BANKS & CREDIT UNIONSFinancial Literacy
TYPES OF FINANCIAL INSTITUTIONS
Commercial Banks Known as “For Profit” business Stockholders own the bank
Only stockholders can vote at Annual meeting Number of votes is determined by how much stock is held by
the shareholder Paid Board of Directors responsible for making
bank profitable Board selects bank officers who create
business strategies CEO/President COO/Vice President CFO/Treasurer/Secretary
TYPES OF FINANCIAL INSTITUTIONSCredit Union
Known as “Non-Profit” businessMembers own the credit union (Everyone that has an account is a member) Every member no matterthe amount of money on deposit has 1 vote at Annual Meeting
Voluntary Board of DirectorsVoluntary Supervisory & Loan Committees
SAFETY IN BANKINGInsurance Agency for Banks
Federal Deposit Insurance Fund (FDIC) Insurance that covers all deposit accounts, including
checking and savings accounts, money market deposit accounts and certificate of deposit accounts
Does not cover investments in mutual funds, annuities, stocks or bonds, theft or robbery and contents of safe deposit boxes
The standard insurance amount is $250,000 per depositor FDIC insures approximately $9 trillion of deposits in
virtually every bank and thrift in the country When an insured bank fails, FDIC becomes the receiver to
protect the accounts and other property until sale, merger or liquidation of the bank is finalized
SAFETY IN CREDIT UNIONSInsurance Agency for Credit Unions
National Credit Union Administration (NCUA) Created National Credit Union Share Insurance Fund
(NCUSIF) in 1970 to insure member deposits in federally insured credit union
The standard insurance amount is $250,000 per depositor Funded by maintaining one percent (1%) of their deposits
in NCUSIF No federal tax dollars have be placed in the fund When an insured credit union fails, NCUSIF becomes the
receiver to protect the accounts and other property until sale, merger or liquidation of the credit union is finalized
Usually a credit union that is failing is merged into/purchased by another credit union; very few suffer total liquidation
SHOPPING PRODUCTS AND SERVICES BANKS & CREDIT UNIONS Deposits
Savings/Share Accounts Checking/Draft Accounts Certificate of Deposits (CDs)/Share Certificates Money Market Accounts
Savings account with limitation and rewards Pays higher rate than traditional savings but have limited number
of withdrawals per month Individual Retirement Accounts (I.R.A.s)
Traditional ROTH
Because credit unions are member-owned, not-for-profit financial institutions, they can offer high savings rates, meaning that your money grows faster
OTHER PRODUCTS OFFERED BY BANKS AND CREDIT UNIONS Certificate of Deposit (CDs)
A savings certificate entitling the owner to receive interest Has a maturity date (The longer you promise to keep your money
in the bank without taking it out, the higher the interest rate) A specified fixed interest rate that is usually higher than regular
savings May have a minimum deposit (Generally, the more money saved
the higher the interest rate)
Individual Retirement Accounts (IRAs) Two types: Traditional and Roth Traditional
Contributions are tax deductible Taxes are paid when money is withdrawn NOT deposited
Penalty if money withdrawn before 59 ½ Disbursement must be taken after 70 ½
Permit contributions up to $5,500 per year or $6,500 per year after age 50
OTHER PRODUCTS OFFERED BY BANKS AND CREDIT UNIONS
Roth IRA Contributions are not tax deductible Can withdraw contributions at any time without tax or penalty if IRA has
been held for at least 5 years or reached 59 ½ years of age Exception:
Can withdraw up to $10,000 to purchase first house for yourself or certain family members
Can withdraw funds without penalty, but will incur income taxes if money is used for higher-education costs for yourself or other family members
No mandatory disbursements at 70 ½ Can add to Roth as long as working even after 70 ½
Cashier/Bank Checks Funds are guaranteed by the bank
Certified Check Personal check stamped by bank because funds are set aside to pay this form
of check
Traveler’s Checks On the decline and being replaced by credit cards
OTHER PRODUCTS OFFERED BY BANKS AND CREDIT UNIONS ATM vs Debit Card
Both are used to access money from a checking account Both are issued by the bank where your checking account is located and
not by a credit card company Both can be used to access your money 24 hours every day from an ATM
machine Both have PIN numbers for security
Debit Card Can be used at ATM for cash withdrawal Can also be used as credit card without PIN
to make purchases or buy products Will have branded (VISA,MASTERCARD)logo
on front of card
ATM Generally used to access ATM machine and not for purchases Lacks logo of VISA or MASTERCARD and must use Point of System to
make purchases
Obtaining cash from an ATM is similar to Writing A Check
SERVICES PROVIDED BY BANKS AND CREDIT UNIONS Electronic Transfer (EFT)
Electronic funds transfer happens when digital instructions are sent to a bank to move funds between two accounts or two banks Direct deposit of paycheck When paycheck is deposited, there is an automatic transfer from
checking to savings Online bill payment
Advantages: It is easy and convenient It is fast and secure It is efficient and less expensive than paper check payments and
collections
Disadvantages If you enter the target account number incorrectly, there is no way to
reverse the transaction since the bank would process the transaction under the belief that the information you provided is accurate
Once an amount is transferred, the bank cannot reverse the transaction
SERVICES PROVIDED BY BANKS AND CREDIT UNIONS Safe Deposit Boxes
Store Important Papers Store Jewelry, Old Coins Collectibles such as Baseball Cards, Stamps
OPENING AN ACCOUNT Opening a Personal Account
Identification Social Security Card Photo Id
State issued driver’s license Non-citizen registration card State-issued ID Military card Passport
Proof of Age Address
May use current utility bill or apartment lease Phone Email Address Cash, Check, Money Order for initial deposit
Fill Out Signature Card (Activity)
DEPOSIT SLIP (ACTIVITY) Notice that there are lines or column designated to list your
deposit The first line says “Cash” This spot is for ANY CASH you’re depositing Count the cash and write the amount where it is listed “Cash” The next line is reserved for checks you want to deposit List the checks, one to a line
If you have more than two checks, list them on the back and total them on the back as well
Once you have totaled the checks on the back, list them where it says “Total from the other side”
On the line that says “Sub Total” add up cash and checks and enter the amount here
On the line that says “Less Cash Received,” this spot is reserved for the amount of money you would like to get back from the deposit
Subtract “Less Cash Received” from the “Sub Total” line to get the total for your Net Deposit
LARGE DEPOSITS
In order to track large deposits, the federal government requires that deposits of $10,000 be reported by banks and credit unions to the Treasury Department (IRS)
The reports are used to allow law enforcement to track cash movements that might involve money laundering, avoidance of paying taxes or the financing of terrorism
Splitting deposits up into smaller deposits, in attempts to disguise reportable transactions or to otherwise prevent a financial institution from filing a report is called "structuring," and it is a federal offense. It can get you into a lot more trouble than the filing of a currency transaction report on a legitimate cash transaction.
BENEFITS OF DEBIT/CHECKING ACCOUNT Convenience
Quick and easy access to funds Immediate access to direct deposit funds
Banks have the option to place a “Hold” on checks that are deposited from 3 – 7 days to make sure that funds are available
You may not be able to draw funds from these deposits until the “Hold” is released
Better money management Allows you to monitor your spending and make wise spending
choices Helps build a positive relationship with your bank for future
transactions Provides a record that you pay your bills on time
Safety Reduce risk of losing cash with use of checks and debit cards
CHECKS AND CHECKING ACCOUNTS Definitions:
Check: A legal tender document utilized by a bank depositor to pay for goods or services to a third party utilizing funds held by the bank on behalf of the depositor
Payee: The person or business to whom the check was written
Void: The method of canceling a check prior to its use
Postdate: A future date written on a check making the check payable (cashable) to a person or business on or after that future date Caution: The bank is not responsible for ensuring that the check is
cashed when you want it to be. If the payee brings it in prior to the date on the check, it could very well be cashed
CHECKS AND CHECKING ACCOUNTS Non sufficient/Insufficient Funds (NSF): Writing a check with less
funds in the depositor’s account than the amount of the check that is written
Legal Consequences:
If you checking account does not have overdraft protection your check may not be cashed
Bank Fee for NSF Check: $15 -- $50
Returned Check Fee from the business -- $25+
Collections Fee -- $100+
Small Claims Court Fees – Cost of legal action plus 3 times the amount of the check and collections
Bank or Payroll Garnishment
Criminal Action by the District Attorney
OVERDRAFT PROTECTION
Personal line of credit (loan) that advances money to cover a check or debit transaction that is for more than the amount in an account
Banks/Credit Unions can no longer automatically enroll customers in the service
Customer must Opt-In for the protection
Advantages Overdraft protection allows the check/debit transaction to be
honored by the bank The customer avoids having to pay NSF charges when temporarily
short of funds
Disadvantages Fees/Interest charged for overdraft protection Multiple overdrafts may cause bank to close your account
STOP PAYMENT ORDER
Unfortunate circumstances do happen from time to time that may requires a stop payment order on a check
May be expensive, but depending on the situation, may be worth it
Visit or call bank Your checking account number The check number The amount of the check The name of the payee
Stop payment order may expire (usually 6 months) and will need to pay additional fees to renew the order
CHEXSYSTEMS Provides account verification services to its financial
institution members to aid them in identifying account applicants who may have a history of account mishandling. Examples: Debit/checking accounts were repeatedly
overdrawn so account was closed by financial institution
Consumer-reporting agency governed by the federal Fair Credit Reporting Act (FCRA) and other laws
May remain on file with ChexSystems for 5 years
To see your file, can order a copy of report from ChexSystems $10.50 fee Must submit request and fee by mail Must be 18 years or older
HOW DO BANKS AND CREDIT UNIONS USE YOUR DEPOSITS Lend money to other customers/members and
businesses and charging a higher interest rate to them for their loan then they are paying to you on your deposit
ACTIVITIES
Writing a Check
Bank Reconciliation