Banking Today

1. Banking Today Chapter 10, Section 3 & Booklet

2. Types of Financial Institutions • Commercial Banks (aka: Bank) • Checking & Savings accounts, Deposits & loans are held here • Savings & Loans Associations • These banks give a higher level of savings and thriftier loans • Mutual Savings Banks • Serves people with smaller deposits/ accounts & other transactions • Credit Unions • Commercial bank with special services for a particular group • Finance Companies • Give out high interest loans for consumers who are usually unable to get loans, else where.

3. Money Supply • Categories • M1 is also valued with the liquidity of items • Example: currency, traveler’s checks, deposits • M2 • Examples: Savings accounts & Mutual Funds

4. Functions of Financial Institutions • Store Money • FDIC (Federal Depository Insurance Corporation) • Saving Money • Savings & checking accounts, Money Market Accounts & CD (Certificate of Deposits) • Loans • Mortgages • Usually last15, 25 or 30 years, some places offer more or less. • Must put 20% M1/ cash down, first • Credit Cards • Form interest, principals, and compound interest

5. Electronic Banking • ATM ( Automated Teller Machines) • Debit Cards • Use at ATM or businesses (similar to a credit card), so money can automatically comes out of checking account • Home Banking • You can pay bills, transfer money, set-up deposits (direct deposit) & gain information • Automatic Clearing House (ACH) • Pay without writing checks on monthly bills (automatic debit) • Stored Value Cards • Ex: pre-paid cards, phone cards • Colleges tend to use for students to pay for cafeteria, copies, etc. Money comes from student’s accounts

6. Credit Reports vs. Credit Scores Credit Reports Credit Scores Every time you apply for any form of credit it can affect your score Bankruptcies, debt, multiple lines of credit can lower your score Bad credit can interfere with loans, employment renting & education FICO (Fair Isaac Corporation) sets-up the score levels between 300-850 Higher the number the better credit you have. (700-850 “Excellent”) 300-500 is “BAD” • Components • Identify Personal Information • Public Record Information • Stays on report 7 to 10 years • Other credit Information • Credit Inquiries • People/ businesses that have requested your credit report. • Paper reports (hard) remain on record for 2 years and will lower your credit score

7. Check & debit card OOPs! • NSF (Non Sufficient Funds) will acquire when you write checks or use your debit card without having enough money in the account. • Consequences: • Fee of $25.00 or 5% for every overage • If not paid within 15 days, bank can charge you double of what you owe. • If enough money accrues or there are too many NSF charges the bank can press charges and take you to court.

8. How to obtain credit/ loan? • Character (credit reputation) • Check to see if you pay bills on time • Capacity • Present ability to re-pay the loan • Capital • Property & other capital that totals up to more than the debt • Conditions • Consider other forms of debt, employment & personal factors • Collateral • Property that can be mortgaged or used as security for payment • Common Sense • Person’s inner ablity to make wise decisions

9. What to do when obtaining a large purchase ? • Research the item you are wanting to purchase and all its substitutes. • Ex: Price, specifications, resale value, depreciation & quality. • Compare item with its substitutes • Acquire a loan, if necessary. • Can get pre-approved and should conduct the first 2 steps in the acquiring of a loan. • Get quotes from several places • Negotiate the price • Make the purchase by signing legal documents • Be aware of warranties & return/ exchange policies • Read the entire document before signing.

10. How to choose a Credit Card? • Find out the APR (Annual Percentage Rate) • Check to see if they have an annual fee • Find out how long is the grace period • Most are 20 to 30 days, but some have 15 days. • Check what will be your credit limit • Check rules / regulations & fees for payments, if your card is stolen or your information is used. • Find out any additional fees • Balance transfer • Cash Advance • Late payments • Exceed credit limit or change credit limit • Pay by phone/ customer service

11. Credit Card Etiquette • When get your card sign the back or place “SEE ID” & call to activate it. • Never lend out your credit card or it’s information to anyone; unless you are on a secured phone line or website. • File all information and statements • Check each statement with matching receipts, every month. This will allow you to find any errors or fraud. • Sign all receipts, fully, & place a line through any blank spaces/ lines • You can monitor your credit card online for purchases to keep up with your balance & possible prevent fraud. • Create a monthly budget to avoid credit card debt.

12. How to keep a strong credit score? • Pay bills & Loans, on time • Create a long & diverse credit history • Limit account inquiries • Keep debit low • Pay-off every month, before interest gets added on. • Monitor credit score & history, at least once a year. • Free reports: www.annualcreditreport.com or (877)322-8228

13. How to get out of debt? • Do not use credit cards. • Sign-up to opt-out of pre-approved credit card offers (1-888-567-8688) • Pay more than minimum balance • Decide which credit cards to pay off first • Start with High APR or highest balance • Negotiate a lower APR or payment plan • Gain credit counseling services or financial advisor, if needed. • After pay-off, only keep 1 or 2 credit cards with a low APR . Only use for emergencies or necessities & then pay-off at the end of the month, before interest gets added on.