Banking Basics

Banking 101
What will you learn today
• An introduction to common terms and concepts
you will come across

• Basic accounts with common features

• What to think about when picking an account or

institution

• Additional resources
Why should you bank?
• Protect your money

• Earn money by way of interest

• Save and manage your money for a better future

• Get a line of credit, mortgage, or a business loan

Bank
• A financial institution that handles money,
including keeping it for saving or commercial
purposes, and exchanging, investing, and
supplying it for loans
Credit Union
• A non-profit financial institution that is owned
and operated entirely by its members

• Provides financial services for their members,

including savings and lending

• When a person deposits money in a credit union

the deposit is considered partial ownership in
that credit union

• Many have membership eligibility requirements

Savings Institution
• A financial institution that accepts deposits from
individuals, makes homes mortgage loans, and
pays dividends
Web Only banks
• No Brick and Mortar/ATMs
▫ No tellers just customer service

• Offers many of the same services and products

as traditional banks

• Generally offer higher interest rates and

different financial products
Deposits and Withdrawals
• Deposits
▫ When you put money into an account
 Includes cash, check, direct deposit from employers
 Cash is immediate
 Checks can take several days to clear

• Withdrawal
▫ To take money out of an account
 Includes withdrawals from ATM or teller, debit card
purchases, checks you write, or online bill payments
 Does not include credit card purchases
Transfers
• Can be automatic

• Online, mobile, ATM, at the bank

• International remittance (global remittance)

▫ Allows you to transfer money to family members
in other countries
▫ Not all institutions do this

• Not all transfers count as deposits or

withdrawals
Balances
• Balance
▫ The amount of money in your account

• Available Balance
▫ The amount of money in your account that you have
access to (i.e. after waiting for a check to clear)

• Minimum Balance
▫ The amount of money you’re required to keep in an
account to avoid fees or to keep the account open
Overdrawing your account
• Means you took out more money than you have
in the in that account
▫ Checks can bounce
▫ Debit purchases can be denied

• Good banking habits will prevent this

• Overdraft fees can be costly

What is interest?
• The amount of money paid by a borrower to a
lender in exchange for the use of the lender’s
money for a certain period of time.

• Examples
▫ You earn interest from a bank if you have a
savings account
▫ You pay interest to a lender if you have a loan

• Interest you earn is taxable income

Types of Interest
• Simple interest
▫ Earn interest on the principal (the amount of
money you originally deposited)

• Compound interest
▫ Interest not only on your original deposit plus the
interest your deposit has earned over time

• APY (Annual Percentage Yield)

▫ The rate of return on an investment for a one year
period
Checking Account
• An account that allows a customer to deposit
and withdraw money and to write checks

• Checking accounts allow you to

▫ Deposit your paycheck
▫ Pay bills
▫ Withdraw money to spend later
▫ Earn interest (not all institutions offer this)

• Can be linked to a debit or ATM card

Savings Account
• A bank account that allows a customer to deposit
and withdraw money and earn interest on the
balance

• May require a minimum balance

• Can be linked to a Debit or ATM card

ATM cards Vs. Debit Cards
ATM Cards
• Can be used to operate ATM,
withdraw money, and access
account
• Can be used to make in-store
purchases if used at a
merchant that uses one of the
networks listed on the back of
your card
Debit Cards
• Can be used to operate ATM,
withdraw money and access
account
• Has a Visa or MasterCard logo
on the front and is accepted
where Visa/MasterCard are
accepted
• Can be used to purchase
items/services in-store and
online
Credit Cards vs. Debit Cards
Credit Card Debit Card
• You are borrowing money and • Deducts directly from bank
need to pay it back account

• Paying your credit card bills • Does not build your credit
on time can build good credit history

• Can be used online/in store in • Can be used in an ATM

place of cash or checks
• Can be used online/in-store in
• Safer to use online place of cash or checks
Money Market Accounts (MMA)
• Pays interest like a regular savings account—
generally higher interest

• May require a higher minimum balance

• Has checks you can use to make withdrawals

▫ restrictions on the number of withdrawals made
by check
Certificate of Deposit (CDs)
• Requires that money stay in an account for a
fixed period of time called a “term”
▫ i.e. a few months to five or more years

• Interest earned is generally higher than on a

regular savings or money market account

• If money is withdrawn before the end of the

term, penalties could be applied
Good Banking Habits
• Write all of your checks, withdrawals, deposits, and
transfers in your register for each account
▫ That includes your debit card purchases too

• Verify the activity with your monthly statements

• Sign all of your cards once you get them

• Keep bank customer service numbers on file

• Report stolen/lost cards immediately

Will my money be safe?
• Banks and Savings Institutions are insured by the
FDIC up to $250,000
• Credit Unions are insured by NCUA up to $250,000
• FDIC and NCUA Insure:
▫ Checking accounts
▫ Savings accounts
▫ CDs
▫ Money market accounts
▫ IRA’s and NOW accounts
• FDIC and NCUA do not insure:
▫ Safety deposit boxes
▫ Money Market Mutual funds
▫ Stocks, bonds, mutual funds
▫ Insurance products or investments
▫ Anything that is not a deposit
Picking an Institution
• Are the products this institution offers
FDIC/NCUA backed?
• Is it convenient?
▫ Locations?
▫ Hours?
▫ Services?
• Is the staff friendly and helpful?
• Do they offer other products or services you are
interested in?
What fees can I expect?
• Check with the financial institution about what
kinds of fees they or their products have
• This list is not exhaustive:
▫ ATM withdrawals from “out of network” ATMs
▫ Mailed statements
▫ Not making minimum monthly deposits
▫ Too many or not enough withdrawals
▫ Too many transfers
▫ Not maintaining the minimum balance
▫ Maintenance fees
Other services:
• Investing resources (not FDIC/NCUA insured)
▫ Annuities, bonds, mutual funds…
• Online banking
• Mobile banking
• Home loans
• Business loans
• Lines of credit
Solid Advice
• Don’t sign something you don’t understand

• Always ask for clarification

• Always get written copies and take them home

• Have someone you trust go with you to the bank

and review paperwork with you
Things you’ll need to open an account
• Two forms of Identification
▫ Ask your bank which forms they accept
▫ Common types:
 State ID or Driver’s License
 Alien Registration card
 Passport
 US military ID
• Money
▫ Ask if there is a minimum deposit
Online Banking Safety Tips
• Use secure WiFi and your own computer
• Make sure your browser and virus protection
software are up to date
• Don’t share your password and change it often
• Make sure you have a secure connection
▫ Look for the https:// and the security certificate
Things you can do with banking online
• Services vary by institution
• Set up new accounts
• Transfer money to other accounts or other
people
• Set up automatic transfers to your savings or
other accounts
• Pay bills or credit cards
• View statements and more…!
What if my bank is having problems?
• Read the news

• Massachusetts Division of Banks

• Your money will be insured up to the

NCUA/FDIC will protect you up to their limits
even if your bank fails
What can I use to bank better?
• Bank Rate Monitor or Bankrate.com
▫ Articles, bank rates, tips and more
• Mycreditunion.gov
▫ Find an NCUA insured CU and if your assets are
covered
• fdic.gov and Edie
▫ Find FDIC insured institution and if your assets
are covered
• handsonbanking.org
▫ Tutorials and lessons about banking for all ages