online banking

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© Family Economics & Financial Education –March 2008 – Financial Institutions – Online BankingFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at

the University of Arizona

Online Banking

Take Charge of your Finances

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Checks – Demand Deposits

What Does Demand Deposit Mean?An account from which deposited funds can be withdrawn at any time without any notice to the depository institution.

• This account allows you to "demand" your money at any time, unlike a term deposit, which cannot be accessed for a predetermined period (the loan's term).

• Most checking and savings accounts are demand deposits, accessible by the account holder at any time.

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the University of ArizonaSlide 1 – Formal and Informal Financial Services

Lesson Reference: Introduction to Financial Services, Activity 2 – Overhead 1

INFORMAL FINANCIALSERVICES

• Payday lenders• Check cashing services• Rent-to-own stores• Pawn shops• Title lenders• Loans from family/friends• Cultural savings clubs• Remittances offered through

nonfinancial institutions

FORMALFINANCIAL SERVICES

• Accounts• Credit cards• Loans• Investment vehicles• Direct deposit• Wire transfers/ remittances

3

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PLACES TO SAVE MONEY

Would you save your money in any of these places? Why? Why not? Can you think of other places to save money?

• Bed & Mattress• Cookie Jar• Pillow• Wallet• Money Belt• Small House Safe

Slide 1 - Placesto Save MoneyLesson Reference: Introduction to Financial Services, Activity 2 – Overhead 14

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the University of ArizonaSlide 2 - Alternative Financial Services

Lesson Reference: Introduction to Financial Services, Activity 1 – Handout 1

ALTERNATIVE FINANCIAL SERVICES

•Check-Cashing Services

•Check-Deferrals, Cash Advances, Payday Loans

•Pawn Shops

•Rapid Tax Refunds

•Rent-to-Own

•Other Financial Services

5

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• To cash a paycheck or government check, these businesses charge a percentage of the amount of the check as a fee.

• For example, cashing a $200 paycheck could cost as much as $8 each week. In a year, that adds up to $416.

Check-Cashing Services

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Check-Deferrals, Cash Advances, Payday Loans

• Whichever name is used, these are considered short-term, high interest-rate loans.

• The customer writes a personal check, including a fee (interest rate). The lender cashes the check for the customer and agrees to hold the check until the next payday.

• Oftentimes, the borrower will need to take out additional loans to cover the fees and to make it through to the next payday. This can lead to a vicious cycle of debt that can be difficult to pay off.

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Pawn Shops

• Here you can get loans at very high interest for the value of goods, including electronics and jewelry.

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Rapid Tax Refunds• To get your tax refund early from

someone you pay to prepare and receive your tax return, you may have to pay a significant portion of your refund for the service.

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Rent-to-Own• Renting items such as home

appliances or entertainment systems before buying them from the same business can add up to fees much higher than the cost of using credit to pay for the same items.

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The Cost of Alternative Financial ServicesIf you wanted to purchase a television set that cost $500 with sales tax, it could end up costing you much more depending on the financial service you use to pay for it. Consider the following options.

Cash Rent-to-Own Store

Payday Lenders

If you purchasethe television withcash, it will costyou $500.

Pay $13.99 per week for 18 months, it would cost you a total of $1,091.22.

If you get a $500loan at a paydaylender with abiweekly interestrate of 20%, youwould pay $100.07every two weeksfor 21 months,costing you a totalof $4,425.01

$500 $1,091.22 $4,425.01

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the University of ArizonaSlide 2 – How a Bank Can Save You Money

Lesson Reference: Introduction to Financial Services, Activity 2 – Handout 2

HOW A BANK CAN SAVE YOU MONEY

Monthly Fees without a Bank Monthly Fees with a Bank*

12

• $80 to cash paychecks• $3.81 on money orders and

stamps to pay bills• $15 to send money to family

with a wire transfer company

Monthly cost: $98.81 Annual cost: $1,185.72

• $0 to directly deposit

paycheck• $0 to get cash from bank's

ATMs or make debit card purchase

• $0 to pay monthly bills using electronic bill payment

• $5 to send money to family

Monthly cost: $5.00 Annual cost: $60.00Annual Savings by Using a Bank: $1,125.72

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Cashier’s Check• a check written by a bank on its own

funds

• Check over 6 months old may not be honored by a bank

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Certified Check• A personal check that the bank

guarantees to be good.

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Safe deposit box• Important papers –

– Mortgage– Insurance Policies– Stocks and Bonds– Deed– Birth certificates

– Do NOT keep cash

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FINANCIAL SERVICESMODERNIZATION ACT (1999)

Transformed the banking industry. Eliminated many

restrictions among companies in the securities, banking, and insurance industries.

Results?• Banks may offer some insurance and

investment services.

• Investment and insurance companies may offer some traditional banking services. Investments are not insured by FDIC.Slide 3 - Financial Services Modernization Act

Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 3 16

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Check Details11 22 33 44 55 99887766 1010

This is the Routing Number for your bank (used for electronic This is the Routing Number for your bank (used for electronic transfers of funds from your account to the payee’s account)transfers of funds from your account to the payee’s account)This is your Account Number. (Note that sometimes these two This is your Account Number. (Note that sometimes these two numbers are the reverse of what is shown here.)numbers are the reverse of what is shown here.)This is just your check number again (see above right).This is just your check number again (see above right).Here is where you write the name of the party you are writing your Here is where you write the name of the party you are writing your check to (the payee). Be sure to write or print legibly!check to (the payee). Be sure to write or print legibly!On the lower line, write out the amount like this.On the lower line, write out the amount like this.Legibly print the amount of money this check is for. Legibly print the amount of money this check is for. Enter the date you write each check.Enter the date you write each check.Place to add any information you want to related to this check.Place to add any information you want to related to this check.Put your personal signature here.Put your personal signature here.Make sure your personal information on the check is correct.Make sure your personal information on the check is correct.Here is the number of this Check.Here is the number of this Check.

1111

5-F5-F

Click the numbers

John M. Smith

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Parts of a Check

071000741 08 40 856 0581

581ARDYS JOHNSONPhone: 555-01004250 West 18th AvenueChicago, IL 60601-2190

SKY CENTRAL BANKChicago, Illinois

PAY TO THEORDER OF

DOLLARSFor Classroom Use Only

MEMO

DATE 2-74710

$

July 1, 20--Food Mart 36.12

Thirty-six and 12/100

groceries Ardys Johnson

ABA NumberPayee

DrawerDrawee

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Checking Account• Check - A written order to a bank to pay a stated

amount to the person or business named on it.

• Demand deposit -Money on deposit in a bank that can be withdrawn at any time

• Canceled check -A check that bears the bank’s stamp, indicating that it has cleared

• Overdraft - A check written for more money than the writer’s account contains

• Floating a check - Intentionally writing a check on an account without sufficient funds in the hope of making a deposit before the check is cashed.

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100100 1/11/155

Fine FoodsFine FoodsGrocerieGroceriess

DepositDeposit

AutoAuto 1/111/11

1/111/11

23 23 1111

Deposit to CheckingDeposit to Checking

Charge for Personalized ChecksCharge for Personalized Checks

200 00200 00

20 0020 00

23 23 1111

200 00200 00200 00200 00

156 89156 89

Keep a RecordClick HereClick Here

5-G5-G

20 0020 00 180 00180 00WDWD

11 22 33

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the University of ArizonaSlide 4 - Making a Deposit - Completing a Deposit Slip

Lesson Reference: Basic Banking Services, Activity 6 – Handout 2

MAKING A DEPOSIT - COMPLETING A DEPOSIT

SLIP

21

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Reading a Bank Statement

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the University of ArizonaSlide 3 - Making a Deposit - Endorsing a Check

Lesson Reference: Basic Banking Services, Activity 6 – Handout 2

MAKING A DEPOSIT - ENDORSING A CHECK

Restrictive Endorsement(most secure)

Blank Endorsement(least secure)

Endorsement to a third party

The Back Side of a Check

23

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Online Banking

• In the year 2006, 63 million Americans reported that they used online banking

• 43% of internet users in the United States bank online

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Online Banking• Online banking – also known as

internet banking, allows consumers to complete transactions with wireless technology. Wireless technology includes: – Personal Computers (PCs) – Personal Digital Assistants (PDAs)– Cellular phones

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Online Banking• Consumers can access account

information and statements

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Online Banking• Consumers can transfer funds

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Online Banking• Consumers can manage bills and

apply for credit

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Online Banking• Advantages of online banking include:

– Decreased cost of paper and postage– Storing all statements online instead of keeping a

paper copy – Convenience – Paying bills online– Ability to access account anytime – No waiting for a monthly statement

• Disadvantages of online banking include: – Not as personal – Not able to access without technology – Decrease in safety features – Increase in risk for fraud

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Online Banking

Advantages• Decreased cost of

paper and postage• Storing all statements

online instead of keeping a paper copy

• Convenience • Paying bills online• Ability to access

account anytime • No waiting for a

monthly statement

Disadvantages• Not as personal • Not able to access

without technology • Decrease in safety

features • Increase in risk for

fraud

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Online Bill Payment• Online bill payment – allows

consumers to send money from one account to a vendor – Usually occurs automatically – Consumers need to check with the

vendors regarding their policy of when the payment will be processed

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Online Bill Payment• Examples of companies that use online bill

payment include: – Retailer banks– Credit card companies– Insurance companies– Energy and utility companies– Health care– Transportation companies– Education expenses

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Online Bill Payment

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Online Bill Payment • Important financial aspects include:

– Checking with the vendor or company to understand their policy of when transactions are complete

– Confirming there are enough funds in the account to cover the expense of the bill

– Confirming bill will be paid, money will be taken out of the account, and the transaction will be completed

– Their financial information is secure and it is safe to make online transactions

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Determine Security • The Uniform Resource Locator (URL)

ends in “s” which stands for secure • A closed lock to the right of the URL or

in the bottom right hand corner of the web browser to indicate a secure site

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Insecure Practices• Email accounts are not secure

– Do not send important information such as:•Social security numbers •Bank account numbers•PIN numbers

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Consumer Protection• The Federal Bank of Chicago suggests the

following: – Passwords are a combination of letters and

numbers – Change passwords once a month– Keep all receipts and compare them to bank

statements monthly – Log out of depository institution Web sites

immediately after you finish working – Contact the depository institution directly with

any questions or concerns

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Recurring Payment • Recurring payment – bills are set to

be paid on the due date or a previous date set by the consumer – Payment will happen automatically

electronically

• Advantages of recurring payment include: – Save money on postage – Saves time for the consumer – Bills are paid on time

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Regulation E• Regulation E – covers all electronic

fund transfers including transfers occurring through an electronic terminal, computer, telephone, or magnetic tape – The transfer must be conducted with the

purpose of authorizing a depository institution to debit or credit a consumer's account

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Consumer Protection• Privacy Policy outlines how a

consumer’s information will be used and protected

• Opting out of a financial policy allows a consumer to request a depository institution to share only a limited amount of personal information

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Conclusion• Review

– Define online banking – Review what transactions can be

completed through online banking– Discuss advantages and disadvantages of

online banking– Discuss online bill payment – What are secure and insecure online

banking practices?

• Any questions?

online banking

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