1. Banking System and Accounts
Basic Financial Services

2. Financial Institutions
3 Main Types
Banks
Credit Unions
Savings and Loan Associations (S&L)
Advantages
Convenient access to your money
Security
Saves money
Access to knowledgeable people
Building block of credit
Earn interest
– Banking explained
Financial Institutions will provide you with a secure place to keep your money. These institutions offer many different options and opportunities to meet your needs.
In the community, financial institutions serve several important roles: they protect the assets of individuals who deposit money with them, they provide loans to individuals, organizations, and businesses, and they help facilitate many day-to-day transactions.
There are three main types of financial institutions:
Banks: Banks are organizations licensed by the government to provide services to customers while enriching investors. Banks are insured by the Federal Deposit Insurance Corporation (FDIC)
Credit Unions: Credit unions are typically not-for-profit cooperative financial institutions that are owned and controlled by the members. Credit Unions are insured by the National Credit Union Association (NCUA)
Savings and Loan Associations (S&L): S&Ls are financial institutions which specialize in accepting savings deposits while making loans, such as mortgages.
Even within the same categories, every financial institution will differ somewhat in poliices, services offered, and products available.
Advantages of using a financial institution:
*Convenient access to your money
*Security-less risk of theft, deposits are insured
*Cost Efficiency-a bank account is generally less expensive than using other sources to obtain cash or make transactions
*Access to knowledgeable people who can assist you with financial needs
*Building block of credit
*Earn Interest
*Creating Records of your transactions
Choosing a Financial Institution
When choosing a financial institution, select based on:
*Convenience and proximity to your location or your daily/weekly routine
*Checking & Savings options
*Costs-what fees are associated with joining
*Customer Service
Also consider the institutions’ funds availability policy

3. Types of Saving Regular Savings Account Interest paid monthly
May require a minimum deposit
Certificates of Deposit (CDs)
Money must remain in account for a term
Higher interest rate than a savings account
Electronic Transfer Account
Direct deposits for government payments
Money Market Account
Limited check writing and withdrawals
Pay higher interest than regular savings accounts
Interest rate may change
U.S. Government Securities
Often offers highest return with lowest risk
Regular Savings Account-primary purpose is to allow you to safely store & accumulate money. It is an excellent vehicle to accumulate money for those non-monthly expenses, emergencies or short term goals.
Also called share accounts at some credit unions.
Interest is paid monthly.
The bank may require a minimum deposit. (This means the amount of money you put into the account each time.)
There may be limits on the number of deposits and withdrawals you can make.
Some banks charge fees.
Electronic Transfer Account (ETA)
Electronic transfer accounts (ETAS) have been established by the US Treasury for accommodating direct deposits of federal government payments and are an option for those who are not comfortable with or do not qualify for other accounts. Learn more about ETA accounts in publication B3812 Get Checking.
Stored Value Cards
Individuals receiving various government transfers may, instead of receiving checks, be given what looks like a credit card or debit card that would have a balance reflecting the transfer. Read more about stored value cards at: . Click on the Savings Product Category and read the Issue Brief titled “Financial Service Alternatives to Traditional Accounts” by J.M. Collins.
Certificates of Deposit (CDs)
Your money must remain in the account for a fixed period of time, called the term.
The more money you deposit, and the longer you keep it in the account, the more interest you’ll earn.
You’ll have to pay a penalty if you withdraw your money before the term is completed.
Rates of interest on CDs are typically higher than on regular savings accounts.
Money Market Account
Also called Negotiable Orders of Withdrawal, share-draft accounts, or interest-bearing checking accounts.
This type of savings account allows limited check writing.
Higher minimum balance typically required
You may have limited withdrawals each month.
Generally these accounts pay higher interest rates than regular savings accounts.
Interest is calculated at the end of a fixed time period, for example, every month.
Interest rate may change.
U.S. Government Securities
for more information on savings bonds, Treasury bills, and other securities, go to the government’s website:

4. Choosing a Savings Account
How much will my savings earn?
How easy is it for me to access my money?
What’s the minimum amount needed to open the account?
Is there a minimum balance to keep the account open?
Does the account have a maturity date?
Is the account “liquid” or “long-term”?
Use the questions below to help choose an account that is right for you:
How much will my savings earn?
The interest rate is usually expressed as an annual rate, even if your interest is compounded or calculated monthly or quarterly. The terms “annual percentage yield,” “rate of return,” and “APR” all refer to this amount of interest earned on your savings account after one year.
How easy is it for me to access my money?
Sometimes the number of withdrawals allowed every month is limited. Other accounts come with checks or debit cards to allow you access to your money.
What’s the minimum amount needed to open the account?
Some accounts may require a minimum, such as $100, to open an account, while others may require $1,000 or more. Sometimes, savings accounts opened for children require a smaller amount of money to first open up the account.
Is there a minimum balance to keep the account open?
After you first open your account, some accounts allow you to keep a lower balance. Other accounts lower your interest rate, stop paying interest, or even start charging a fee if your account balance falls below a certain amount.
Does this account have a maturity date?
Maturity refers to the ending date of your savings contract, for example, the date when a 12-month certificate of deposit stops earning interest. Other accounts, like a savings account, let you keep adding money to your account for as long as you want.
Is the account “liquid” or “long-term”?
Certain “long-term” accounts, like CD’s, may have penalties, such as losing some interest payments, if you take money out too soon. “Long-term” accounts usually pay you a higher interest rate in exchange for limiting access to your money. Make sure you have enough “liquid” savings — that is, savings you can withdraw anytime without a penalty — to cover emergencies and big upcoming expenses.

5. Checking Account Basics
Advantages
Disadvantages
Convenient—money available
Safer than carrying cash
Proof of payment
Easier budgeting
Cost of over-drafting account can be costly
Greater responsibility for record keeping
Minimum balance or fee requirements
Checking accounts, like savings accounts, are part of an individual’s personal money management system. Some checking account users will exclusively use electronic transactions. Checking accounts are very similar to savings accounts. Both types of accounts keep your money safe, and both are very easy to access if you need cash.
The difference, however, is that checking accounts are designed to be used regularly and frequently, while savings accounts are intended to be for long-term money management. For example, financial institutions expect their customers to be making regular withdrawals and deposits from a checking account. These withdrawals can be made in person or they can be made with an ATM card, debit card, or checkbook.
Most savings accounts earn interest. Checking accounts may or may not— checking-with-interest does exist at some financial institutions.
Advantages and Disadvantages of a Checking Account
There are distinct advantages of opening a checking account, but there are also some disadvantages:

6. Choosing a Checking Account
What types of checking accounts are available?
Is a minimum balance needed on an account and is it able to earn interest?
Does the account have ATM or Debit cards available?
Are overdraft protection plans available?
What are account disclosures?
A checking account can be a great way to make your transactions easier. Use the questions below to help choose an account that’s right for you. As yourself the following questions to determine if the financial institution you’ve found is the right one for you:
What types of checking accounts are available?
There are several types of checking accounts varying in names: Basic checking, “Free” checking, Express checking, “No Frills” checking, Interest bearing, Money Markets. These vary in nature. For more information on the various types see Choosing a Financial Institution at or
What types of account ownership options are available?
Individual Account-you alone have acce3ss to the money
Power of Attorney
Payable on Death
Joint Account-you and one other person have access to the money
right of survivorship
Community or Marital Property
similar to joint ownership but specific to married couples
Custodial-used for minor children
Is a minimum balance needed on an account and is it able to earn interest ?
You must be able to maintain a minimum balance in order to earn the interest.
Does the account have ATM or Debit cards available?
Sometimes a yearly fee may be charged for this convenience and fees may be charged at locations other than the financial institution that holds your account. It is important to record all fees from these transactions.
Are overdraft protection plans available?
Fees for overdraft protection may vary, but is typically not free. Funds must be available in some form of savings or an arranged line of credit to cover exceeded amounts. A significant amount is usually charged - $25 to $35 - each time a check is processed through your account. Once you make a deposit, the fees will be deducted before checks are honored jeopardizing current transactions. This snowball effect may leave you owing a significant amount of money.
What are account disclosures?
A financial institution is required to disclose in writing all policies and practices impacting your account. This would include which services have fees and how much, fund availability, deposit account rules, and features of the accounts. These disclosures help you to make informed decisions.

7. Overdrafts “Overdrafting” or “Bouncing a check”
Spending more than you have using a check
“Overdrafting” with ATM or Debit Card Use
Spending more than you have using your card
Your ATM/Debit Card is not a Credit Card
Standard overdraft practices
Transaction covered for a flat fee-$20/$30 each time you overdraw
Avoid Overdraft
Spending more than you have in your account is also known as “overdrafting” or “bouncing a check.” Some financial institutions will offer “overdraft protection,” which can help move money from your savings account or a credit account in the case that you spend more than you have in your checking.
It is important to understand that checking accounts can’t be used like credit accounts. In order to write a check, there must be sufficient funds in the account to cover the amount being spent. It is illegal to write “bad” checks when you know there is not enough money in the account to cover the amount being spent. Violators of this law may be fined or punished, and financial institutions may keep information about your negative history for up to five years.
Getting your ChexSystems report
Call ChexSystems Consumer Relations:
Or write to:
Consumer Relations
12005 Ford Road, Suite 600
Dallas, TX
ChexSystems ChexSystems is a consumer reporting agency which collects information on account activity and reports to member financial institutions, much like how credit bureaus report on and record your credit history.
Under the federal Fair Credit Reporting Act, you are entitled to a free copy of your report. You may dispute the completeness or accuracy of any information by contacting ChexSystems.
According to ChexSystems policy, it will not remove accurate information under any circumstances and it will keep information for five years.
Financial institutions will use ChexSystems to determine whether you will be a safe or risky customer. Using this information, the financial institution, not ChexSystems, makes the decision to open your account or not.

8. Overdraft Protection Overdraft protection Options Include New Rules:
Offered by some financial institutions
Moves money from savings to checking in cases of overspending
Options Include
Transfer from savings, line of credit, tied to a credit card
New Rules:
Rather than auto enrollment in overdraft plans customers must “opt in” to this coverage for ATM/debit card use
Overdraft Protection
Many financial institutions will now offer “overdraft protection,” or a link from your checking account to another account or line of credit that can be pulled from in case you spend more money than you have in your checking. This is a great way to add some security to your account so that you do not accidentally make a costly mistake. However, overdraft protection should not be overly relied upon. Safe and smart financial management means that you keep track of your funds and transfer them manually.
Overdraft protection options include:
Monitor account
Transfer from savings
Line of credit
Tied to a credit card
New Rules:
In the past, some banks automatically enrolled you in their standard overdraft services for all types of transactions when you opened an account. Under the new rules, your bank must first get your permission to apply these services to everyday debit card and ATM transaction before you can be charged overdraft fees. See for more information.

9. Savings and Checking Accounts
Direct Deposit and Electronic Transfer Account
Automatically deposit checks directly into a savings or checking account
Pre-Authorized Transactions
Scheduled payments automatically pulled from your account
Online banking
Manage all accounts with a secure website
Direct Deposit and Electronic Transfer Account – Electronic Transfer Accounts (ETAs) have been established by the U.S. Treasury for accommodating direct deposits of federal payments and are an option for those who are not comfortable with or do not qualify for other accounts. ETAs offer the same insurance protection as other deposit accounts and are open to all recipients of federal government payments.
Pre-Authorized Transactions – Monthly charges/withdrawals from an account to be used to pay bills. This can be convenient because you can be assured bills will be paid on time. Be sure to set up the date for the withdrawal only when you know you will have the funds in the account to cover the amount of the bill.
Online Banking – When selecting on-line banking that has no physical offices, make sure it is FDIC insured. Keep personal information secure and private. Passwords or PINs (personal identification numbers) should be used when accessing an account online. Make it unique to you and change it regularly.