business
Financial Institutions
Banking Basics
Where do you think the best place to cash your paycheck is? At a check cashing business, you typically pay $50 for every $1000 cashed. At payday lenders, you pay around $175 for every $1000 cashed. If you have an account at a good bank or credit union, you can cash checks for free. Simply setting up a free account could save some people from paying hundreds of dollars a month for services that most financial institutions offer for free. How you manage your money today determines whether you achieve financial freedom tomorrow. Opening and maintaining the right bank accounts is a very important aspect of good money management.
The accounts you have open with a bank or credit union are the center of your financial planning. Everyone needs checking and savings accounts. All your money will transfer from these accounts to pay your bills and to fund your investments.
BANKS & CREDIT UNIONS
Banks are for-profit institutions that is set up for lending, borrowing, deposits, and safeguarding. Banks provide many different services from checking and savings accounts, credit cards, ATM’s, loans, etc. Banks provide a reasonably safe way to save money, pay bills with checks, and have money when needed. Banks are also able to issue credit or credit cards for people in addition to a variety of loans. This is the mostly widely used financial institution and there are a vast number of different banks that offer specific services and rates.
A credit union is similar to a traditional bank in the sense that both are designed to offer financial products to customers. However credit unions differ on several key differences. A credit union is not-for-profit which means that profits goes back to the members in the form of higher interest rates on savings accounts and lower interest rates on loans. Credit unions are also cooperatives which means that they are owned and operated by its members. Unfortunately, credit unions tend to offer fewer financial products than larger national banks along with having fewer locations and limited online services.
ONLINE BANKS
Online banks are financial institutions that are exclusively accessed from the internet and have no brick and mortar establishment. Similar to a traditional bank, online banks still allow you to access services such as checking and savings accounts, online bill pay services, account transfers, loans, debit cards, and overdraft protection. Generally, online banks have more competitive rates on different accounts due to the savings that comes from not having to maintain multiple physical locations. However, these banks do not have their own ATM’s which means customers have to pay additional fees and any cash deposits a customer would like to make must be mailed in.
Financial Institutions (continued)
HOW FINANCIAL INSTITUTIONS WORK
As a business model, the banking concept is pretty simple. In short, banks use your money to make loans to other accountholders.
• Savers deposit money and earn interest.
• Borrowers borrow money and pay a higher interest rate to the bank, so the bank makes money.
Banks make money by lending money to people at higher rates than they pay the people who deposit money. For example, you deposit money in a savings account and earn 1% interest. The bank can then lend money to other customers at an interest return of 8%. The bank earns the difference. Where you bank is a personal choice. Some people prefer convenience and choose large banks. Some would rather bank at a smaller place, have a sense of ownership, and feel more familiar with the organization.
Choose the type of financial institution that best serves your needs. Look for the best account choices and think in the long-term. For example, if you want to save to purchase a home, a credit union may be a better choice because of the interest rates they give to members. In order to decide which bank or credit union is right for you and your money, first you need to consider your expectations and purpose for opening an account. Is it for business, pleasure, savings, wage-depositing, eventual loans, or something else?
DO YOU NEED A CHECKING AND SAVINGS ACCOUNT?
Yes, you do. Here are several compelling reasons to open checking and savings accounts:
SAFETY Storing your money in a bank is safer than holding cash. It can be a good idea to keep a small amount of cash safely hidden at your house for emergencies – but everything else should be kept safely in an account.
INTEREST The bank pays you interest every month just for depositing your money there.
DIRECT DEPOSIT You can have your employer deposit your paycheck electronically into your checking account.
ORGANIZATION Bank accounts help you track spending, manage savings, and stay on target with your budget.
FUTURE Building a relationship with a bank will pay off in the future as your banking needs increase.
If you had past problems with a bank or credit union, you may have trouble opening an account. Visit the link below to see if there is a problem being reported.
https://www.consumerdebit.com/consumerinfo/us/en/chexsystems/disclosure/index.htm
Financial Institutions
If so, use the letter below to clear up your ChexSystems report.
CHEXSYSTEMS FORM LETTER
Mail to:
ChexSystems, Inc.
7805 Hudson Road, Suite 100 Woodbury, MN 55125
Your Full Name
Social Security Number
ID number (listed on ChexSystems Report) Address
Contact Number
Name of the bank you are disputing
Bank’s Address
Account Number
This letter is about the issue with (account number, bank) which I dispute and which I would like your help in clearing. I am disputing both the validity of the alleged debt and the validity of your report.
The Fair Debt Collection Practices Act requires evidence that has my signature and shows
I have a contractual obligation to pay. As you are aware, any negative mark on my
ChexSystems report for a debt I don’t owe is in violation of the Fair Credit Reporting Act
(FCRA). Therefore please delete the entry in question.
My permission is required before you take any action that could negatively affect my
rating with credit reporting agencies.
Full Name
Signature