Personal Banking 101

 

Where do you keep your money? A shoe box? A safe place under the mattress or pillow? Sure, this seems like a good idea now, but what about when your income and your needs change? That's where a bank account becomes crucial. Its important to be able to handle obligation as well as keep your money safe, and keep it working for you.

 

Here's an excerpt from Capital One's Financial Education site explaining services often offered by banks:

 

Banking services

 

Banks not only provide a safe place to stash your cash, but they also offer accounts and products that allow you to pay your bills and, at the same time, earn interest and help your money grow. Having a bank account allows you to:

 

• Keep your money safe from loss, theft, or fire

• Earn interest and grow your savings

• Deposit your paycheck directly

• Pay bills easily and inexpensively

• Track your spending and manage your finances

• Establish credit

• Have access mortgage loans, car loans, and other products

 

Banks come in many types and sizes, from large financial services companies with a national or even an international presence to local community banks, savings and loans, credit unions, and Internet banks that exist solely online. Most offer a diverse range of products and services like consumer checking and savings accounts and loans along with similar services designed especially for businesses. Banks offer their customers many different ways to access their services:

 

• A branch is a retail location where a bank offers face-to-face service to its customers.

• An ATM (automated teller machine) allows you to conduct daily transactions—check account balances, make deposits, withdraw cash—in a public space without the need for a bank teller.

• Telephone banking allows you to perform basic transactions (like checking account balances, transferring money, and paying certain bills) over the telephone.

• Online banking allows you to conduct nearly all of your banking transactions—including transferring money and paying bills—over the Internet through a secure website.

• Mobile banking allows you to use your cell phone to conduct simple banking transactions by remotely linking into a banking network. Mobile banking also allows you to have certain account alerts sent to your phone—like warning you when your account balance is low or when a monthly bill payment is due.

 

FDIC - Keeping your money safe

 

By now you may be thinking, "All this sounds good, but how can I be sure my money is safe?" 

 

Check out this article from Capital One on the FDIC:

 

FDIC: Why Your Money is Safe

 

Piggy banks are cute, but a bank account is a much safer place to keep your money. Banks are closely regulated so you can relax and feel confident that the money you place in a bank account is safe and protected.  One thing all legitimate U.S. banks have in common is that they are members of the Federal Deposit Insurance Corporation (FDIC). The FDIC is an independent government agency created to protect depositors in the event a bank fails and can’t refund their customers’ money.

 

If, for any reason, a bank is unable to reimburse its customers, the FDIC steps in—repaying customer deposits up to certain limits. Since the FDIC was first established 1933, no depositor has ever lost a penny of FDIC-insured funds.

 

What accounts are insured?

 

FDIC insurance covers all deposit accounts at insured banks and savings associations. That includes funds deposited in checking, NOW, and savings accounts, money market deposit accounts and certificates of deposit (CDs), up to the insurance limit.

 

However, the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities is NOT insured, even if you purchased these products from an FDIC insured bank.

 

How much of my money will the FDIC insure?

 

The government currently insures individual accounts up to $250,000, for money kept at a single institution. It’s important to know that after January 1, 2014, that rate will return to the previous limit of $100,000.

 

However, if you do have a large amount of money to deposit (maybe you received an inheritance, or an insurance claim payment, or you sold a property), there are ways that money can be kept in one bank and still be fully covered by the FDIC. The FDIC’s Web site offers a helpful tool that calculates your FDIC insurance coverage and tips for making sure your money is fully insured.

 

It’s also a good idea to talk to your banker or financial planner to develop a strategy to ensure that you’re covered.

 

How do you know if your bank is insured?

 

It is important to make sure any bank where you deposit your money is a Member of the FDIC. Insured institutions must display an official sign showing they are covered by FDIC. Look for the familiar FDIC logo or the words "Member FDIC" or "FDIC Insured" on the window of the bank, on the glass at each teller’s window and on the bank’s Web site.

 

Types of accounts

 

There are many different types of bank accounts but for this lesson, we will focus on the basic checking and savings accounts. 

 

Savings

 

According to Investopedia, a savings account is a deposit account held at a bank or other financial institution that provides principal security and a modest interest rate. Depending on the specific type of savings account, the account holder may not be able to write checks from the account (without incurring extra fees or expenses) and the account is likely to have a limited number of free transfers/transactions. 

 

Savings accounts are generally for money that you don't intend to use for daily expenses. To open a savings account, simply go down to your local bank with proper identification and ask to open an account.

 

 

Checking 

 

According to Investopedia, a checking account is a transactional deposit account held at a financial institution that allows for withdrawals and deposits. Money held in a checking account is very liquid, and can be withdrawn using checks, automated cash machines and electronic debits, among other methods. 

 

A checking account differs from other bank accounts in that it often allows for numerous withdrawals and unlimited deposits, whereas savings accounts sometimes limit both. Checking accounts can include business accounts, student accounts and joint accounts along with many other types of accounts which offer similar features.

 

When you have a checking account, the bank sends you a statement every month. This statement shows every transaction in the checking account during the last month – this means every deposit you’ve made and every check you’ve written. If you earn interest on your checking account, or if you pay a fee for your account, you’ll see those on your statement, too. Be sure to check your statement carefully. It may show transactions you forgot to enter or that you entered incorrectly. Banks usually record the amounts and balances correctly, but it’s a good idea to double-check because mistakes can happen. Comparing your records to the bank’s records to make sure they match is called “balancing” the account. 

 

Want to see some basic banking documents? Click here

 

 

 

Curious about checking accounts and how to manage the account? Click here to continue onto the next lesson.