Banking and Savings

Basics of Saving

Pay yourself first – savings should be a fixed expense!

Save any amount you can.

Save early. It’s all about building good habits.

Banking Alternatives

pawn shops charge very high interest for loans based on the value of tangible assets (such as jewelry or other valuable items).

check-cashing stores charge high fees (sometimes 2 or 3 percent) just to have a paycheck or government check cashed.

rapid-refund tax services provide “instant refunds” when you pay to have your federal tax return prepared. However, this “instant refund” is a loan with interest rates as high as 120 percent.

check-deferral services/ pay-day loan stores allow consumers to get a cash advance on their next paycheck. However, these short-term loans are very expensive. A $200, two-week advance may cost over $30 (with annual costs exceeding $900).

These are not credit-building tools!

Payday Lending

They are reported to the credit bureau, but… They have a very minor impact on your score if

you pay it off on time If you DON’T pay it off on time, it can ruin your

credit The risk outweighs the benefit

It will show as a payday loan on your report – which unfortunately has negative connotations

And, can you pay it off within 2-3 pay periods?

Payday Lending – Do the Math

You will usually pay around $600 for borrowing $500 – IF you pay on time!

$100 more in interest for extending for two additional weeks

If you do not pay that amount, the high interest rates can result in fees of over$1000 if payments are spread out over six months

It’s a cycle – payday loan stores make money when you cannot pay in time, and they won’t tell you about the 400%+ APR rates

Other Options

Negotiate a payment plan with the creditor Charge the amount to your credit card Receive an advance from your employer Use your bank’s overdraft protections Obtain a line of credit from an FDIC approved

lender Borrow money from your savings account Ask a relative to lend you the money Apply for a traditional small loan Ask your creditor for more time to pay a bill Use a cash advance on your credit card

Money is secure

FDIC guarantees your money

No direct deposit fees

Interest earned is free money

Banks SAVE YOU money!

No per transaction fees

Why Bank?

Banks can save you up to $1,000 per year in transaction fees!

Compound Interest

Banks allow you to gain compound interest, unlike currency exchanges, check-cashing stores, and pay-day loan stores. Interest is money that the bank gives you for leaving your money in their hands

Compound interest formula: M = P( 1 + i )n

M is the final amount including the principal.P is the principal amount.i is the rate of interest per year.n is the number of years invested.

Compound Interest at Work

Let's say that I have $1000.00 to invest for 3 years at rate of 5% compound interest M = 1000 (1 + 0.05)3 = $1157.62.

You can see that my $1000.00 is worth $1157.62 over 3 years

The bank is paying you approximately $52 per year to keep your money

Saving in a Tough Economy

A struggling economy means low interest rates, and $52 dollars might not seem worth the time, but an emergency fund will always help you in the future

Reasons to save: Emergencies and unexpected expenses Medical expenses Obtaining a secured credit card

Easy savings tips: Envelope system Paying yourself back Setting up automatic transfers Saving spare change

Online Savings Accounts

Here are the savings accounts with the highest yields that are available nationally and FDIC-insured (meaning your money is protected if the institution fails), according to an analysis from bankrate.com: Barclays Online Savings

APY: 0.90% Requirements: No minimum balance. What to know: No fees, and customers can link their savings account to accounts at other banks.

GE Capital Bank Online Savings Account APY: 0.90% Requirements: Must deposit at least $1 to begin earning interest. What to know: No monthly fees, limit of six

withdrawals per month

Online Savings Accounts, Continued Sallie Mae Money Market

APY: 0.90% Requirements: No minimum balance. What to know: No monthly fees.

American Express High-Yield Savings Account

APY: 0.85% Requirements: No minimum balance. What to know: No monthly fees, and

customers can link their account to existing accounts at other banks.

Using Your Debit Card

• The funds will leave your account immediately.

Paying with Debit Paying with Credit• The funds may not leave your

account immediately.

• The merchant will be charged a fee that is a percentage of your purchase.

• Some banks may charge you a processing fee for choosing debit.

• The merchant will be charged a flat fee for the purchase.

• Some banks will give you rewards for signing with credit.

Even if you choose “credit” you are still using your money!

Overdraft ProtectionEven if you don’t have sufficient funds in your account, your bank will let your check or debit purchase clear.

Most banks charge a FEE for overdraft protection. AND the amount of your overdraft might be considered a loan and you will need to pay that money back with interest.

It may be better to deny overdraft protection and avoid overdrawing by ALWAYS KNOWING HOW MUCH YOU HAVE in your account.

Payroll Options

NOTE: It is NOT necessary for you to choose a payroll card, and your employer should not make it mandatory!

Paper Check: check-cashing fee, delay in deposit

Direct Deposit: goes directly into your bank account, immediate delivery on payday

Payroll Card: monthly fee, minimum balance fee, reload fee, transaction fee, minimum deposit fee

Which bank is right for me?

Things to Consider

FDIC Insurance

• Is the bank FDIC insured? Will my deposit be safe?

Fees • Are there monthly maintenance fees or minimum balance fees? What

is the overdraft fee? Are there fees for debit transactions (using your debit card)?

Location

• Does the bank have convenient branches and ATM locations?

Interest• Consider the Interest rate. Is there a minimum balance required to

earn interest?

Bank on Chicago Low or no monthly fee (less than $15 required) Low or no opening deposit requirement (less

than $50 required) No monthly minimum balance requirement Provide a pathway to a checking account for

individuals with ChexSystems records Accept at least one form of alternative

identification (for example, Foreign Passport, Mexican Consular Card, ITIN, etc.)

Free check cashing (at least two times per month)

Offer affordable bill payment options (less than $1.50 per bill)

Provide clear and brief explanation of banking basics and terminology in plain language

Offer Savings accounts – subject to eligibility requirements

Credit Unions vs. Banks

Credit Unions

• Better interest rates• Lower fees• Commitment to

community• Not-for-profit• Members are

shareholders

• More locations• Great online banking

tools• More account options

Banks

Different people have different needs – find the institution that

is right for you!

Read the Fine Print

Not all bank accounts are equal

You need to read the fine print to figure out which one is best for you

Consider your NEEDS and HABITS when choosing an account, and don’t just pick the one with the most features

ChexSystems

Network is comprised of member financial institutions that regularly contribute information on mishandled checking and savings accounts to a central location

Completely different from your credit score and credit report

Keeps track of your debit history Order you FACTA Free Annual report (your

ChexSystems history) at consumerdebit.com or call 1-800-428-9623

ChexSystems Record

Any checking account closures you have had Any returned (bounced) check retailers have

reported about you How many financial institution inquiries have

been made about you and in what timeframes How many check orders you have placed and

how often

Having a bad ChexSystems report can keep you from opening a new account and could cause you to pay extra banking fees!

Online Banking

Check AT LEAST twice a week!

1

• Know how much you have in your account and avoid overdraft fees

2• Catch any retail errors

3

• Ensure there are no unauthorized transactions

But don’t forget about checks that haven’t been cashed!

Direct deposit Paychecks Tax refunds

Automated bill payments Utilities, electricity, etc.

New Technology E-checks Text message updates Smartphone deposit (Very

easy: just click and drag)

Optional Bank Account Features

Thank You