers between accounts•  Minimum balance requirement

2) •  Bank• Online application

3) • Request the benefit from their bank through electronic or paper application

and pay any fee if necessary that may accommodate the benefit4)  •  online status updates, monthly statements, Emails, and ATM balance check

5) • Request them at the bank, Order them to be delivered from the banks

website

Questions 6-10

6) What is a CD?

7) How do you get interest on a checking account?

8) What is a NOW account?

9) Are there fees on CD's? if so name 3.

10) What are 3 basic types of checking accounts?

Answers 6-106)• A Certificate of Deposit

7) • Applying for an interest checking account

8)• Negotiable Order of Withdrawal Account

9)•  Fed Fund fee, Annual Custody fee, IRA Maintenance Fee, IRA

Closure Fee, Bounced Checks, Slop payment transfers, Legal returns, Physical reorganization, extensions

10)•  Basic, Free, Interest-Bearing, Joint, Express, Lifeline,

Senior/Student, and Money Market