Banking YourMoneyCounts
As one of the world s leading financial services companies, HSBC is proud to support our communities. Our long history of providing financial education continues today, through the YourMoneyCounts education platform. Managed by HSBC s Corporate Sustainability department, YourMoneyCounts helps people take control of their financial futures in easy-to-understand language, empowering them to build and manage their wealth through sound financial decisions. Because people choose to learn in different ways, we offer YourMoneyCounts in multiple formats online at YourMoneyCounts.com, in educational booklets and through financial education workshops. Visit us at YourMoneyCounts.com.
However you define wealth, there s no doubt that having a strong banking relationship can help you meet your financial goals. Banks make your financial life easier. You use a checking account to pay your bills; ATMs to access your money, savings accounts to accumulate money for short-term goals; while loans can help you buy a home, car, or finance a college education. You may invest in non FDIC insured products through bank affiliates at bank locations. If you own a small business, you can use your bank for business services, including business checking and tax reporting, and apply for business loans or lines of credit. While banking services are widely available, the key is finding the bank that s right for you, with the right combination of products, services, costs and convenience. Banking 1
Checking and savings accounts. Knowing what works best for you. 2 Banking
Of all the services your bank offers, you probably use your checking account the most often because it lets you authorize the transfer of funds from your account to another person or entity. That s why checking accounts are also known as transaction accounts. How checking works The basics of checking accounts are simple: When you deposit a check or cash in your bank, or money is deposited directly by your employer, a government agency, or any source that owes you money, the amount is credited to your account. Then you can withdraw cash, write checks against your balance or transfer money electronically to a different account, whether it s held in your name or the name of another person or entity. Direct deposits are credited to your account as they are received or at the close of business on the day they are deposited. Check deposits to your account are generally available the next business day but longer delays may apply in some cases. Each bank posts a schedule detailing when various types of deposits will be available in your account. That schedule corresponds with federal government requirements. Choosing a checking account Banks offer a variety of checking accounts to appeal to different customers. The one that s right for you depends on your spending patterns and your typical balance, or amount you have on deposit. You may want to ask a few questions to find the account that will best suit your needs at the most reasonable cost. As you evaluate your checking account options, ask yourself How many checks do I expect to write a month? How much money do I expect to keep in my combined accounts with the bank in an average month? How many times do I typically use the ATM each month? Will I use my bank s ATMs most of the time or will I need to use other ATMs? How important is online banking and electronic bill paying to me? Banking 3
Here s why your answers to the questions matter. The more often you write checks, withdraw from an ATM or use a non-bank ATM, the more important it is to have access to a checking account where you don t pay a per-use fee for these activities. Free checking may depend on the average combined balance you keep in your accounts with the bank, so it s important to be aware of what your balance will typically be. Similarly, some banks offer fee-free online banking while others charge a monthly fee. If you bank online, this may be an important factor in choosing a bank. Ask the banks you re considering What s the minimum balance for opening a checking account? What are the fees for using the account (including any minimum balance fees)? Do those fees cover ATM use at the bank? What about at other ATMs? Are there any special accounts for which I qualify that provide extra services or benefits or carry lower fees? Is online banking available and is there an extra cost? 4 Banking
A special vocabulary A check or electronic payment your bank does not honor may be called a returned check or an unpaid check. Formally, it s known as an NSF check for non-sufficient funds. More informally it is often referred to as a bounced check. Insufficient funds One reason it s important to know when you have access to your deposits is that your bank may not honor a check or electronic transfer if there is not enough money available in your account to cover the payment you authorize. Not only are you charged a fee by the bank, but the person or company you ve paid with insufficient funds may be charged a fee by the bank where the check was deposited and they may pass that cost on to you as well. Some banks offer overdraft protection, a special line of credit to cover your checks and electronic transfers when there isn t enough money in your account. That money is transferred from the line of credit to your account as a short-term loan to you. You ll pay interest on that amount, but at many banks you ll avoid the returned check fee. You also avoid the potential embarrassment of having a check unpaid because of insufficient funds, as well as any potential damage to your credit history or score. A better and more economical way to protect yourself from insufficient funds is by keeping careful track of your checking account balance. It s smart to use a check register to record all deposits to and debits from your account, including those you make electronically, plus any fees you pay. If you keep track of your account online, you can check regularly to be sure your records and the bank records agree. You don t have to wait until your end-of-month statement arrives. Debit cards Debit cards are a convenient, cash-free way to shop. When you pay with your debit card, the amount is debited, or subtracted, directly from your checking account and transferred electronically to the account of the person or business from whom you ve purchased goods or services. Sometimes you authorize a debit card transaction with your personal identification number (PIN). Other times, you sign a receipt and the debit transaction is processed in the same way a credit card is processed. Either way, the amount is deducted from your account as soon as the details of the transaction reach your bank. Banking 5
TIP Ask your bank s customer service representative if your account has an automatic overdraft protection feature and be sure you know how much the protection will cost if you use it, in terms of interest and potential fees. TIP Most banks offer a debit card with your checking account. If you prefer a bankcard instead, you may have to request it. If you use a debit card, you must give the bank that issues it your written permission to cover a debit for which you have insufficient funds. Otherwise the payment or withdrawal will be rejected. Cards, not cash There are three types of cards that allow you to withdraw cash from an ATM or make purchases as a debit transaction. The most basic debit cards, sometimes called bankcards or ATM cards, let you make purchases by swiping the card and keying in your PIN. These cards usually have just your bank s name and logo. You can t use them to make purchases that require a signature rather than a PIN. More common are debit cards with the names and logos of both your bank and a credit card company, such as Visa or MasterCard. They can be used in more places than a bankcard to handle a variety of transactions, using either a PIN or a signature. In fact, they look just like credit cards, but purchases are debited from your account, not charged to your credit card. You may also use a prepaid debit card, sometimes called a smart card, or purchase one for a child as a way to help teach him or her to manage money. A prepaid card can be used anywhere a regular debit card can be used, but the money doesn t come out of a bank account. Instead, value is loaded onto the card electronically, and the card user spends down the balance by having purchases debited against it. Many prepaid cards can be refilled when there s little or no value left. Prepaid cards have several of the same advantages of other debit cards, including not having to carry cash, but they have some potential drawbacks as well. A disadvantage of some but not all prepaid cards is the fees their issuers charge to load and use the card. Be sure you compare the cost of using a prepaid card before choosing one. Debit card fees Some banks may charge a monthly fee for using a debit card. If this type of card is important to the way you manage your money, it s a good idea to investigate ways to avoid the fee. You might ask, for example, if keeping a larger balance in all the accounts you have with a bank would mean that you d have a fee-free debit card. 6 Banking
A word of caution Debit cards can make your life easier at the same time they can help you avoid using too much credit. But it s possible to overdraw your account if you agree to overdraft protection. If you make a mistake and end up borrowing against this line of credit, you could find yourself owing up to the line s credit limit in overdrafts and an overdraft fee as well. The way to guard against both potential problems is to keep track of your balance and never withdraw more than the money that s available. Of course, you also want to keep track of the card and keep your PIN secret, so no one else can access your account without your permission. How savings accounts work Banks help you manage the flow of money you earn and spend. But equally important, banks help you meet your financial goals by providing a variety of savings accounts that not only keep your money safe but help it grow. When you deposit money in a bank savings account, the bank credits the amount to you and pays interest on your balance. Interest is calculated as a percentage of your account balance, and the bank pays it at a specific rate on a regular schedule. Banks pay interest on savings accounts and sometimes on checking accounts to encourage you to save with them. They can lend the money in their customers accounts to earn interest from borrowers, so the more banks have on deposit, the better it is for their business. But it s still your money, and you can withdraw it when you wish. You ll find that different types of savings accounts offer different interest rates, typically linked to the level of access you have to your money. In addition, each account has different rules, such as minimum balance requirements, fees and penalties that may apply in certain circumstances. Banking 7
Some types of accounts limit the number of free monthly withdrawals. With a certificate of deposit (CD), which is known as a time deposit, you may forfeit some or all of the interest you would have earned if you take an early withdrawal. Be sure to choose the savings account that suits your needs best or select a combination of accounts to help you meet different needs. Different ways to save Here s an overview of the types of savings accounts most banks offer. Some banks also have special accounts that don t have minimum balance requirements, such as savings accounts for children. Regular savings accounts Allow you to deposit or withdraw your money whenever you want Pay a steady often small rate of interest, though you may have to maintain a minimum balance to qualify to earn this interest Certificates of deposit (CDs) Generally pay a higher interest rate than regular savings accounts Available in a variety of terms, often in increments from six months to five years, and custom terms may be available to align with a particular saving goal Require a commitment to leave the money for a specific term, and if you withdraw money before the end of the term, you may forfeit some or all of the interest Money market accounts (MMAs) Usually pay a higher interest rate than regular savings accounts but less than CDs Allow you to write a limited number of checks or make a limited number of transfers each month May not pay interest, may impose fees, or both, if account balance drops below required minimum May tier interest earnings, so that you earn different rates of interest on different parts of your account balance Compounding There are two ways in which your account can earn interest: simple interest or compound interest. Simple interest is added once a year to your account s balance. If you earn 2.5% interest and you have $10,000 in the account, you ll earn $250 in interest the first year, bringing your total to $10,250 and another $250 in interest in the second year, bringing your total to $10,500. Compound interest, on the other hand, means that interest is paid on your total balance, including any interest you ve earned in the past. So, in the first year you d earn $250, bringing your balance to $10,250. In the second year, though, the 2.5% interest would be calculated on $10,250, meaning you d earn $256.25, bringing your total balance to $10,506.25 if it was compounded annually. The frequency of compounding varies from bank to bank. Some offer daily compounding while others offer monthly, semi-annual or annual compounding. 8 Banking
The more frequently your interest is compounded, the more quickly your earnings will grow. For example, if the $10,000 deposit earns 2.5% compounded monthly, the total interest earned at the end of two years would be $512.16. This two-year gain might not seem like much money, but the difference increases dramatically over time. For example, after 20 years, this same $10,000 deposit could grow to approx imately $16,500, depending on how frequently the interest compounded. Calculating compound interest Calculating how much compound interest you ll earn may seem complicated, but it s actually not. If your interest compounds annually, you take the annual interest rate you earn, say 2.5% and multiply it by your balance, say $10,000. 2.5% of $10,000 is $250, so you ll earn $250 in interest, bringing your balance to $10,250. To calculate the following year s interest, take the balance of $10,250, and multiply by 2.5%, which is $256.25. Your balance at the end of year two is $10,506.25 ($10,250 + $256.25). If your interest compounds monthly, divide your annual interest rate by the number of months in a year, or 12. The interest rate of 2.50%, expressed as a decimal is 0.025 0.025 divided by 12 is 0.0020833. Next, multiply that number by your balance, or $10,000, and you get 20.833, or $20.83 in interest that month. For the next month, multiply $10,020.83, which is your new balance, by 0.0020833, or the monthly interest rate, and you get 20.877, or $20.88 in interest. Your new balance is $10,041.71. You can continue with the same pattern for each month, and by the end of the year you ll have earned $252.88 in interest, or $2.88 more than if your account were compounded annually. For other types of interest, such as daily, weekly or semi-annually, the process is the same. Divide your annual interest rate by 365 (daily), 52 (weekly) or 2 (semi-annually), and multiply that by your balance. Don t forget to use this new compound balance when calculating the next period s interest accumulation. Of course it s a lot easier to use a compounding calculator, which you can find on many bank websites, to estimate what a deposit will be worth at various times in the future if you earn a certain rate of interest. Projecting future earnings in this way is known as the time value of money. Unbanked and underbanked It s estimated that as many as 30 million households in the US don t have bank accounts or use the services of traditional or online financial institutions to handle most of their banking needs. As a result, these households almost always pay more for check cashing and bill paying than they would have to with a bank. And they re not building the financial relationships and potential credit histories that help make it possible to secure a loan or qualify for a credit card. Banking 9
Choosing a bank. Comparing products and services. 10 Banking
You should be able to find information about what products and services a bank offers and what fees it charges its customers by visiting a branch office or the bank s website. The more questions you ask, the better prepared you will be to make an informed decision. Selecting a bank Like everything else you shop for, you want to get the best deal you can when choosing a bank. In making your decision on where to bank, you ll want to consider several factors: convenience, products and services, and cost. Convenience If you are using a brick and mortar bank, is there a local branch or one of the bank s ATMs near your home or office? Is the branch open on the weekends? What are their hours of service? Is there a drive-through lane or a 24-hour ATM? If you are using a virtual bank, is there a network of ATMs you can use without charge or for which you get a rebate? Is it easy to move money back and forth between the online account and a local bank? Products and services Does the bank offer the full range of products and services you need? Is the bank s service department customer friendly and knowledgeable? Cost What fees does the bank charge for its products and services and how do those costs compare to what other banks charge? Be sure to ask about all the types of checking and savings accounts a bank offers. Most banks offer at least one very economical account that may provide all the services you need for very little cost. Young people, seniors and other groups may be eligible for reduced rates or other benefits. Comparing your options There are many types of banks to consider as you make your choice. Each type has certain advantages that may offer the best fit with your banking needs. More important, you don t have to think of it as an either/or choice. While there are many advantages to consolidating your banking business with one bank including the potential for reduced fees due to larger total balances there may be times when it works better for you to use more than one bank. Banking 11
National and regional banks Have many branches and the most ATMs sometimes including offices in several countries May have the greatest variety of products and services Typically offer extensive online banking as well as conventional banking locations Local banks Typically have a number of branches within a specific county or adjoining counties May be open longer hours than larger banks and on weekends Online, or virtual, banks Typically offer some but not all banking services Often provide free electronic links to your accounts in other banks May pay higher rates on deposits, and charge lower rates on loans 12 Banking Credit unions Are not-for-profit organizations, owned by their members, that offer banking services Range in size from having a national presence to a single office that s open only a few hours a day May charge lower fees and pay higher interest on deposits Despite their names, savings banks and savings and loan associations offer a full range of banking services for individuals and small businesses. In addition, some financial services companies, such as brokerage firms, insurance and mutual fund companies may offer banking services to their clients, through asset management accounts. Is your money safe? Banks aren t just a convenient way to manage money. They offer financial security for you and your money. The Federal Deposit Insurance Corporation (FDIC) guarantees deposits for up to $250,000 for each depositor in several different categories of accounts, such as individual, joint, and certain retirement accounts. This insurance means the money you deposit in bank accounts is safe even if the bank goes out of business, is damaged or destroyed in a disaster, or is the victim of robbery or theft.
Banking online Banking online can be a powerful tool for managing your personal finances. When you bank online, you can check your account balances in real time, transfer money between your accounts, pay your bills, invest and borrow through a single online portal. And you don t have to worry about banking hours the bank is up and running around the clock. Knowing exactly what s in your checking account at any given moment puts you in a much better position to answer important questions like, When did my mortgage payment clear? or Has my paycheck been deposited? Further, online banking is a great way to spot possible fraud or identity theft in your account virtually as it happens. This knowledge gives you a head start on getting the matter resolved. Online banking is generally available in one of two ways. You can open an account with a virtual bank, which exists only online. Or you can use the online services of a traditional bank, sometimes known as a brick and mortar bank. Banking 13
If you do business with a virtual bank, you should also consider opening an account in a traditional local bank. Then you can deposit checks in your local bank, withdraw cash from its ATMs and transfer amounts back and forth electronically between your accounts in the two banks. You can also use the local bank for services like official bank checks and signature guarantees. Pay your bills online Electronic bill payment is an important feature of online banking. You can authorize your bank to pay certain bills automatically each month just by providing the payment information the bank needs and identifying the account from which you d like to pay these bills. Using this service can be especially helpful when hectic work or travel schedules are the norm, helping to ensure your payments are always made on time. If you prefer to pay each bill online on your own, you can do that too. In fact, you can approve the payments as you receive various bills and schedule the days on which specific online payments will be made to ensure they are processed by your creditor on time. For example, you can schedule a mortgage payment for the day after your paycheck is deposited directly in your account. Either way, you always have an electronic record of what was paid and when. Some banks charge a monthly fee for electronic bill payment service, while others offer it for free or link the charge to your account balance. Online bank safety Banks are committed to protecting you and themselves from fraud and theft. You have the same legal protections with online accounts as you do with conventional accounts, the same FDIC insurance, and the same privacy. 14 Banking
If you bank online, you should be aware of the primary indicators of safety in addition to your login name and password: the URL will begin with https://. The s is one indication the site is secure. There will also be a padlock or key icon on the bottom right-hand side of the browser window. The icon indicates that you re on a secure page and your information will be encrypted during the transaction. When you re using an up-to-date web browser, another way to check for a secure site is to be sure that the name of the institution appears on a colored background in the same band as the URL. If you want to do a security check, double click on the icon. The URL on the certificate you ll see should match the URL on the page you re on. That indicates the page is authentic. You can also help keep your account safe by always signing out when you have completed the transaction or are done reviewing your account. You should also be very cautious if accessing your online account in public places where the network could be hacked by identity thieves. Bank loans Banks are an important source of credit, including loans, lines of credit and credit cards. A bank s existing customers may sometimes qualify for more favorable interest rates and lower fees when they need a loan or apply for a credit card. In addition, loan balances may be included when the bank evaluates its relationship with you and it may offer additional benefits, such as free checking, free replacement checks, and no fees from ATM withdrawals from other banks machines. That doesn t mean you must have an existing relationship with a bank to qualify for a loan. A creditworthy applicant may be readily approved for a loan, line of credit or credit card by any bank with money to lend. TIP If you are new to or apprehensive about banking online, you may wish to consider setting up online access to your existing accounts and start by monitoring deposit and check activity. As you become comfortable with the concept of banking online, you can move on to transferring money and paying bills. One advantage of online banking is that you become more efficient with the time you spend on banking activities. More about banks For more information about banks, banking, and bank regulation, you can visit the websites of the: US Federal Reserve Bank, the country s central bank, at www.federalreserve.gov Federal Deposit Insurance Corporation at www.fdic.gov Office of the Comptroller of the Currency at www.occ.gov Banking 15
In fact, borrowing from a bank that provides good service and attractive rates may be the reason you move all of your banking business under its roof, whether it s a physical roof or a virtual one. Before you apply for a loan or a credit card, you ll want to be sure that you won t be taking on more debt than you can afford to pay back comfortably. The cost of banking Banks make your financial life easier and safer because your deposits are insured by the FDIC. But you should expect to pay for many of the services you use. The actual fees vary from bank to bank, so you ll want to ask exactly what the costs are as part of deciding where to take your banking business. Basic fees To start, ask about the fees associated with the services that you ll use most often. If you do most of your banking online, ask if there s a monthly fee for paying your bills electronically or a limit on the number of bills you can pay within a certain period before incurring a charge. If you write a lot of checks to pay your bills, be sure to find out what the bank s monthly and per-check charges are for a checking account and whether free checking is available. If you use an ATM frequently, you should also ask what the bank charges if you use its own machines, as well as what it charges if you withdraw money from a different bank s ATM, also known as a foreign ATM. You should also ask if there s a fee to use a debit card. Extra fees In addition to the charges for basic services, you may have to pay for optional, special services, such as money order and bank check fees or the cost of a wire transfer. You may not need these services often, but it s very handy to have them available when you do. There are some fees that you can avoid or keep to a minimum if you re aware of what they are and when they apply and if you keep track of your account balances. Overdraft/Insufficient funds fees Stop payment fees Balance inquiry fees Extra check fees Replacement statement fees An important decision Where you decide to conduct your banking is an important financial decision. You ll want to be sure you explore all of your banking options, and understand the products, services and costs each has to offer you. As a bank customer, it s also your job to keep track of your accounts by checking your account statements, either regularly if you bank online or when you receive them in the mail. You ll want to compare the bank s record to your own records to be sure all of the transactions are correct. If you have a loan, you re responsible for making payments on time. 16 Banking
This content is provided as educational material only and is not intended to solicit you for any product or service. These materials are not a recommendation by HSBC for any product, service or financial strategy. The suggestions and recommendations contained within are general in nature, and may or may not apply to your particular circumstances. Securities, annuity and insurance products are: not FDIC insured or insured by any federal government agency of the United States; subject to investment risk, including possible loss of principal invested. All decisions regarding the tax implications of your investment(s) should be made in connection with your independent tax advisor. Should you need further assistance, HSBC strongly recommends contacting an independent attorney, tax professional or financial consultant. 2012 HSBC Bank USA, N.A. All rights reserved. PH00314 (10/12)