Budgeting & Banking

Banking Basics Terminology

Bank: A financial institution that accepts deposits, makes loans, and provides other financial services.
Financial Institution: Any organization that deals with money or finances.
Deposit: Money placed into a bank account.
Loan: Money borrowed from a bank.
Interest: A fee charged by a lender or paid to a depositor.
FDIC: Federal Deposit Insurance Corporation, a U.S. government agency that protects bank deposits.

Services Offered by Banks

Checking accounts
Savings accounts
Loans (mortgages, auto loans, personal loans)
Credit cards
Safety deposit boxes
Financial advice

Types of Banks and Financial Institutions

Commercial banks: Offer a wide range of services to individuals and businesses.
Credit unions: Member-owned financial cooperatives.
Online banks: Operate exclusively online, often offering higher interest rates.
Investment banks: Focus on investment and corporate finance.

Types of Accounts

Checking accounts: Used for daily transactions.
Savings accounts: Used for saving money over time.
Certificates of Deposit (CDs): Fixed-term investments with guaranteed interest rates.
Money market accounts: Hybrid accounts offering checking and savings features.

How Banks Make Money

Interest on loans: Charging interest on loans is a primary source of income.
Fees: Banks charge fees for various services, like overdraft fees or ATM fees.
Investment income: Banks invest deposits and earn returns.

Online vs. Physical Banks

Online banks:
- Lower fees
- Higher interest rates
- Convenient online access
- Limited in-person services
Physical banks:
- In-person services
- ATM access
- Personal financial advice
- Potential for higher fees

FDIC

Insures bank deposits up to $250,000 per depositor, per bank, per ownership category.

Checking Accounts

Use: Daily transactions, paying bills, withdrawing cash.
Criteria:
- Low or no monthly fees
- ATM fee reimbursements
- Online banking and mobile app
- Overdraft protection options
Online vs. Physical:
- Online: Lower fees, higher interest rates
- Physical: In-person services, ATM access

Savings Accounts

Difference from Checking: Designed for saving, not daily transactions.
Savings Vehicles:
- Savings accounts: Flexible, low-risk
- CDs: Fixed-term, higher interest rates
- Money market accounts: Higher interest rates, limited check-writing
Choosing:
- Short-term savings: Savings account or money market account
- Long-term savings: CD
- Various pros/cons from the work packet and website

Savings Strategies (see the website activity and poster you made)

Set goals: Determine how much you want to save and for what purpose.
Automate savings: Set up automatic transfers from your checking account to your savings account.
Budgeting: Track your income and expenses to identify areas for savings.
Emergency fund: Save 3-6 months' worth of living expenses.

Online Banking (vocab at beginning of packet)

Manage accounts: View balances, transfer funds, pay bills, deposit checks.
Navigate: Use the bank's website or mobile app to access your accounts.

ONLINE BANKING Vocabulary:

Checking Account	An account used for everyday spending with a debit card.
Savings Account	An account for saving money and earning interest.
Direct Deposit	Automatic transfer of your paycheck into your bank account.
Balance	The current amount of money in your account.
Transaction	Any activity that affects your balance, like deposits or withdrawals.
Recurring Transfer	A regular transfer of money between accounts, like from checking to savings.
Auto-Pay	Automatic bill payment from your checking account.
Notifications	Alerts about important information in your online banking.
Overdraft	Spending more money than you have in your checking account, resulting in fees.

Savings Accounts

Savings Account Type	Average Interest Rates (Compared to Others)	Rate Type (Fixed or Variable)	FDIC/NCUA Insured?	Depositing/Withdrawing	Checks	Pros	Cons
Traditional Savings Account	Lower	Variable	Yes	Easy deposits, some limitations on withdrawals	No	Safe, liquid, good for emergency fund	Low interest rates
Money Market Account	Moderate	Variable	Yes	Easy deposits, some limitations on withdrawals with check-writing features	Limited	Slightly higher interest, some check-writing features	May have fees for exceeding withdrawal limits
Certificate of Deposit (CD)	Higher	Fixed	Yes	Limited deposits during term, penalty for early withdrawal	No	Highest interest rate, good for long-term goals	Early withdrawal penalty, limited access to funds

Scenarios for Opening Different Savings Account Types

Certificate of Deposit (CD)

Scenario: You have a lump sum of money you want to save for a specific goal, such as a down payment on a house or a child's college education. You're willing to lock your money away for a fixed period to earn a higher interest rate.

Money Market Account (MMA)

Scenario: You want a more flexible savings option with a higher interest rate than a traditional savings account. You may need to access your money occasionally, but you also want to earn a decent return on your savings.

Traditional Savings Account

Scenario: You want a basic savings account to save for an emergency fund or a short-term goal. You prioritize easy access to your money over a higher interest rate.

What does it mean for an account to be FDIC insured?

FDIC stands for the Federal Deposit Insurance Corporation. When a bank account is FDIC insured, it means that the government guarantees the safety of your money up to a certain amount ($250,000 per depositor, per bank, for each account ownership category). This means that even if the bank fails, your money is protected.

What is interest?

Interest is the cost of borrowing money or the reward for saving money. When you save money in a bank account, the bank pays you interest as a reward for letting them use your money. The interest is usually a percentage of the amount you have saved.

What is a fixed interest rate?

A fixed interest rate is an interest rate that stays the same for a set period of time. This means that you know exactly how much interest you will earn on your savings account each year.

What is a variable interest rate?

A variable interest rate is an interest rate that can change over time. This means that the amount of interest you earn on your savings account can go up or down.

What does deposit mean when talking about bank accounts?

To deposit money means to add money to your bank account. You can deposit money by cashing a check, using an ATM, or transferring money from another account.

What does withdraw mean when talking about bank accounts?

To withdraw money means to take money out of your bank account. You can withdraw money by using an ATM, writing a check, or transferring money to another account.

What is a check?

A check is a written order to a bank to pay a specific amount of money to a specific person or organization.

What is the difference between a checking account and a savings account?

Checking accounts are designed for easy access to your money. You can write checks, use a debit card, and withdraw money from an ATM. Savings accounts are designed for saving money. You can earn interest on your savings, but it is more difficult to access your money.