Basic Banking Principles

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Basic Banking Principles - Harlem Children Society

Basic Banking

Principles

Participant Manual


Chase Financial Literacy Workshops

This workshop is one of a series of different

consumer-related financial education workshops

developed and sponsored by Chase. Workshops

being offered as part of Chase’s financial

education curriculum include:

Basic Banking Principles

– Personal Financial Management

– Credit and Debt Management

– Understanding the Mortgage Process

We would also like to acknowledge that portions of the material

covered in this workbook were replicated with permission from

“Money Smart,” an adult education program developed and

published by the FDIC.


Basic Banking Principles 3

Table of Contents

Why use a Bank…………………………………3

How to use a Bank……………………….……11

Additional Information…………………………33

Note that certain terms that are used in this workbook are highlighted

the first time they appear and can be looked up in the glossary for easy

reference.


Basic Banking Principles


Basic Banking Principles 5

Why use a Bank


6

Why use a Bank?

Why use a Bank?

• What are some reasons people have for NOT

using a bank?

Notes/Comments

• ____________________________________

• ____________________________________

• ____________________________________

• ____________________________________

• ____________________________________


Why use a Bank? 7

Banks take in your Deposits

and provide you with:

• Safety

• Convenience

Notes/Comments

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8

Why use a Bank?

Why use a Bank? - cont.

Banks protect your deposits with Federal

Deposit Insurance Corporation (FDIC)

Insurance:

• The basic insured amount of a depositor is

$100,000.

• Deposits maintained in different categories of

legal ownership are separately insured. So,

you can have more than $100,000 deposit

insurance in single institution.

Notes/Comments

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Why use a Bank? 9

Banks allow you to transfer money from one

place to another through:

• Checks

• Telephone

• Capital

• Automated Teller Machine (ATM)

• Computer

Notes/Comments

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10

Why use a Bank?

Why use a Bank? - cont.

Banks provide a safe and convenient way of receiving

your paycheck through Direct Deposit.

Benefits:

• Safety

• Speed

• Ease

• Reliability

Notes/Comments

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Why use a Bank? 11

Banks also provide you with:

• Interest (depending upon the type of account)

• Regular Statements

Banking History

Notes/Comments

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12

Why use a Bank?

Why use a Bank? - cont.

Banks provide you with Credit.

• Credit or loans help people pay for cars, houses,

furniture, education, business needs, etc.

• Borrowers (those that need money) pay interest to

borrow money.

Notes/Comments

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Basic Banking Principles 13

How to use a Bank


14

Credit and Debt Management

Demand Deposit Accounts

(Checking Accounts)

Checking accounts established with a

financial institution, such as a bank, credit

union or brokerage firm, give you the ability

to:

• Write checks to pay bills or obtain cash.

• Withdraw money by check or Automated Teller

Machine (ATM) or in person at the financial

institution where you have your account.

• Have your government or payroll check

deposited sooner by way of “direct deposit”.

• Maintain a record of payments with your check

register, monthly statement and cancelled

checks.

• Bank by telephone or computer day or night.

• Earn interest, depending on the type of

checking account.


How to use a Bank 15

Basic Banking Account

Banks often offer some type of “Basic

Banking” or “Lifeline” checking account for

customers with limited funds or limited

transaction needs.

• Terms will vary slightly from bank to bank

• Make sure you SHOP AROUND

Notes/Comments

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16

How to use a Bank

Finding the right checking

account

You might want to ask yourself the following

questions when shopping around for a

checking account:

• Is there a minimum balance required to open

the account?

• Do I have to maintain a minimum balance to

avoid paying a service charge?

• Is there a monthly service fee?

• Is there a per check fee?

• Is there a per transaction fee?

• What are the ATM fees?

• Does the account pay interest?

• Does the bank charge for overdraft protection?

• Is this account protected by Federal Deposit

Insurance Corporation (FDIC) insurance?


How to use a Bank 17

Savings Accounts

Savings accounts are usually accounts that

pay a certain amount of interest and allow

you to:

• Save money for a specific financial goal (e.g.

car, house, education)

• Earn interest on the money in your account

• Withdraw money at the ATM Machines

• Receive your government or payroll checks

through “direct deposit”

• Transfer funds (“Funds Transfer”) to or from

your checking account

• Bank by telephone day or night

• Track your funds via passbook or statement

Notes/Comments

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18

How to use a Bank

Individual Development

Accounts

What is an Individual Development Account

(IDA)?

• A special savings account that matches the funds saved in

the account in order to encourage families with incomes

below a certain amount to save money on a regular basis.

Who provides the matching funds?

• Organizations such as foundations, corporations or

government entities agree to provide matching funds.

What can I use IDAs for?

• Job training, college education, small business start-up,

or down payment for a home.

How do I find out more about IDAs?

• Contact your local community action agencies, other

community groups, community development financial

institutions (CDFIs), credit unions, or bankers to see if they

know of any programs in the area.


How to use a Bank 19

Opening Accounts

To open a bank account requires:

• Photo ID with signature

• Secondary ID with signature

• Social Security (or taxpayer ID) number

• Proof of address

• Signature card and application

Notes/Comments

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20

How to use a Bank

How to make a deposit

Fill out a deposit slip:

• In this section, check whether this is a checking or savings

account deposit. If you are using pre-encoded deposit slips,

you do not need to fill this information in.

• Indicate the date you will be making the deposit.

• Print your name as it appears on your account in this section.

• If you are depositing cash, indicate the amount of cash you

will be depositing in this section.

• If you are depositing checks, indicate the amount of each

check you will be depositing in this section.

• Add the total of all deposits and place the amount in this

section. This is the amount that will be deposited into your

account.

• If you are not using pre-encoded deposit slips, fill in your

account number in this section. Otherwise, you do not need

to fill this information in.


How to use a Bank 21

If depositing checks to your

account, on the back of each

check:

• Endorse the check by signing your name in ink

on the back.

• Write “for deposit only” plus the account

number on the back.

Tip:

• Use the pre-encoded or pre-printed deposit

slips that you received when you opened your

account to help minimize any possible errors.

Notes/Comments

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22

How to use a Bank

How to write a check

Every time you write a check, fill in this

information:

• Calendar date when issuing the check

• Name of the person or business to whom the

check is to be given. This is known as the

“payee”.

• Check amount in numbers

• Check amount in words

• Indicate what the check payment is for.

• Your signature


How to use a Bank 23

With a checking account (also called a

demand deposit account), the bank will pay

money out of the account to anyone the

depositor chooses. Usually this occurs when

the depositor writes a check.

The information you will need to write the

check is:

• The date

• The person, company, or store who gets the

money

• The amount of money to be paid

Notes/Comments

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24

How to use a Bank

How to write a check - cont.

Check writing tips:

• Write your checks clearly and always in ink, never in pencil.

• Never sign blank checks.

• If you make a mistake on a check, do not try to erase it. Just

write “void” in the check register and tear up the check.

• When making payments by check, include the account number

of the company whose bill your are paying in the memo

section to help insure proper processing.

Notes/Comments

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How to use a Bank 25

Check writing exercise

Directions: This check belongs to you. Write

a check to Marty Simmons for $545.50 for

this month’s rent check.

• Date: Write the month, date and year

(example: March 5, 2005).

• Pay to the order of: Write “Marty Simmons.”

• Amount: Write “$545.50.”

• Dollars: Write “Five hundred forty five and

50/100.”

• Memo: Write “March rent.”

• Signature: Sign your full name (example:

John Smith).


26

How to use a Bank

How to manage your

checking account

When you open your checking account, the

bank gives you an organizer or check

register to help you track the activity in your

account.

Write down in your register whenever you:

• Deposit money into the checking account.

• Write a check.

• Use your ATM/Debit card.

• Receive interest from the bank on the money in your account.

• Deduct a fee that the bank charges.

• Withdraw money from your account (“withdrawal transaction”).

• Request a wire transfer from your account to another account

(including any applicable fees).


How to use a Bank 27

Check Register Sample

The check register will help you to track how

much money is going in and out of your

account.

• Check Number

• Date

• Description of Transaction

• Payment/Debit Amount

• Deposit/Credit

• Balance


Checkbook Register Exercise

Directions: Enter the check to Marty

simmons for $545.50 in the checkbook

register and calculate the new balance.

• Date: Write the month, day and year the check was

written.

• Description: Write “Rent check to Marty Simmons.”

• Payment: Write “$545.50”.

• Balance: Calculate the balance:

$1,140.32 - $545.50 = $594.82


How to use a Bank 29

Automated Teller Machine

(ATM)

ATMs offer a convenient way to perform

bank transactions such as withdrawals,

deposits, transfers, payments or balance

inquiries.

• You will need a bank-issued ATM or debit card and a

Personal Identification Number (PIN) to use the ATM

machines.

• Your accounts can be accessed from an ATM anywhere

in the world, provided that the ATM and your bank are

members of the same world-wide networks.

Notes/Comments

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ATM/Debit Cards

An ATM card provides access to depositor’s

money. It is another way to withdraw money

from an account.

• Many ATM cards also function as debit cards.

ATM/Debit card features:

• Widely accepted at ATMs, grocery and department

stores.

• Requires a confidential Personal Identification Number

(PIN).

• Can provide “cash back” when making purchases with a

debit card.

Notes/Comments

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How to use a Bank 31

More on ATMs

ATM usage tips:

• Limit ATM use to those machines that are in enclosed

locations with adequate lighting.

• If possible, visit ATMs with a group of friends or use the

machine at a popular time.

• Sign the back of your ATM card as soon as you receive

it.

• Memorize your PIN number and do not give it to anyone.

Do not write your PIN number on your card or keep the

number in your wallet.

• Be aware of people around the ATM area. Do not let

anyone watch you enter your PIN number.

• Put your money away safely before exiting the ATM

area.

Notes/Comments

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Basic Banking Principles


Basic Banking Principles 33

Additional

Information

Resources &

Glossary of Terms

Evaluation Form


34

Basic Banking Principles

Resources

General Contact Information:

For more information regarding the opening of bank accounts or

type of bank accounts available, visit your nearest bank branch

and speak with a customer service manager or branch manager.

To locate the nearest Chase branch or to find out more specific

information regarding Chase products and services, call:

1-800-Chase24.

Additional Resources:

General Basic Banking Information:

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue, NW

Washington, DC 20551 Phone: (202) 872-7565

www.FederalReserveEducation.org

New York State Banking Department

www.banking.state.ny.us


Basic Banking Principles 35

Individual Development Accounts (IDAs):

www.idanetwork.org

Direct Deposit Information:

Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 20220 Phone: (202) 622-1260

Fax: (202) 622-6415

On-Line Banking Information for Youth:

www.jumpstart.org


36

Basic Banking Principles

Glossary of Terms

• Annual Percentage Yield (APY) - The amount of interest the

customer will earn on a yearly basis expressed as a

percentage. The APY includes the effects of compounding.

The more the customer’s money compounds, the higher the

APY, and the more interest the customer will receive.

• ATM – Automated Teller Machine. An electronic terminal that

allows the customer to conduct financial transactions such as

withdrawing cash, depositing checks or cash, or paying bills.

• Balance – Amount of money remaining in the customer’s

account after taking into account all transactions.

• Bank – A federally regulated financial institution that engages in

the business of taking deposits, lending and providing other

financial services.

Basic Banking Account – see “Lifeline Accounts.”

• Certificate of Deposit (CD) – Type of interest bearing deposit

that requires a minimum dollar amount to open the account and

requires that the deposit remain with the bank for a fixed time

period.

• Check - a written authorization to transfer funds from one party

to another.

• Check Register – an organizer where the customer records the

activity in his or her checking account (transactions,

withdrawals, automatic payments, direct deposit, balance

inquiries, etc).

• Checking Account – Also known as “Demand Deposit”

Account. A type of deposit account that allows the customer to

write checks to make payments or obtain cash.


Basic Banking Principles 37

• Compound Interest - When interest is compounded, the

customer earns money on the interest that he or she earns

and leave in the account. Interest can be compounded daily,

monthly, or annually.

• Credit - An arrangement to receive cash, goods, or services

now and pay for them later. Usually referred to as a loan.

• Credit Card – A revolving line of credit that allows the customer

to make an unlimited number of purchases, up to a preapproved

dollar limit. The customer can continue to “revolve”

that line of credit or draw down on it repeatedly as long as he

or she continues to make minimum payments on that bill each

month and as long as he or she does not exceed his or her

credit limit.

• Credit Rating – A rating created by consumer credit agencies

that evaluates a person’s credit history and gives it a score.

The higher the score, the better the credit history.

• Credit Union – a co-operative financial institution that is owned

by its members and operates for their benefit.

• Debit – Payment from the customer’s account to another party.

Amount taken out of the customer’s account.

• Debit Card – A plastic card that allows the customer to

electronically access his or her bank accounts from ATMs or

retailers that offer debit payment services.

• Debt - Money owed; also known as a liability.

• Demand Deposit Account - see “Checking Account”.


38

Basic Banking Principles

Glossary of Terms - cont.

• Deposit – Money in the form of cash, a check or an electronic

transaction that is put into an account at a financial institution,

such as a bank.

• Deposit Account – An account in which money is deposited,

including checking and savings accounts.

• Deposit Insurance – insurance that is provided up to a certain

amount to protect a customer’s deposits if the financial

institution fails.

• Direct Deposit- an automatic deposit of wages or benefits

(such as payroll payments) into a consumer's bank account.

• Electronic Funds Transfer (EFT) - the movement of funds

without paper through a payment system.

• Electronic Transfer Account (ETA) - a low-cost account

which is made available by participating Federally insured

financial institutions to individuals who receive Federal benefit,

wage, salary, or retirement payments.

• Federal Deposit Insurance Corporation – Agency of the

federal government that insures accounts at most commercial

banks and mutual savings banks.

• Funds Transfer -the internal movement of funds between

accounts. Also called wire transfer.

• Individual Development Account (IDA)- A special savings

account that matches the funds saved in the account in order

to encourage families with incomes below a certain amount to

save money on a regular basis.

• Interest – The cost of borrowing money, or the price the lender

charges the borrower for the use of the lender’s money.


Basic Banking Principles 39

Interest is also paid on deposits because they are, in effect,

loans to the bank.

•Interest Rate – Rate charged or paid for the use of money

(usually expressed as a percentage).

•Lifeline Accounts - (also known as Basic or Low-Cost Bank

Accounts) Low-cost deposit accounts available to customers

with minimal transaction needs. Offering this type of account is

required by law in some states.

•Loan - A sum of money lent to someone and paid back with

interest.

•Overdraft – Overdrafts occur when customers write checks for

more than the balance that exists in their checking accounts.

The bank may refuse to pay and the check “bounces.”

•Personal Identification Number (PIN) - Confidential number

that the customer uses to access his or her deposits when

using the ATM or Debit card.

•Retail Branch – A location where banking services are provided

to consumers.

•Savings Account – Type of deposit account that pays interest

on the customer’s deposits.

•Statement - A record by the bank for a customer that lists all

transactions for a defined period.

•Transaction – Activity in the customer’s account, including

withdrawals, deposits, payments, and funds transfers.

•Wire Transfer - See “Funds Transfer”.

•Withdrawal Transaction – Any activity that involves taking

money out of the customer’s account, resulting in a lower

balance in the account. Writing a check and taking money from

an ATM are both considered withdrawal transactions.

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