FWA HSBC Financial Backpack Program Banking Basics All materials are on FWA.ORG Follow us on FACEBOOK
Top Lessons Understand why banks are important in your financial life Learn about what services banks provide Research a bank to fit your needs and watch for fees Discover new mobile technology for banking Be aware of and deter identity theft Page 2
Case Study Twins Emma and Emmett are excited to be starting college next year. Emma is leaving home behind and heading to college in Florida, while her brother Emmett is going to live at home and attend a local university. Up until now, they have always used cash or gift cards received for holidays or birthdays to pay for their expenses. Any savings they had was in their piggy bank in their rooms. Now that college is almost here they realize that cash may not be the best option. Why is cash not always a good option? What should Emma consider when picking a bank? What about Emmett? Do they have different needs? Page 3
Benefits of Banks Keep your money safe from loss or theft Monthly statements of your financial transactions Proof of payment Help you budget wisely Build savings and earn interest Interest is the compensation an individual or business gets for lending their money to a bank Establish credit Obtain loans Page 4
How does a bank work? A bank brings together the money of savers to make loans to borrowers Deposits Loans Savers Borrowers Interest Types of Bank Accounts Checking, Savings, CDs, Money Market Accounts Bank or Credit Union Interest Types of Loans Credit Cards, Student Loan, Home Mortgage, Car, Personal, Business Page 5
Different Types of Banks National or regional banks: usually offer more convenience Local banks: provide more personal service Virtual banks: provide at home banking convenience Credit unions: alternatives to a traditional bank Brokerage firms also have banking services (many brokerage based banks are Internet only, with no physical branches) Page 6
The Federal Reserve and Consumer Protection The Federal Reserve is the central bank of the United States. In its role as a regulatory agency, the Federal Reserve System not only polices the banking industry to make sure that things run smoothly, but it also ensures that the rights of consumers are protected. Laws and agencies that protect the consumer are: Equal Credit Opportunity Act Federal Deposit Insurance Corporation (FDIC) Securities Investor Protection Corporation (SIPC) The Fair Credit Reporting Act (FCRA) Truth in Lending Act Securities & Exchange Commission (SEC) National Association of Securities Dealers (NASD) Page 7
Choosing a Bank Find the right combination of products, services, convenience, and cost. Is it convenient? Do they have a good network of ATMs? What will it cost to have a checking account? Is there a minimum balance requirement? Are there any special accounts that cost less? Teen or college checking? What will it cost to use the bank s ATM? Other banks ATMs? Is there a minimum balance to earn interest on a savings account? What is the current interest rate for savings accounts? Do they offer online or mobile banking? Is there an additional charge? What are the fees and penalties? Page 8
Opening a Bank Account An account may be owned by one person or several individuals. Each person must provide: 1. Personal information Social Security number Address verification (utility bill) Photo ID and one other form of ID 2. Initial deposit 3. Chex Systems report on your banking history Page 9
Checking vs. Savings Account Purpose Checking accounts are used primarily for paying bills Savings accounts are used primarily to save Interest Rates Savings accounts typically have higher interest rates and no minimum balance requirement Checking accounts may pay interest Fees Checking accounts typically have an account maintenance fee or transaction unless you have: Direct deposit High average balance: If you fall below the minimum average balance you will incur significant fees Savings accounts typically do not require a minimum balance except if you want to earn a higher interest rate Payment History Both are a good way to establish a good payment history and a banking relationship. Page 10
Checking vs. Savings Account Type Checking Account Savings Account Purpose Primarily for paying bills Primarily to save Interest Rates May pay interest, generally do not Typically have higher interest rates and no minimum balance requirement Fees Typically have an account maintenance fee or transaction unless you have direct deposit or a high average balance If you fall below the minimum average balance you will incur significant fees Typically do not require a minimum balance except if you want to earn a higher interest rate Payment History Both account types are good ways to establish a good payment history and a banking relationship Page 11
Checking Accounts Banks offer a variety of checking accounts: Demand deposit accounts Money is available to the account holder on demand by Writing a check; Making a withdrawal from an automated teller machine; or Transferring funds from one account to another. Interest bearing accounts Interest is paid to account holders based on the amount of funds in the account and an interest rate set by the financial institution backing the account. The right checking account for you depends on your spending patterns and amount on deposit (balance). Page 12
Anatomy of a Check A check is a negotiable instrument that instructs a financial institution to pay a specific amount of a specific currency from a specified demand account (checking account) held in the maker/depositor's name with that institution. Both the maker and payee must be a person or legal entities. Page 13
Types of Savings Accounts Account Liquidity Interest Fees Regular Savings Certificate of Deposit Money Market Accounts Can withdraw at any time Withdrawal before maturity (term ends) can result in penalty Can write a limited number of checks or transfers per month Steady small rate, may have minimum balance requirement Higher interest than a regular savings account, rate increases with longer terms Higher interested than regular savings account None, except if you drop below minimum balance None Fees or penalty of no interest if balance drops below a minimum Liquidity is how easily you are able to sell an investment or take out your money from an account. Page 14
Other Banking Services Automated Teller Machines (ATMs) A quick way to get cash or make a deposit with an ATM debit card. Online & Mobile Payment and Deposits Consumers are increasingly making electronic payments/deposits over the Internet. Many online payments and direct deposits are processed through the Fed s Automated Clearinghouse (ACH) network. The ACH network functions like an electronic courier, delivering millions of digital financial packages a day by taking money out of one account and sending it to another. Online & Mobile Records Statements that can be printed monthly Real time updates of all transactions so you don t overdraw your account. Direct Deposit Automatic deposit of your pay into your bank account. Your employer puts your paycheck directly into your bank account on pay day. You can put part of your pay into a savings account and the rest into a checking account for your bills. Your money is available for bills immediately. You can eliminate monthly fees. Page 15
Bank Fees Monthly Service Fees: Associated with having an account (unless you have free checking) Out of Network ATM Fees: Using an ATM not owned by your bank or in a network your bank belongs to Check Fees: Writing more checks than you re allowed in a month Debit Fees: Choosing debit for a debit card purchase (aka point of sale (POS) fees) at checkout Nonsufficient Funds (NSF) Fees: When you write a check for an amount that exceeds your balance Overdraft (OD) Fees: Having an electronic transaction that exceeds your balance OD Transfer Fees: Having a bank transfer money from a linked account to prevent an overdraft transaction Deposited Item Returned Fee: Depositing a check when there isn t enough money in the payer s account to cover the check amount Stop Payment Fees: Instructing your bank to cancel a check you wrote when that check is presented for deposit or cash Page 16
Types of Cards ATM cards Used only for deposits and withdrawals at an ATM Can not be used for purchases or other charges Money immediately deducted from your bank account, requests may be rejected if there is an insufficient balance in account Fees may be applied if you use another bank s ATM Debit cards Used deposits and withdrawals at an ATM Can also be treated like a credit card and used for purchases and charges Money immediately deducted from your bank account, requests may be rejected if there is an insufficient balance in account Fees may be applied if you use another bank s ATM Credit cards Can not be used at an ATM Used primarily for purchases and other charges but can provide cash advances Payment are deferred, charges can be made up to a set limit that is repaid in full or over time with monthly limits Interest charged on outstanding balance APR Page 17
Case Study: The Disappearing Money Emmett is having a great first semester and thinks he s in good shape with his new college checking account. On Monday morning, he checks the balance in his checking account and it s $30. He uses his debit card for $20 to replace his lost ear buds. Later that day, the bank deducts $15 from using his debit card on Saturday night for pizza with his friends. His account has a negative balance, so the bank charges an overdraft fee of $30. Page 18
Case Study: The Disappearing Money Tuesday comes and Emmett does not check the balance thinking he has enough, so he picks up a quick coffee and breakfast for $5 before class. The bank approves the transaction and charges another $30 overdraft fee. Later that day, the bank deducts $15 for Check #104 that Emmett wrote last week to cover his dues for the basketball club which he forgot to record. His account doesn t have enough money to cover the check, so the bank rejects the check and charges a $30 nonsufficient funds fee. Tuesday evening, Emmett checks his account expecting to see $5 but is shocked to see all the bank fees and a very large negative balance. Page 19
Case Study: Money Tracking Annie needs help managing her checking account. Can you help her: Track her money Determine what transaction types she is using ATM (deposit or withdrawal) Check number Direct deposit (automatic electronic deposit of her pay into her bank account) Online payment Decide what she can buy after she pays her bills Determine her final balance Suggest other things she can do with her remaining money Copyright 2012 by FWA of New York Educational Fund. All rights reserved. Page 20
Case Study: Money Tracking Annie received: 2 paychecks for $75 3 birthday checks for $20 $25 $15 Transaction type Item Deposit (credit) Withdrawal (debit) Balance Her expenses/bills are: Phone bill: $34 School prom: $60 Carfare: $20 Lunch: $30 What does she have left? Copyright 2012 by FWA of New York Educational Fund. All rights reserved. Page 21
Case Study: Money Tracking Annie would also like to buy the following items: Transaction type Item Deposit (credit) Withdrawal (debit) Balance New sneakers for $70 A CD for $18 A new outfit for $59 Does she have enough money for all three items? Which items can she buy? How will she pay for the items? What will she have left over? What can she do with her remaining money? Copyright 2012 by FWA of New York Educational Fund. All rights reserved. Page 22
Tips for Managing Your Accounts Use your bank s ATM. This is a good strategy to avoid a transaction fee for cash withdrawals. The average fee at other banks is $1.75 and up. Track your debit card transactions carefully. You might overcharge your account unintentionally if one transaction isn t updated to reflect your balance. This can result in high overdraft fees. Review all of your charges. Look at your checking account statement to make sure that each transaction matches your records. Consider a teen or college checking account. Some banks offer these junior account or joint account programs with your parents as you learn how to manage a checking account. Page 23
Case Study Emma s bank in Florida offers state of the art banking. She downloaded the bank s mobile app so she can deposit her campus job paycheck while walking back to her dorm. When roommate Tina bought concert tickets for their group of friends, Emma was able to pay her back for her ticket using the mobile app too. What are some of the new functionalities that banks and others are offering? Which would be most useful to you? Why? How do these tools make you more successful in managing and monitoring your money? What are the risks or issues you could encounter when using these new mobile technologies? Page 24
Case Study Check account balance Deposit your check by taking a picture of it Pay bills Transfer money between accounts Find the nearest fee free ATM for your bank Get text message alerts any time your account balance falls too low Virtual Wallets. Enter a PIN and a number from the receipt into an app and you ve paid using your mobile phone Examples: Google Wallet, PayPal, PNC Virtual Wallet Tap and Pay. Log in to an app, then tap or wave your phone at the checkout terminal to pay Don t forget to check for any fees associated with mobile banking Page 25
Case Study Emma was at an ATM and a guy walked up behind her. She thought he was just waiting for his turn. But she realized he was uncomfortably close and looking over her shoulder as she was ready to enter her PIN. What should Emma do? Emmett found a pair of basketball sneakers at a great price online. He started the check out process and noticed that the padlock in the address bar is open and that the page address starts with http instead of https. What should Emmett do? Page 26
Identity Theft Identity theft is one of the fastest growing types of financial fraud. It occurs when someone uses your personal information (SSN, bank or credit card numbers, address) to steal from you or open fraudulent accounts in your name without your permission. Identity theft can ruin your credit. Passwords and PINs (Personal Identification Numbers) are intended to protect your accounts from being accessed by other people. If your password/pin falls into the wrong hands, it could cause you a lot of trouble. Page 27
Identity Theft Protect your password/pins. When creating your password and/or PIN, avoid using the following: The word password Your name Your mother's maiden name Your date of birth Your pet's name Your phone number (home, business, or cell) Your Social Security Number The numbers 1234 or any consecutive sequence of numbers Page 28
Identity Theft Tips for safe password development and practice Use combination of letters (capitalized/lower case) and numbers. Change your passwords frequently. Avoid using the same password for everything. It may be easy for you to remember, but it'll also make it easy for an identity thief to steal all of your information at once. Do not disclose your password to anyone. When entering your password or PIN at an ATM, check your surroundings to make sure no one is able to see you enter your information. If you're going to write down your passwords, keep that information in a safe place. Never keep it in your wallet. There are some free or low cost software to help manage passwords. Page 29
Identity Theft Thieves can steal your identity by: Stealing your wallet or purse: to gain access to your personal documents such as credit cards, driver s licenses, passports, etc. Dumpster diving: getting personal info from your trash Mail theft: including bank statements, pre approved cards, checks, tax information Phishing: posing as a legitimate company to get your personal info by phone or online Spyware: through an email attachment that can take over your address book, release a computer virus, and track your keystrokes to get your online passwords Trust: a friend, roommate, or family member can use information you share with them for unintended purposes. Page 30
Deter Identity Theft Protect your password and PIN. Don t give it out to anyone, don t write it on your cards, shield it from others in a public place. When using an ATM always cover the keys when entering the PIN. Do not throw out your ATM receipt in a public trashcan. Only carry the credit cards you need. Only carry your driver license for identification. Leave birth certificate, passport, and social security card at home or in a safe place. Monitor all of your statements for accuracy. Collect your mail daily, do not leave it out overnight. Check your credit report every year. Page 31
Deter Identity Theft Shred your mail with personal information, expired credit cards, and important documents. Protect your credit and debit cards by making sure you get your card back after you make a transaction. Immediately cancel lost or stolen credit cards and bankcards. Keep information safe on your computer by using anti virus and antispyware protection. When receiving an email with a link, be extra careful and do not click through a link. Instead, retype the URL for that company yourself in your browser so you can be sure you are going to the legitimate website. Legitimate banks and credit card companies will NEVER ask for a password or other identifying information by e mail or phone. Only provide this information if you call a company first to conduct business. Page 32
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