introduc on to depository ins tu ons...2.2.1.f1

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© Take Charge Today – August 2013 – Introduc on to Depository Ins tu ons – Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Ins tute at The University of Arizona

Introduc on to Depository Ins tu ons

Advanced Level Millions of people use financial services offered by depository ins tu ons on a daily basis to help them manage their

money. Commercial banks, credit unions, and savings banks are all examples of depository ins tu ons. Many types of

companies offer financial services to consumers. But, depository ins tu ons are special in that they accept deposits from

consumers and the safety of those deposits is o en guaranteed by the government. The range of valuable services ed to

deposit accounts (online banking, checking accounts and debit cards, bill payment services, automa c savings transfers)

makes depository ins tu ons an important component to a financial plan.

Types of Depository Ins tu ons

Do you use a depository ins tu on? If so, what kind of depository ins tu on is it? If not, what features of a depository

ins tu on do you think would work best for you?

Commercial banks are for‐profit depository businesses that offer financial services to both consumers and other

businesses. Banks are usually the largest depository ins tu ons and offer the widest variety of services to customers.

Credit unions are depository ins tu ons that offer many banking services. But, unlike banks, they are owned by their

customers, who are usually called members. A credit union has membership qualifica ons that require its members share

a common bond such as the same employer, the geographic area in which they live or membership in an organiza on.

Credit unions are non‐profit organiza ons exempt from federal income tax. This feature o en allows them to pay higher

interest rates on deposits, charge lower interest rates on loans and charge lower fees, compared to banks and other

depository ins tu ons.

Commercial banks and credit unions are the most commonly used depository ins tu ons. Although both types of

ins tu ons offer a range of “banking” services, they are actually quite different in terms of their ownership structure

and the types of consumers they serve.

The physical loca on of a depository ins tu on may influence your choice. Here are some ques ons to consider when

choosing a depository ins tu on that best fits your financial needs:

Is the depository ins tu on accessible; does it have mul ple loca ons close to home, work and school?

Does the depository ins tu on have loca ons (branches) throughout the United States (something to consider if

you travel a lot or plan to move)?

What type of transporta on is required to access a branch if it isn’t within walking distance?

If you are considering a depository ins tu on whose services are offered only online, will that type of access meet

your financial needs?

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Deposit Insurance

One of the most important services that a depository ins tu on offers is a safe and secure place to deposit your money

for future use. Stashing your money away in what you might consider a “safe” loca on within your home or having large

sums of cash in your wallet is financially risky. If lost or stolen your money is most likely gone for good.

However, depository ins tu ons offer secure storage of both cash and transac on data. Most importantly, deposits in

many banks and credit unions are protected by insurance provided by two federal government agencies know as the

Federal Deposit Insurance Corpora on (FDIC) and the Na onal Credit Union Administra on (NCUA).

As long as you stay within the coverage limits your money is safe from loss due to the or failure of the financial

ins tu on. Not all depository ins tu ons are covered by the FDIC or NCUA, so you should check for coverage before

deposi ng any money.

Services Offered by Depository Ins tu ons

Depository ins tu ons offer a wide variety of financial services to their

customers. The services offered and the terms and condi ons (such as features

and fees) will vary for every service at every depository ins tu on.

Transac on and Savings Tools

Think about how you make purchases at the point of sale. Managing a large

amount of cash (and protec ng it from risks) can be overwhelming and me

consuming. Depository ins tu ons offer services that allow you to use your

money without having to handle cash. These services are known as transac on

and savings tools. They are accounts offered by depository ins tu ons whose

main purpose is to help people manage their money.

Transac on and savings tools may or may not earn interest. Interest is the price paid

for using someone else’s money. If you deposit money in an interest‐earning savings

tool account you will be paid interest during the me the ins tu on holds your funds

and uses it for its own purposes. The depository ins tu on is essen ally “borrowing”

your money. Eventually you’ll see your ini al deposit grow over me as it accrues

interest paid by that ins tu on.

Are you currently earning any interest? If so, on what?

Federal Deposit Insurance Corpora on (FDIC)

The FDIC is a federal government agency that insures

depository ins tu ons that have elected for FDIC

coverage against loss. The standard insurance amount is

$250,000 per depositor, per insured ins tu on, for each

account ownership category.

Na onal Credit Union Administra on (NCUA)

The NCUA provides insurance protec on for credit unions.

The coverage is the same as with the FDIC; each depositor

is insured against loss up to a maximum of $250,000

against loss.

If you want to earn interest on

your deposits look for high

interest rates. When you borrow

money and have to pay interest

look for low interest rates.

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The two most common types of transac on and savings tools are checking and savings accounts:

Checking Account

A checking account allows you quick access to funds for transac ons. You’re able to transfer money from one account to another or directly to another person through the use of paper checks, debit cards or withdrawing cash directly from your checking account.

Checking accounts are very popular among consumers because they reduce the need to carry large amounts of cash and are easy to use and manage. Some checking accounts earn interest but most do not.

Checking accounts at credit unions are known as share dra accounts. This type of account also provides an easy method for accessing your money.

Savings Account

A savings account is the most common type of bank account and may be the first type of account you open at your depository ins tu on. Savings accounts are generally for money that you don't intend to use for daily expenses. Your savings account will earn interest on its balance and be stored in a secure loca on. To open a savings account, simply go down to your local bank with proper iden fica on and ask to open an account.

A savings account at a credit union is some mes referred to as a share account and is required for membership.

Special Needs Payment Instruments

Traveler’s checks, cer fied checks, cashier’s checks and

money orders are all special payment instruments that

have a specific func on and are available at most

depository ins tu ons.

Which depository ins tu on services would be the most important to you?

To use any of the services offered by depository ins tu ons, call, visit, email or search the depository ins tu on’s website

to determine what steps are needed to use the service you desire. You may be required to have an account to use their

services. If you are under the age of 18, in most cases, you will need a parent/guardian signature to open an account.

Has opening a checking or savings account posi vely influenced the way you manage your money? If you haven’t opened

up one at this point in your financial life, can you iden fy ways a bank account might influence your money management

habits in the future?

Credit

Credit products allow you to borrow money from the

financial ins tu on in exchange for your promise to repay

those funds in the future. Depository ins tu ons may

provide a variety of credit products such as loans for the

purchase of a house, auto or educa on. Many depository

ins tu ons also offer credit cards to their customers. When

you apply for credit, the financial ins tu on will determine

whether you qualify for the loan based on their assessment

of the likelihood that you will repay as agreed. The

ins tu on will also determine the amount of me you have

to repay, and the price of the loan, in the form of the

interest rate to be charged on the amount of money you

owe. By agreeing to these loan terms you will agree to pay

the depository ins tu on back the money borrowed plus

interest.

Financial Advice

Depository ins tu ons

may also offer

informa on, advice and

assistance regarding a

wide range of financial‐

related topics including

investments and estate

planning.

Safe‐Deposit Box

A safe‐deposit box is a secured

box at a depository ins tu on

that you can use to store

valuable personal items. Many

people use safe‐deposit boxes

to store important paperwork

such as birth cer ficates,

Social Security cards and wills.

Addi onal services offered by many depository ins tu ons include:

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Addi onal Features of Depository Ins tu on Services

The services offered by depository ins tu ons may offer certain features such as online banking, mobile banking, debit

cards, ATMs and contactless payment.

Online banking

A depository ins tu on may offer online banking, also known as Internet banking, as a feature of their services.

Online banking allows customers to complete certain transac ons from a secured Internet site by using a

username and password from any place in the world with Internet access. Online banking ac vi es include

accessing account informa on and statements, transferring money between accounts, paying bills and applying for

credit. In addi on to paying bills online, consumers may also be able to set up a recurring bill payment. The payment will

occur automa cally on a specific date each month without the customer having to write a check or ini ate the payment.

However, if you use recurring payment it is your responsibility to make sure that your account has sufficient funds in it to

cover the amount of the automa c payment.

Many depository ins tu ons have developed apps that

allow online banking access from devices such as

smartphones, tablets and other mobile devices. This is a

form of online banking known as mobile banking.

Debit cards

A debit card is electronically connected to the cardholder’s depository ins tu on account. Debit cards allow customers

easy access to money in their savings and checking accounts either at the point of sale or through an automated teller

machine (ATM). As a payment tool, debit cards func on in the same manner as a check, but debit transac ons are faster

and more portable because they are electronic. Debit cards also allow customers to withdraw cash or electronically

access their accounts to transfer funds between accounts or view balances. In most cases, debit cards require using a

personal iden fica on number (PIN) or signature to perform transac ons. The PIN or signature authorizes the user of the

debit card to access the money in the corresponding account.

Automated teller machines (ATMs)

An ATM is a machine that allows individuals to complete certain transac ons from the machine

without human assistance. ATMs are accessed via an ATM card (which is usually also the customers

debit card) plus the PIN that accompanies that card. ATMs allow customers to withdraw and

deposit money into their account(s), as well as make account transfers and view account balances.

The number and loca on of ATM’s varies by depository ins tu on.

Contactless payment

Contactless payment transac ons can be completed with no physical connec on between the payment device and the

physical point of sale (POS) terminal or store clerk. If a depository ins tu on offers contactless payment op ons then you

will receive a debit card, credit card, or some other type of electronic card that allows you to simply “wave” the card in

front of a sensor to make a purchase (some mes you may have to also enter a PIN for the payment to authorize). This

allows for fast payment transac ons, but not all merchants have the technology to support contactless payment.

What is one advantage to online and/or mobile banking?

What features of depository ins tu on services would ma er to you?

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Fees

Depository ins tu ons o en charge fees for certain services. Fee levels are important to consider when choosing a

depository ins tu on for your accounts. Examples of fees include:

Minimum balance fees ‐ Some accounts

require a minimum account balance. If you

go below that balance you will be charged a

fee. Before opening an account ask if there

is a minimum balance amount and

determine if you are OK with the minimum

balance amount.

Depository ins tu ons o en charge many other types of fees. Fees can vary greatly across depository ins tu ons.

Researching poten al fees that you may face as an account holder is an important part of choosing a depository

ins tu on. Ask for a list of fees when opening an account. Most fees charged for items and transac ons can be avoided

if you manage your account(s) well.

Choosing a Depository Ins tu on

Now that you know about the many benefits and services a depository ins tu on can offer, you may want to become a

customer. The most important factor when choosing a depository ins tu on is to select one that helps you meet your

financial goals. You may have more than one type of account with a single depository ins tu on or open accounts with

mul ple ins tu ons.

Consider the following factors when choosing a depository ins tu on(s) that helps you reach your financial goals:

Fees charged

Type of depository ins tu on

Loca on

Insurance of deposits

Depository ins tu ons are a valuable tool to help you manage your money in a posi ve manner.

Choose a depository ins tu on that will help you reach your financial goals.

What two factors are most relevant to you when choosing your depository ins tu on?

Products and services offered

Interest rates on loans and deposits

Features offered

Overdra fee – A fee charged if you

withdraw more money from your

account than is available. Some

depository ins tu ons offer overdra

protec on that helps you avoid

overdra fees if you exceed your

account balance.

ATM fees – Your depository

ins tu on may charge you for

using an ATM that belongs to

another depository ins tu on.

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© Take Charge Today – August 2013 – Introduction to Depository Institutions Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

Alike but Different

Total Points Earned Name

20 (1 point per box)

Total Points Possible Date

Percentage Class

Directions: Write the definition of each term in the space provided. When prompted by your instructor answer the remaining questions.

Commercial Bank

Definition:

Credit Union

Definition:

Checking Account

Definition:

Savings Account

Definition:

How are these terms alike? How are these terms alike?

How are these terms unique?

How are these terms unique?

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Online Banking

Definition:

Mobile Banking

Definition:

ATM

Definition:

Debit Card

Definition:

How are these terms alike? How are these terms alike?

How are these terms unique? How are these terms unique?

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Josie’s Depository Institution Comparison Chart

Total Points Earned Name

10 points for completion

Total Points Possible Date

Percentage Class

Directions: Josie has determined that she will use one of two depository institutions and has summarized the information regarding each depository institution below. Use the information provided by your instructor to determine which depository institution is the best choice for Josie.

Features Depository Institution Option 1 Depository Institution Option 2

Minimum account balance $0 $100; a $10 fee is charged if the balance is below $100

Monthly Service Fee None None

Debit Card Yes; free and unlimited usage Yes; free and unlimited usage

ATM Fee Yes; $2 if another institution’s ATM is used

No

ATM locations five within the college campus; three within the hometown area

two within the college campus area; two within the hometown area

Online banking Yes Yes

Mobile banking/Smartphone application

Yes No

Unlimited check writing Yes No; up to ten checks may be written each month

Free checks Yes Yes

Insufficient fund fees $24 per transaction $22 per transaction

Account overdraft protection Yes Yes

Linked Savings Account Option

Yes; ability to transfer unlimited funds to a savings account

Yes; ability to transfer unlimited funds to a savings account

Interest earned on balance No .02%

Branch locations within 5 miles of college

Yes; three of them Yes; one of them

Branch locations within 5 miles of hometown

Yes; two of them Yes; two of them

Branches in neighboring states

Yes No

Insurance provided on deposits

$250,000 per depositor, per account; covered by FDIC

$250,000 per depositor, per account; covered by NCUA

Accountholder requirements None Must be an employee (or related to an employee) of the railroad system Josie’s father is employed by

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Help Josie Choose a Depository Institution Total Points Earned

Name

24 Total Points Possible

Date

Percentage

Class

Josie is a senior in high school who will be graduating in a few months. She has already been accepted to a

university that is a three hour drive from her home. While she is excited about moving on to the next phase

of her life, she’s a little nervous about some of the important decisions she will be making‐‐‐moving out of

her parents’ home and into the dorms at a college, choosing classes for her schedule, and finding a part‐time

job.

Josie is also going to need to make some decisions about her money. She knows it’s not safe to carry all of

her cash in her pocket, and while she won’t have a lot of bills to pay, she needs to be able to write a few

checks each month and utilize a debit card to have access to her funds. Josie has done a little research on

depository institutions in her area that also have branches nearby the college she will be attending, and has

narrowed her choices to the two options described in the Josie’s Depository Institutions Comparison Chart.

Follow the steps below to learn more about depository institutions in order to help Josie choose the

depository institution that is best for her.

Step One:

1. Examine Josie’s Depository Institutions Comparison Chart 2.2.1.A3 and determine if Depository Institution

Option 1 and Option 2 are a bank or a credit union. (4 points)

Depository Institution Option 1 Depository Institution Option 2

Is this depository institution a bank or a credit union?

Give one reason to support your answer.

2. How did location influence Josie’s selection of her top two depository institutions? (1 point)

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Step Two:

3. While watching the news today, Josie saw that a local depository institution is closing. Now that she understands the importance of depository institution insurance, she wants to ensure her choices are insured. (4 points)

Is Depository Institution Option 1 insured? Explain how you determined the answer.

Is Depository Institution Option 2 insured? Explain how you determined the answer.

Step Three:

4. Josie is looking for a checking account that is linked to a savings account. This will allow her to transfer money from her checking account to her savings account when needed. (2 points)

Does Depository Institution Option 1 have a savings account linked to the checking account?

Does Depository Institution Option 2 have a savings account linked to the checking account?

Step Four:

5. Your instructor will provide you with more information about Josie to help make a decision regarding which depository institution is best for her. Record what you learned about Josie below: (8 points)

1. 2.

3. 4.

5. 6.

7. 8.

6. Using the information you know about Josie, which checking account would you recommend she choose

– option 1 or option 2? Explain your choice with at least three reasons. (5 points)

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Depository Institution Research

Total Points Earned

Name

Total Points Possible

Date

Percentage

Class

Directions: Complete each section below by following the directions provided. Before Research

What would be the three most important things you would look for in a depository institution? (3 points) 1.

2.

3.

Research

Find a depository institution that offers at least one type of checking account and one type of savings account. Decide whether or not you should become a customer of this depository institution by conducting research and answering the questions in the table below. (15 points for completion)

What is the name of the depository institution you are researching?

What type of depository institution is it?

Commercial Bank Credit Union Other. Please indicate the type:

Location:

Does this depository institution have a physical location or is it available only online? If there are physical locations, how many locations does the depository institution have?

Online only

Physical location(s) available

Only one location available

Multiple locations available locally

Multiple locations are available across the state

Multiple locations are available across the nation

Other. Please explain:

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Insurance:

Is this depository institution insured?

Yes No

Checking account:

Does the depository institution offer more than one type of checking account? If so, choose one checking account and answer the questions below.

Only one type of checking account is available

Multiple types of checking accounts are available.

Which checking account did you choose?

Are there any fees associated with this checking account? If so, can you avoid the fee(s) by managing your account responsibly or is there a non‐avoidable fee(s)? Explain.

No fees Fees:

Does the checking account offer unlimited check writing? If not, what is the limit?

Unlimited check writing Limited check writing. What is the limit?

What is one other thing you would like to know about checking accounts before making your decision?

Savings account:

Does the depository institution offer more than one type of savings account? If so, choose one savings account and answer the questions below.

Only one type of savings account is available

Multiple types of savings accounts are available. Which savings account did you choose?

What is the current interest rate on the savings account? If the rate is not listed online, what email or phone number could you use to learn?

Are there any fees associated with this savings account? If so, can you avoid the fee(s) by managing your account responsibly or is there a non‐avoidable fee(s)? Explain.

No fees Fees:

Is there any other information that is important to consider about this savings account?

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Features Offered

Does the depository institution offer debit cards as part of their accounts?

Yes No

How many (if any) ATMs does the depository institution have?

ATMs are not available

ATMs are available. Describe how you know ATM’s are available in your desired location.

Does the depository institution offer online and/or mobile banking?

Online banking is not available Online banking is available Online and mobile banking is available

Other Services:

Describe one other service this depository institution offers.

Other information:

What is one other piece of information that is important to know if deciding whether or not to become a customer of this depository institution.

Research Reflection

After examining your research, is this a depository institution that you would become a customer of? Make sure to consider the three items you identified as important factors to consider when choosing a depository institution. Answer this question in a well‐written paragraph. Provide at least three reasons to support your decision. (21 points – see rubric)

introduc on to depository ins tu ons...2.2.1.f1

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