Basic Banking

Understanding What You Need to Know

Prepared For

VILLA WALSH

December 16th 2010

Overview of Banks and Basic Bank Products

Common Products and Services

•Checking Accounts•Check Cards•Online Banking•Savings Accounts•Credit Cards

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Choosing a Bank

When choosing a bank, look for the following attributes:

– Reputation– Customer Service– Banking center and ATM locations that are convenient to your

home, work and school– Ability to access account information via alternative channels

phone and online– Ability to access your accounts online– Federal Deposit Insurance Corporation (FDIC) insured

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Checking Accounts

• Benefits of Checking Accounts – Ability to access my funds quickly through a banking center or ATM– Creates my first banking relationship– Ability to track my spending for budgeting– Statements and check copies allow me to have records of my credits and debits– Provides protection from always having or needing cash

• Responsibilities– Know your monthly costs and fees of having and maintaining your checking account– Always know your account balance, use online banking to track recent ATM

withdrawals and purchases– Protect your account from fraud, alert the bank immediately if there is unknown

activity on your account– Keep within your budget don’t overdraw your account, don’t spend more than you

have– Insure you use ink when writing a check and complete all of the information on a

check to avoid tampering– Update your account information regularly, when you move– Review your accounts when you have a life change (new job) to insure you have the

best account

• Accessing Your Funds – Checks– Check Cards and ATM Cards – Online Banking and/or online bill pay – Automatic Payments– Automated Telephone Banking– Banking Associates (Banking Centers or Telephone Banking)

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How to Write a Check

• Tips to help prevent check forgery– Always use ink to write checks.– Do not leave room for additional writing on the lines where you enter

the dollar amount of the check. – Write in longhand or cursive; do not print. – If you make an error when writing a check, write the word VOID across

it. Always dispose of checks in a secure manner or shred them.– Do not sign blank checks. – Always fill in the name of the person or firm to whom a check is being

written.– Keep your checkbook in a safe, protected place.

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Endorsements

Blank Endorsement• Allows you to cash

or deposit the check with no restrictions.

Restrictive Endorsement

• Will only allow the check to be deposited.

Special Endorsement• Allows you to

endorse a check over to another individual.

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Deposits

• How Funds Can Be Placed In Your Account – Cash or Check Deposits (ATMs, Banking Centers)– Direct Deposits from your employer or other sources– Transfers from other accounts

• Direct Deposit Benefits – Funds are deposited into your account and available

immediately– No holds will be placed on a direct deposit transaction– No need to go to an ATM or banking center to deposit your

check– Many checking accounts are free with direct deposit

• Automatic Funds Transfers (Scheduled Transfers) Benefits – Security – Safety– Convenience– Immediate Access to Funds

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How to Complete a Deposit Slip

Completing a Deposit Slip1. Date: Write the date.2. Cash: Write down all cash

being deposited.3. Checks: Notate all checks

and their amount being deposited.

4. Sub total: The amount of all funds being deposited

5. Less cash: If you are taking some of the funds in cash notate that amount.

6. Total Deposit: The amount of the deposit minus the cash being taken out.

7. Signature line: Sign your name.

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Checkbook Register Example

• Register Reminders

• Note all checks and ATM withdrawals

• Note all check card purchases• Review your statement to

account for monthly fees and service changes

• Add in all deposits• Maintain an accurate running

balance to insure you do not overdraw your account

• Use pencil to make any changes• Leverage online banking and the

statement functionality to review and validate your register

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Overdrafts

• Overdraft Prevention Habits

– Maintain an up to date register– Review your balance information via online banking to insure

your current balance– Budget accordingly and have cash in reserve to account for any

emergencies– Ensure that all account and service fees are noted– Review each statement you receive to insure your register

balances are correct

• Overdraft Prevention Tools/Services

– You can avoid overdraft fees by: • Linking a savings account as overdraft protection• Linking a credit card as overdraft protection • Linking a line of credit as overdraft protection • Set up alerts in Online Banking to notify you when your account

drops below a certain $ amount.

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Statements

• Two Account Statements– Online Account Statement – Statement Mailer

• Account Reconcilement– Review your register against your bank statement– Check off all of the debits and credits on the statement to your register– Compare your balance using the Account Reconciliation Formula– Update your register for any omissions

• Account Reconcilement Formula– Bank Balance + Outstanding Deposits - Outstanding Withdrawals =

Adjusted Balance

• Discrepancies– Check all withdrawals– Check all deposits– Check the dates of the transactions– Verify that the amounts of the debits and credits are correct– Check your math– Determine if there is any unauthorized activity– Insure you have account for your safety buffer

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Check/Debit Cards• Benefits of Using Check Cards

– Allows you to make purchases at merchants– Prevents you from having to carry cash all of the time– Allows you to track your expenses, you know where your money was spent– Prevents you from having to use your cash on hand– You an use your check card at any merchant that accepts VISA® or MasterCard®– May allow you to dispute a transaction with the bank and network easier than if you

used cash– Some merchants will also allow you to get cash back in addition to your purchase,

prevents you from always having to find an ATM– Not all merchants may accept a check

• Responsibilities – Do not write your PIN on your ATM card if it is lost someone can use it– Never share your PIN with anyone– Report a lost card immediately, if there is unauthorized activity you will not be liable

if you promptly report the lost card – Ensure no one can see you when entering your PIN at any location – If you bank allows a photo to be added to your card leverage that service– Verify your balance online or via the ATM, purchases made with a check card may

take several days to post to your account, checking your balance routinely will prevent an overdraft situation

• ATM Safety – Stay Alert, only use well lit ATMs at night– Report suspicious activity– Take special precautions at drive-up ATMs– Be courteous while waiting at an ATM– Protect your privacy, do not let anyone see your PIN– Take your receipts and your card

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Savings

• Benefits– Savings accounts earn interest, you get paid on having a

balance in your account– Allows you to grow your money and set aside money for special

purchases– Can be linked to your checking account for overdraft protection– Helps you establish credit and demonstrate good financial

habits– You can access your saving account funds via a banking center

or ATM– You can transfer money between accounts via online banking or

ATM

• Growing Your Money– You will earn interest on the money in your savings accounts

which allows you to grow your balances– Having a solid budget will allow you to maintain the minimum

needed in your checking account and maximize the balance in your savings account, higher balances earn higher interest credits

– Growing your savings account balance may allow you to get a savings account that pays a higher rate of return based on minimum balance requirements

• Basic savings—generally for lower balances and will pay a lower rate of interest

• Certificate of Deposits (CDs)—are fixed term savings accounts and will generally pay a higher rate

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Credit Cards

• Advantages of Credit Cards – Can be used at any merchant that accepts that credit card (Visa®,

MasterCard®, American Express®)– Allows you to buy now and pay later– Credit cards can be used as a source of overdraft protection for checking

accounts.– Is one of the best ways to start and build a good credit history– Provides a way to buy for emergencies– Can sometimes be used as a second form of ID with merchants– Eliminates the need to carry cash– Just like a check card will allow you to better track your spending habits

and budget accordingly– Allows you to make disputes on purchases – Provide an opportunity to make a purchase if the merchant does not

accept checks– You can also get cash advances at ATMs and banking centers; please

realize that there are fees associated with cash advances– All of your purchases will be consolidated onto one bill monthly– If you make purchases online and have an issue with the merchant you

can dispute the charges, the credit card company will work with you and the merchant on a resolution

• Use credit cards appropriately to avoid: – Overspending - make sure you can pay off your credit card balance each

month– Compulsive purchases - do you really need that item now or can it wait?– Reducing your monthly budget because you need to pay additional

interest and finance charges– Creating the wrong type of credit history

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Credit Cards

• Using Credit Cards Responsibly– Ensure you research different credit card companies to find the right

card for you– Make sure you pay off the balance monthly or are able to pay the

minimum balance each month– Avoid getting too many cards and credit lines, which prevents you from

spending more than you can pay off– Keep all of your credit card receipts in case there is the need to dispute

a transaction – Always verify the amount you are being charged before you sign the

receipt by a merchant in case they overcharged you, this may happen at restaurants

• Protect Yourself against Fraud– Never give your credit card or credit card number to anyone, other than

a trusted merchant– Make sure that you are transacting with a respectable merchant– When making online purchases make sure the merchant has a secure

payment area – Make sure you always get your credit card back from a merchant– Never sign a blank sales receipt– Always draw a line through Tip or clearly write the tip in when using a

credit card at a restaurant– Keep all receipts and then match them against your monthly credit card

statement– File your receipts– Never give your credit card number to anyone unsolicited via the phone

or internet– Keep a list of cards numbers and credit card customer service numbers

in case you need to report a card lost or stolen– If you can add a photo to your credit card leverage that benefit– Always sign the back of a credit card so merchants can verify the

signature

Understanding & Using Credit

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An Introduction to Credit

• Credit is an agreement between two parties, the “lender” and the “borrower”, that allows the borrower to access and be given funds that must be paid back under terms provided by the lender.

• Credit is available to all consumers and businesses and can take the form of loans, leases, and other lines of credit.

– The most common types of credit are: – Mortgage – Credit Cards – Auto Loans/Leases – Small Business Loans – Student Loans – Personal Lines of Credit

• The willingness of lenders to loan or provide funds to a borrower are usually based based on that borrowers’ credit history as well as their current ability to repay the funds back to the lender.

• Essentially building and maintaining good credit allows you to borrow and get access to additional credit in the future.

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An Introduction to Credit

• Today many things that you use also have an impact on your credit history and in fact many of the items we take for granted are reported to Credit Agencies and become part of your permanent record.

– Examples of some of these items include: – Water and electricity bills – Auto insurance – Cell phones – Bank accounts – Rent – Gym memberships – Other recurring membership fees

• These types of payments impact and help establish some of your overall credit history. Often, when these items show up on a credit report it is due to the fact that we have failed to make a payment to the company or have demonstrated a pattern of making late payments.

• How many of us currently have bills in our name, but those expenses are shared with our roommates?

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Credit & Borrowing

• Types of Credit – Single-payment Credit– Installment Credit—fixed payments for the term of the loan (auto/home

loans)– Revolving Credit—as you pay down the balance those funds become

available to you again (credit cards)

• Advantages – Having good credit will allow you to make major purchases such as a

home or a car.– Allow you to finance and start a business– The ability to make the purchase now but pay for it later over the term of

the loan– Have a payment method available to cover unforeseen expenses or

emergencies– While you may be given a high line of credit you can always ask the

credit issuer to lower your credit line

• Disadvantages – Interest and finance charges accrue each month if you don’t pay off your

balances– The temptation to spend to the limit and then overspend your budget– Making purchases which need to be paid for later so some of next

months budget is spent paying down your purchases– Getting into too much debt, limit the number of credit lines you have

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Establishing Credit

• You probably have already begun to build your credit history and profile as students if you have student loans.

• It will be important to also start to build and maintain other types of credit and history for the future.

– Open a checking and savings account – Bank of America Campus Edge Program

• With all of your checking and savings accounts you should also get the following services:

• Check card to track expenses and make purchases with available funds not always using credit

• Overdraft protection can help protect your account from the cost and inconvenience of a returned check.

– Online banking to track expenses and know current balances. • Apply for a credit card in your name • As long as you are 18 years of age or older you can get your own

credit card. – If you are an authorized user on your parents’ account you will

not establish your own credit history.– Open other relationships such as cell phone, utilities,

memberships, etc. Just remember to pay on time.

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Importance of Establishing and Maintaining a Good Credit History

• How does your current use of credit impact your future: – Financial institutions will make judgments on whether to

approve your home or car loan based on your credit history

– You may get approved for a loan but if you are deemed a credit risk you may not receive the best interest rate available

• Next time you see a car commercial and they advertise low loan or lease rates, look at the fine print on the ad.. It will usually say that that rate is only available to customers that have a certain credit score and history.

– Also you may not get the best insurance rates or other types of personal loans.

– If you are looking to start a small business your personal credit history will be used to make the initial lending decision.

– When you go to rent an apartment, landlords may ask for your approval to look at your credit score. If they deem you a credit risk you may not get the apartment.

– Companies are also looking at credit scores and history for job applicants.

– If you have a cell phone the company probably looked at your credit score.

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Why Rate is Important

• On any loan rate is going to be the biggest factor in determining how much you will need to pay every month on that loan and how much in interest you will ultimately pay to the borrower.

– Before getting any loan research the current rates and make sure you are getting the best deal or financing possible.

• Go to www.bankrate.com to research the latest rates on any type of lending product.

• For credit cards consider whether or not rate is important. Use your credit cards and if you able to pay off your balance every month you will never incur finance charges.

– Also, use financial calculators to determine some of the variations that a lender maybe offering you.

• Think in terms of buying a car. You see on the ads you can either get cash back or a lower rate. In order to make an informed decision use web sites to know the impact on your monthly payments.

– Fixed vs. variable– With most loans you will also need to decide if you want a fixed

rate or a variable rate. This is a judgment call and will depend on your personal preferences as well as the current financial picture. What is happening to rates right now in the US?

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What is a Credit Report

• A credit report is all of the information reported on you by various companies and organizations. It provides information to lenders about your past history with other lenders and is one of the key components of a lender’s decision whether or not to give you credit.

• The three major credit agencies which monitor this activity are Equifax, Experian, and TransUnion. When applying for credit lenders will pull your credit report from one or maybe all three of these companies.

• These companies maintain some of the following information on you:

– Personal information, name, Social Security number, birth date and current and previous addresses, and current and previous telephone numbers

– Your employment information – Current and past payment history with lenders and other

companies– Any debts that have been sent to a collection agency or charged

off by a company– Inquiries made by companies and organizations that may or may

not have asked you to apply for or given you credit– Public records about you such as liens and foreclosures

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Tips For Building Your Credit

• One of the key components of your credit score and credit history is how well you pay your bills. Paying bills on time and not missing payments are two of the best ways to demonstrate good credit habits. 35% of your credit score is based on your payment history.

• Stay within your budget. Make sure you are able to pay for all credit expenses when the bill comes due.

• Know what your credit balances are at all times, if you are worried about getting overextended put the credit cards away and pay with cash or a check card for a while.

• Develop a savings plan and budget to ensure you have enough cash to cover emergencies or large purchases.

• Contact your lenders to discuss payment options if you are running into financial difficulty.

• Maintain a banking relationship - this will be a positive with lenders.

• Manage the number of credit cards you have and your lines of credit. Too many cards can impact your credit score. Remember credit cards from department stores and merchants count on your credit score.

• If you are able to make a large down payment on a major purchase, that will lessen the amount of principal and interest you need to pay each month. This can reduce your out of pocket expenses significantly on a monthly basis.

• Maintain good payment history with other companies, cell phone, gym, rent. You maybe able to show you pay on time to a lender.

• Review your credit report annually to insure that it is accurate and there is no derogatory information being reported.