When you go to open a checking account at a financial institution, most will review your history of using checking accounts. Some financial institutions will run full credit report.
If you have a history of bouncing checks or misusing your accounts, a financial institution might not allow you to open a checking account. If you do not have a history of using a bank account or credit, don’t worry. If you have proper documentation, a financial institution will welcome doing business with new customers.
According to the FDIC, the financial institution will need your photo identification to open an account. This is usually a driver’s license and either a Social Security number or Taxpayer ID number. If you do not have a driver’s license, you can use a state-issued identity card, passport, or permanent resident card.
After the financial institution determines that you are eligible to open an account, you can deposit money into your new account and begin to use it.
Advantages to Using A Financial Institution
You can begin saving money, even if it is only a small amount. Some check cashing businesses charge extremely high fees to use their services. Try saving enough money to equal the check cashing fee. Use the funds to open a savings account at a financial institution. Every time you cash a check, deposit the money you would have paid to the check cashing company into your new savings account.
You can establish, build, and improve your credit. To get a mortgage or other type of loan, such as a car or student loan, it is generally a good idea to have established an account with a financial institution (through you may be able to obtain a mortgage without one.) When you have a bank account, lenders know that you have established a financial record and can demonstrate the responsible use of your accounts.
You can avoid becoming the victim of cash advances scams by unscrupulous companies. For example, some check cashing businesses now offer their own types of loans- small, short-term loans that carry extremely high interest rates. Payday loans are so expensive that some states have prohibited these types of loans.
You can take advantage of special programs offered y financial institutions that have recently begun offering low-fee checking account options. Be sure to ask about these special programs.
Your personal safety is better ensured. When you leave the doors of a check cashing company, you risk being the victim of a crime because of the large amount of cash you may be carrying out the store. When you exit from a financial institution, you take only safeguard in your bank account.
Financial institutions provide other services, such as wire transfers and cashing paychecks. Typically financial institutions offer these and other services at lower costs than check cashing businesses.
You can establish, build, and improve your credit. To get a mortgage or other type of loan, such as a car or student loan, it is generally a good idea to have established an account with a financial institution (through you may be able to obtain a mortgage without one.) When you have a bank account, lenders know that you have established a financial record and can demonstrate the responsible use of your accounts.
You can avoid becoming the victim of cash advances scams by unscrupulous companies. For example, some check cashing businesses now offer their own types of loans- small, short-term loans that carry extremely high interest rates. Payday loans are so expensive that some states have prohibited these types of loans.
You can take advantage of special programs offered y financial institutions that have recently begun offering low-fee checking account options. Be sure to ask about these special programs.
Your personal safety is better ensured. When you leave the doors of a check cashing company, you risk being the victim of a crime because of the large amount of cash you may be carrying out the store. When you exit from a financial institution, you take only safeguard in your bank account.
Financial institutions provide other services, such as wire transfers and cashing paychecks. Typically financial institutions offer these and other services at lower costs than check cashing businesses.
The Costs of Not Having a Banking Relationship
While most people have established a banking relationship with a financial institution, some people use check cashing business instead. People who use check cashing business often do so for their ability in and around the neighborhoods in which they live.
However, there are many advantages to using a financial institution rather than a check cashing company. First and foremost, it is generally much less expensive to use a deposit account at a financial institution than the services that a check cashing company provides.
For example, Joseph uses a check cashing company to cash his checks. He cashes for checks a month and is charged $5 each time. That means he pays $20 a month (4*$5) or $240 a year ($20*12 months) just to cash his checks. He cannot write checks to pay his rent and utilities since he does not have a checking account at a local financial institution.
Some financial institutions have branch offices around your community. In addition, some financial institutions operate Automated Teller Machine (ATMs) in convenient locations, including grocery stores, shopping malls, movie theaters, and in kiosks on neighborhood streets. ATMs are available 24-hours-a-day; seven-days-a-week.
Example: Antonee cashes his checks by using an account at a financial institution that charges a monthly fee of $5, which includes 8 free checks per month and free use of the ATM. (We’ll talk more about ATM usage and fees in a few.) Additionally, ordering a box of 100 checks costs him about $18, since he purchases his checks through the financial institution. In this case, using a checking account for one year cost Antonee $78 ($5*12 months= $60 + $18= $78). This equals a savings of $162 a year ($240-$78).
However, there are many advantages to using a financial institution rather than a check cashing company. First and foremost, it is generally much less expensive to use a deposit account at a financial institution than the services that a check cashing company provides.
For example, Joseph uses a check cashing company to cash his checks. He cashes for checks a month and is charged $5 each time. That means he pays $20 a month (4*$5) or $240 a year ($20*12 months) just to cash his checks. He cannot write checks to pay his rent and utilities since he does not have a checking account at a local financial institution.
Some financial institutions have branch offices around your community. In addition, some financial institutions operate Automated Teller Machine (ATMs) in convenient locations, including grocery stores, shopping malls, movie theaters, and in kiosks on neighborhood streets. ATMs are available 24-hours-a-day; seven-days-a-week.
Example: Antonee cashes his checks by using an account at a financial institution that charges a monthly fee of $5, which includes 8 free checks per month and free use of the ATM. (We’ll talk more about ATM usage and fees in a few.) Additionally, ordering a box of 100 checks costs him about $18, since he purchases his checks through the financial institution. In this case, using a checking account for one year cost Antonee $78 ($5*12 months= $60 + $18= $78). This equals a savings of $162 a year ($240-$78).
Keep Your Money in a Financial Institution
A financial institution, such as a bank, thrift, or credit union, is a business that offers you a safe place to keep your money and uses it to make more money. Financial institutions offer different services for keeping your at their business.
Reasons Why You Should Keep Your Money in a Financial Institution
Safety: Money is safe from theft, loss, and fires.
Convenience: You can get money quickly and easily.
Cost: Using a financial institution is usually less expensive than using other business, such as check cashing business, to cash your check. Also, a check account allows you to write checks rather than pay for money orders.
Security: Most financial institution are insured. This means that if for some reason the financial institutions closes and cannot give its customers their money, the insuring organization, like the federal Deposit Insurance Corporation (FDIC), will return the money to the customer. The FDIC will only insure deposit up to $100,000 per account.
Financial Future: Building a relation with a financial institution will allow you to write checks so that you can demonstrate a record of paying bills, save money, and get a loan or mortgage. (However, you may be able to obtain a mortgage without having established a banking relationship, but you must keep accurate records and receipts of paying your rent and other bills.) In addition, having a bank account will help you establish and manage good credit. For example, if you opt to receive overdraft protection on your account- a feature that automatically advances funds into your account to cover items that would cause a check to bounce- you’ll receive a positive tradeline for your credit report. As part of credit report terminology, a tradeline is any credit account you might have, such as a loan, credit card, or mortgage.
Reasons Why You Should Keep Your Money in a Financial Institution
Safety: Money is safe from theft, loss, and fires.
Convenience: You can get money quickly and easily.
Cost: Using a financial institution is usually less expensive than using other business, such as check cashing business, to cash your check. Also, a check account allows you to write checks rather than pay for money orders.
Security: Most financial institution are insured. This means that if for some reason the financial institutions closes and cannot give its customers their money, the insuring organization, like the federal Deposit Insurance Corporation (FDIC), will return the money to the customer. The FDIC will only insure deposit up to $100,000 per account.
Financial Future: Building a relation with a financial institution will allow you to write checks so that you can demonstrate a record of paying bills, save money, and get a loan or mortgage. (However, you may be able to obtain a mortgage without having established a banking relationship, but you must keep accurate records and receipts of paying your rent and other bills.) In addition, having a bank account will help you establish and manage good credit. For example, if you opt to receive overdraft protection on your account- a feature that automatically advances funds into your account to cover items that would cause a check to bounce- you’ll receive a positive tradeline for your credit report. As part of credit report terminology, a tradeline is any credit account you might have, such as a loan, credit card, or mortgage.
Tour of a Financial Institution
Banking services in a financial institution are generally automated. As a result, when you walk into a financial institution, you may not have an opportunity to get to know the people who work there and they may not be familiar with you.
It’s important not to be intimidated by this lack of familiarity. The people who work at the financial institution want to do business with you and are dedicated to helping you with your bank needs. Some financial institutions even employ bilingual staff to assist you if you speak another language. Because banking services are automated, a banking professional can quickly provide and review your information by computer.
Understanding the jobs of the people working in a financial institution will help you to know whom you should talk to when you go to the financial institution.
Security Guard-Is stationed in the lobby or at the front door of the financial institution to protect the vault, money, and other valuables from theft.-Protect the employees who work there and its customers from someone intending to commit a crime.
Teller-Stands behind the counter and takes money.- Answers questions.-Cashes checks.-Refers you to the person who can help you with more specialized services.
Customer Service Representative-Is seated at a desk in the lobby and helps you open your account.-Explains services.-Answers general questions.-Refers you to a person who can help you with more specific services.-Provides written information explaining the bank products.
Loan Officer-Takes applications for loans offered at the financial institution.-Answer questions.-Provides written information explaining loan products.-Helps you fill out loan application.Branch
Manager-Supervises the operations of the financial institution.-Help fix problems that cannot be solved by other employees and is the person you ask for if you have a concern.-Holds the ultimate authority for running the branch office.
It’s important not to be intimidated by this lack of familiarity. The people who work at the financial institution want to do business with you and are dedicated to helping you with your bank needs. Some financial institutions even employ bilingual staff to assist you if you speak another language. Because banking services are automated, a banking professional can quickly provide and review your information by computer.
Understanding the jobs of the people working in a financial institution will help you to know whom you should talk to when you go to the financial institution.
Security Guard-Is stationed in the lobby or at the front door of the financial institution to protect the vault, money, and other valuables from theft.-Protect the employees who work there and its customers from someone intending to commit a crime.
Teller-Stands behind the counter and takes money.- Answers questions.-Cashes checks.-Refers you to the person who can help you with more specialized services.
Customer Service Representative-Is seated at a desk in the lobby and helps you open your account.-Explains services.-Answers general questions.-Refers you to a person who can help you with more specific services.-Provides written information explaining the bank products.
Loan Officer-Takes applications for loans offered at the financial institution.-Answer questions.-Provides written information explaining loan products.-Helps you fill out loan application.Branch
Manager-Supervises the operations of the financial institution.-Help fix problems that cannot be solved by other employees and is the person you ask for if you have a concern.-Holds the ultimate authority for running the branch office.
Types of Financial Institutions
Types of Financial Institutions:
Bank: A financial institution that is run under federal and state laws and regulations. Banks make loans, cash checks, accept deposits, and provide other financial services.
Credit Union: A federally regulated cooperative financial institution that is owned and controlled by the people who use its services. Credit unions serve groups that share something in common, such as where they work, live, or go to church. Credit unions are not-for-profit, and exist to provide a safe, convenient place for member of the credit union to keep your money there.
Thrift: A federally regulated savings bank or savings and loan association that is similar to a bank. Thrifts were created to promote homeownership and must have a must have a majority of their assets in housing-related loans. While banks offer a wide array of services, a thrift’s main business is to make home loans.
Bank: A financial institution that is run under federal and state laws and regulations. Banks make loans, cash checks, accept deposits, and provide other financial services.
Credit Union: A federally regulated cooperative financial institution that is owned and controlled by the people who use its services. Credit unions serve groups that share something in common, such as where they work, live, or go to church. Credit unions are not-for-profit, and exist to provide a safe, convenient place for member of the credit union to keep your money there.
Thrift: A federally regulated savings bank or savings and loan association that is similar to a bank. Thrifts were created to promote homeownership and must have a must have a majority of their assets in housing-related loans. While banks offer a wide array of services, a thrift’s main business is to make home loans.
Set Goals for Your Future
Take a minute and think about what you want in life.
What are your goals? (Each person should make a list.)
Are any of these items free? Maybe some of them… happiness, companionship, friendship, etc.
However, in order to reach certain goals, we need to plan for them and in most cases; we need to figure out a way to pay for them.
Using the list of goals that you have written down, think about the tips listed above.
Are your goals stated positively? Did you think about time frames? Are your goals short, medium, or long term?
What are your goals? (Each person should make a list.)
Are any of these items free? Maybe some of them… happiness, companionship, friendship, etc.
However, in order to reach certain goals, we need to plan for them and in most cases; we need to figure out a way to pay for them.
Using the list of goals that you have written down, think about the tips listed above.
Are your goals stated positively? Did you think about time frames? Are your goals short, medium, or long term?
- Short-term goals = within 1 year
- Medium-term goals = between 1-5 years
- Long-term goals = over 5 years
When was the last time that you accomplished a task or achieved something that you thought would never happen? It made you feel good, didn’t it? The same is true of goals and goal setting.
When doing this, think about time frames or target dates and assign each goal and achievement date.
Prioritize your goals, number each of them (1,2,3, etc.) with number one being the goal that is most important to you.
Most of all, be realistic! Don’t set yourself up for failure. And remember, you are not a bad person for not reaching some of your goals. Be flexible.
Always be prepared to re-examine your goals.
Your goals and priorities will change over time.
Credit Counseling
Certified credit counselors can provide you with free or low-cost, confidential assistance in getting financially back on track. Additionally, they can oftentimes intervene with your creditors and help you negotiate and set up repayment plans to help maintain or work to restore your current and future credit opportunities.
Never fall prey to the “quick fix” promises of the “credit repair” companies. Most of these types of business will charge you excessive fees and may cause even more damage to your credit history.
When in doubt, contact the Better Business Bureau or the Attorney General’s office. Your credit is very important to you and your future, so don’t take risk on a credit repair company.
Never fall prey to the “quick fix” promises of the “credit repair” companies. Most of these types of business will charge you excessive fees and may cause even more damage to your credit history.
When in doubt, contact the Better Business Bureau or the Attorney General’s office. Your credit is very important to you and your future, so don’t take risk on a credit repair company.
Read and Understand the “Fine Print” of Credit Offers
While on the surface these offers sound like incredible deals, the fact is that we need to look closely at the fine print.
A recent holiday sale ad for a national electronics store stated that if you purchase today, you would pay nothing (zero interest and zero payments) for six months.
The fine print reads as follows:
“Offer is subject to credit approval. No finance charges assessed and no monthly payments required on promotional purchase amount if you pay this amount if you pay this amount in full by the stated payment due date as shown on your (6th) monthly billing statement after the purchase date. If you do not, finance charges will be assessed on promotional purchase amount from purchase date and minimum monthly payments will be required on the balance of the amount. If minimum monthly payments on any other balances on your account are not paid when due, all special promotional terms may be terminated. Standard account terms apply to promotional balances and after promotion ends to promotional purchases. Variable APR is 23.48% as of 10/1/02. Fixed APR of 24.75% applies if payment is more than 30 days late.”
In other words, if you do not pay the purchase balance in full by the time you receive your sixth month billing statement, you will pay 23.48% interest for the full amount back to the date of purchase and until your account is paid in full. In addition, if you make one late payment on your account, the financing company has the right to impose the higher rate of 24.75% on your account whether you reach the sixth month or not.
A recent holiday sale ad for a national electronics store stated that if you purchase today, you would pay nothing (zero interest and zero payments) for six months.
The fine print reads as follows:
“Offer is subject to credit approval. No finance charges assessed and no monthly payments required on promotional purchase amount if you pay this amount if you pay this amount in full by the stated payment due date as shown on your (6th) monthly billing statement after the purchase date. If you do not, finance charges will be assessed on promotional purchase amount from purchase date and minimum monthly payments will be required on the balance of the amount. If minimum monthly payments on any other balances on your account are not paid when due, all special promotional terms may be terminated. Standard account terms apply to promotional balances and after promotion ends to promotional purchases. Variable APR is 23.48% as of 10/1/02. Fixed APR of 24.75% applies if payment is more than 30 days late.”
In other words, if you do not pay the purchase balance in full by the time you receive your sixth month billing statement, you will pay 23.48% interest for the full amount back to the date of purchase and until your account is paid in full. In addition, if you make one late payment on your account, the financing company has the right to impose the higher rate of 24.75% on your account whether you reach the sixth month or not.
Credit Cards versus Debit Cards
A WORD OF CAUTION:
Debit cards are very convenient. The cards, however, can be used with or without a secret code (Personal Identification Number or PIN) in gas stations, grocery stores, restaurants, or even over the phone, just like a credit card.
Because of this, debit cards owners must be extra cautions to avoid card theft and/or fraud.
Cards that can be used without a PIN are referred to as “off-line” transaction. Therefore, a thief who has a copy of a debit card restaurant receipt, for example, can drain your checking account, even if your card itself or PIN hasn’t been stolen. To make matters worse, under the law, your liability may be higher for debit card fraud than for credit card fraud.
Therefore, if using a debit card, be very careful to protect your card, account number, abd copies of your purchase receipts.
Debit cards are very convenient. The cards, however, can be used with or without a secret code (Personal Identification Number or PIN) in gas stations, grocery stores, restaurants, or even over the phone, just like a credit card.
Because of this, debit cards owners must be extra cautions to avoid card theft and/or fraud.
Cards that can be used without a PIN are referred to as “off-line” transaction. Therefore, a thief who has a copy of a debit card restaurant receipt, for example, can drain your checking account, even if your card itself or PIN hasn’t been stolen. To make matters worse, under the law, your liability may be higher for debit card fraud than for credit card fraud.
Therefore, if using a debit card, be very careful to protect your card, account number, abd copies of your purchase receipts.
Everything Is a Trade-Off
Most people really do not understand the true cost of credit, particularly the true cost of credit cards given an interest rate of 12% to 22%.
Below the “minimum monthly payment” listed on a credit card bill is structured to keep the monthly payment “affordable.” However, that low month payment is not without a price- a huge price. So, if you use credit cards, and if you cannot pay off the card in full each month, make it a priority to ALWAYS pay more than the minimum due.
To further illustrate the importance of paying more than the minimum due, you may wish to use some of the following calculations:
According to an amortization* table, given a $2,000 fixed (no additional charges) credit card balance with 17% interest rate, if a consumer pays:
Below the “minimum monthly payment” listed on a credit card bill is structured to keep the monthly payment “affordable.” However, that low month payment is not without a price- a huge price. So, if you use credit cards, and if you cannot pay off the card in full each month, make it a priority to ALWAYS pay more than the minimum due.
To further illustrate the importance of paying more than the minimum due, you may wish to use some of the following calculations:
According to an amortization* table, given a $2,000 fixed (no additional charges) credit card balance with 17% interest rate, if a consumer pays:
- $28.37 per month; it will take 40 years to pay off the loan
- $28.52 per month; it will take 30 years to pay off the loan
- $29.34 per month; it will take 20 years to pay off the loan
- $34.76 per month; it will take 10 years to pay off the loan
- $49.71 per month; it will take 5 years to pay off the loan
- $71.31 per month; it will take 3 years to pay off the loan
- $182.41 per month; it will take 1 years to pay off the loan
*Amortization is the term used to describe the process of paying off a loan over a predetermined period of time at a specific interest rate. The amortization of a loan includes, during each payment cycle, a payment of interest and of a portion of the outstanding principal balance.
Additional Tips for saving Money
The tips listed below are a little different than the tips listed on the previous blog, while they do not put “cash in the bank,” they help you keep it there.
When working with your spending plan and keeping expenses down, try to keep these tips in mind.
Another way of potentially saving money on interest and fees may be comparison shop among various lenders in the following manner:
First, obtain a copy of your credit report (and credit score if possible). (We’ll talk more about credit reports and credit scores in the next few weeks.) Next, go to a lender and say, “Don’t pull my credit report right now. I want you to look at what I have pulled and assuming that it is correct, what is the best rate that you can offer me? If I am interested in what you have to offer, you may pull my credit report to verify that there has been no change and confirm what I have shown you.”
When working with your spending plan and keeping expenses down, try to keep these tips in mind.
- Before purchasing, always research the cost of major items. For example, research and compare the cost of cars, car insurance and home or renter’s insurance. (Be sure to check for insurance premium discounts for adding safety features to your car or home.)
- Read newspapers and circulars for sales in grocery stores. Use coupons and discounts.
- Utilize outlet stores, shops off-season and buy clothes that will endure.
- Become an informed buyer. Which grocery store has the best prices? Where are the specials this week?
- Buyers’ clubs and/or warehouses may help you stretch your dollars.
- Don’t buy more than you need.
Another way of potentially saving money on interest and fees may be comparison shop among various lenders in the following manner:
First, obtain a copy of your credit report (and credit score if possible). (We’ll talk more about credit reports and credit scores in the next few weeks.) Next, go to a lender and say, “Don’t pull my credit report right now. I want you to look at what I have pulled and assuming that it is correct, what is the best rate that you can offer me? If I am interested in what you have to offer, you may pull my credit report to verify that there has been no change and confirm what I have shown you.”
Tips for Saving Money
You might be thinking that you just cannot save any money. You may have credit card bills, rent or a house payment, school loans, a car payment, etc., and there is just nothing left over.
Before you write it off, think about which of the tips offered on this slide might work for you.
Before you write it off, think about which of the tips offered on this slide might work for you.
- Pay yourself first.
- Use payroll deductions.
- Save windfall income (i.e. Christmas bonus).
- Collect loose change and deposit it in the bank.
- Try frugality.
- Break a habit.
- Save lunch money.
- Save sale money.
- Have a “buy nothing week.”
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