BANKING & INVESTING
BANKS THEIR ROLE Banks play an extremely important role in a country s economy. There is different types of banks in South Africa i.e: Commercial Banks The Development Bank of SA Land Bank of SA Merchant / Corporate Banks South African Reserve Banks
THE ROLE BANKS PLAY IN THE ECONOMY Banks provide financial services to people and businesses. They provide services for the convenient and safe flow of money in the economy. Banks provide customers with expert advice on how to manage their money by using the services that they offer.
Services Banks Provide Banks provide 3 main kinds of services: Deposits (savings): This means that clients can deposit money with a bank and it will be kept safely and earn interest. Your money earns interest and grows in a bank. How fast it grows depends a lot on the kind of account you have. Different kinds of accounts suit different needs and so it is best to get advice from the bank when you open an account Transactions: Banking transactions include cashing cheques, transferring payments, taking deposits etc. You can complete these transactions in a bank or at an automatic teller machine (ATM) or electronically on a computer. The bank charges bank fees or bank charges for completing these transactions. It is always worth talking to your bank about what they charge for transactions. They will give you advice on how to manage your accounts as to how to lower your bank charges. Loans: Banks lend money. Money can be borrowed from banks by businesses and individuals. The banking needs of individuals and businesses are quite different so it is important to talk to a bank about what is required.
Services continue. Banks lend individuals money in the form of a home loan (to buy a house) or a car loan. Individuals may also qualify for a credit card where they can buy things on credit and repay the bank over a period of time. Banks charge interest on the money they lend so always borrow with care and good advice! Banks are also very strict. They check up on individuals and businesses before lending to them.
How Banks Make Their Money Banks make their money from transaction charges, by charging interest on loans, and on the difference (margin) between the interest rate at which they borrow and at which they lend. Increases in bank charges are limited to between 6% and 8% a year, which is less than the increase in inflation. One of the factors leading to increased charges is the rand/dollar exchange rate, because this influences the cost of importing technology the banks use to run their systems. Compared to accountholders in foreign countries, South Africans pay more in charges, but when we invest or borrow money, we are getting better rates than people in other countries. The average difference in interest rates between what people pay when they borrow money and what they receive when they invest money is between 3 and 3,5 percentage points in South Africa, as opposed to up to 5 percentage points in other countries.
Different products / solutions Banks offer Savings accounts: Absa offers a number of saving account options to help you store money away that you have no immediate need for. Unlike an investment account, a savings account allows you to earn interest with no inherent risk as your capital is guaranteed. Absa's savings accounts are designed to meet your short term needs which may be either: you securing money away for a short term goal or a group of people wanting to save together. A savings account is essentially a compromise between a current account and an investment account. Unlike a current account the facilities are limited but you'll earn interest on a positive balance. There is no risk in a savings account where your returns might be lower, unlike in an investment account which has higher risk and your returns could go either way.
Investment accounts: Fixed Deposits A fixed deposit is a money market type investment account where money is deposited for a fixed period and the interest does not fluctuate. The interest rate is determined by money market rates at the time of the investment, and is fixed for the full period of your investment You can t add to your investment. If you have more money to invest you will need to open another investment account You cannot withdraw funds from your fixed deposit account during the period of the investment Interest is paid monthly; quarterly; annually or on maturity
Call Accounts If you need an investment account that earns you good money market related interest - without sacrificing immediate access to your money - then a call deposit is a good option. Your interest is calculated on your daily balance, and reinvested monthly You may withdraw your funds or transfer your funds to and from this account immediately.
Other investment options Notice deposits Unit Trust Investments Specialised Investment Offerings
Loan accounts Homeloans to buy or build a house. Usually long term 20-30 years Vehicle and asset finance to buy vehicles or equipment. Short term 12 60 months Personal loans pay for holidays or unexpected expenses. Short term 12 48 months
Credit Cards vs Debit Cards A credit card is a card whose holder has been granted a revolving credit line. The card enables the holder to make purchases and/or cash advances up to a pre-arranged limit. The overdraft amount can either be settled in full on a monthly basis or paid off over time. A debit card enables the holder to withdraw money or to have the cost of purchases charged directly to the holder's bank account. Money is taken directly from the bank account rather than borrowing money at a rate of interest, and uses a PIN instead of a signature.
Atm/ internet banking vs transacting with tellers Electronic banking was designed to optimise personal financial management and administration Electronic banking is convenient don t have to leave house / office Electronic banking is less expensive due to no human intervention No long queues waiting to be serviced