Economics and Personal Finance/Banking

Banking Institutions

Examples of several banking transactions are Wells Fargo, South State and Capital One. A financial institution consists of a bank (for profit), credit union (non-profit; member-owned cooperatives by region, profession, etc.), insurance companies, lending companies (school loans and home mortgages), payday loans, check cashing and online banks. It is essential that you open up a bank or credit union account.

The benefits of opening up a bank/credit union account:

• Your money is safe.
• Your money is insured by the FDIC (federal deposit insurance corporation). The FDIC insures your deposits for up to $250,000.
• You receive interest on savings.
• You show that you're responsible with your money, which is needed for credit--for loans.

Credit Unions

Pros

• Smaller fees
• Better customer service
• Fewer restrictions
• It's insured: NUSIF
• Easier to get a loan
• Higher savings rate
• Lower loan rates

Cons

• Fewer "bells and whistles"
• Fewer branches
• Fewer ATMs
• Fewer online services
• Membership fees
• Not all are insured, unlike banks.

Non-banking institutions

Examples of non-banking institutions are payday loaning companies and check-cashing companies. It is recommended that you DO NOT use a non-banking institution as they are intended to prey upon struggling people. You get short-term loans, high interest (sometimes $100+), high fees and most likely you will end up in even worse debt.

Checks

Checks should be used since you can use them when you don't have cash on you (convenient), some small businesses don't accept debit/credit cards and helps you stay within your spending limits (they come with check registers or duplicate checks to help keep better track of your spending). You need checks to pay individuals, as well.

Vocabulary

• Reconciliation - Verifying that bank records (monthly statement) are the same as your records (check register).
• "Bounced" check - A check that's been returned because you didn't have enough funds.

Debit Cards vs. Credit Cards

Debit Cards

• Also called check cards or ATM cards
• Buy now, pay now
• Used instead of check or cash
• Funds withdrawn directly from your bank account

You'll need to enter a PIN whenever you use it.

Credit Cards

• Buy now, pay later--these are loans
• You're using a company's money, and every time you use it, you have to pay it back.
• Interest is added if you don't pay back your full balance.
• Lots of fees: Overlimit, late payment, annual.
• Offered incentives: Frequent flyer miles, cash back.
• Can put you in serious debt if you're not careful.

DO's and DONT'S

Do's

• Find a credit card that does not have annual fees and has a low annual percentage interest rate (APR).
• Pay on time
• Pay more than the minimum each month

Dont's

• Don't get too many
• Use them for cash advances
• Use them to pay for basics
• Charge more than you can pay off in a month
• Let banks increase your credit limit

Lost/Stolen Cards

Debit Cards

• If you report it within 2 business days, your max-loss is $50.
• If you report it more than 2 business days, your max-loss is $500.

Credit Cards

• If you report it before the card is used, you are not responsible for any charges.
• If you don't report it before the card is used, your liability tops at $50.

Solutions to Credit Card Debt

Enroll in a debt consolidation program

The credit card company will negotiate on your behalf for lower interest rates. All of your credit will be consolidated into one payment. You will not be allowed to use your cards again.

Bankruptcy

Bankruptcy is a legal process that relieves debtors of responsibility of paying your debts. Causes could be illness/injury, failure to plan/budget, small business failure, job loss, impulse/emotional spendings or economic downturn.

Signs that a consumer is getting into credit trouble:

• Inability to pay the bills
• Making minimum payments
• Using credit cards to pay off other credit card balances.
• Receiving collection agency calls.
• Having too many cards

In bankruptcy, you sell/liquidate your assets to pay your creditors (Chapter 7) or you keep property and pay debts over time, usually 3-5 years.

Consequences

• Credit is severely damaged.
• It's on your credit report for up to 10 years.
• Lose assets.
• Some debts continue
• May have problems getting new loans, credit cards, jobs.
• Embarrassing as it goes public.

Credit Scores

Credit scores, also called FICO scores (Fair Isaac Company).

Your score determines what your APR credit card rate will be, what your car insurance premium will be, whether or not you'll be a good employee and whether or not you'll be a reliable tenant. Your credit score is 35% payment history (late payments have the worst impact), 30% amounts owed (total balance vs. total available credit), 15% length of credit history (number of years you've used credit), 10% new credit (number of new accounts) and 10% types of credit (you should have a mix of revolving credit, credit cards, and installment credit, car and home).

How to Improve Your Score

• Pay all cards on time
• Pay all cards in full
• Pay any delinquent bills
• Lower your total card debt (your balances should be close to zero)
• Don't close unused cards
• Don't open up new cards to increase credit

How to Get Your Credit Report

Credit card scoring bureaus:

• Trans-Union
• Experian
• Equifax

Traditional Bank vs. On-line Banking

Traditional Bank (benefits)

• Familiar
• Privacy
• Availability of expert advice and consumer service
• Limited access
• More papers to file

On-line Banking

• Convenient
• 24-7 availability
• Ease updating transaction records
• Learning curve
• Concern about privacy/security
• Less personal service

Making a Deposit

• A deposit can be made with a bank teller or an ATM
• You can get cash back