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