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
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
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Benefits of Checking Accounts
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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
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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
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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)
How to Write a Check
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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.
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
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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
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Security
Safety
Convenience
Immediate Access to Funds
How to Complete a Deposit Slip
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Completing a Deposit Slip
1. 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
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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:
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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.
Statements
• Two Account Statements
– Online Account Statement
– Statement Mailer
• Account Reconcilement
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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
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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
Check/Debit Cards
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Benefits of Using Check Cards
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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
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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
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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
Savings
• Benefits
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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
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• 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
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
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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
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.
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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.
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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
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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.
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– 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?
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
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• 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.