Checking / Now Accounts / CDs

Brendan Monaco

Personal Finance

A Block

What is a checking account?• Known as a current account in Canada, a

checking account is a type of bank account that enables one to make withdrawals or payments to other people or companies using a check.

• The check is written with the appropriate amount of funds, which are then taken out of the account, and into the account of the recipient of the check.

• http://www.bing.com/Dictionary/search?q=define+checking+account&FORM=DTPDIA&qpvt=what+is+a+checking+account%3f

Types of Checking Accounts• Basic Checking Account – an account

which a user is limited to a certain amount of checks determined by the bank the account is from. If that limit is exceeded, there is a fee per check over the limit. (usually around $0.20 per check. These accounts are ideal for people who are less dependent on checks than other types of money transfers.

http://www.bankofinternet.com/basic-checking.aspx

• Express Checking – low fees and few restrictions, however there is a fee for using a teller; this account can be accesed via telephone, computer, or ATM, however there is a fee for use of a teller (usually about $2 per usage), these accounts are ideal for students and people who do not live near a branch of a certain bank.

• Free Checking – considered to be the best choice for most people, these accounts charge no monthly fees based on usage or amount in the account, however fees still exist for bouncing a check and other types of misuse.

• http://www.bankrate.com/finance/checking/types-of-checking-accounts-1.aspx

• http://www.bankrate.com/brm/news/chk/19980608.asp

• Interest Bearing Checking –

An checking account that generates interest based off the amount available in the account. Usually these accounts require a higher balance that other checking accounts, and offer lower interest rates than normal savings accounts and CDs due to the liquidity of the money in the account.

http://www.bankrate.com/finance/checking/types-of-checking-accounts-1.aspx

• Joint Checking – An account owned by multiple people who all have equal access to the account. These kinds of accounts are usually available in all other forms of checking accounts, and are ideal for business owners are married couples.

• Lifeline Checking – Accounts designed for people with low incomes, that require a low minimum deposit, charge low monthly fees, and allow a user to be able to use a certain number of checks per month. These accounts must be offered by all banks in IL, MA, MN, NJ, NY, RI, and VT; these states are also who set the regulations for these accounts, and not the banks themselves.

• http://www.bankrate.com/finance/checking/types-of-checking-accounts-1.aspx

• Money Market Checking – An account that is combined with a money market fund to generate higher interest. These accounts require high minimum deposits and active balances and tight restrictions for withdrawing money. They often have minimum check sizes of $250+, so they are not meant for paying bills.

• Senior / Student Checking – These accounts are available as any other type of account with special benefits for students and senior citizens, these benefits vary from bank to bank.

• http://www.bankrate.com/finance/checking/types-of-checking-accounts-1.aspx

General Checking Account Terms

• overdrawing / overdraft – the act of writing a check for more than is in the account money is being taken from, banks usually charge about $25 for this and can close the account and seize any deposits made following the overdraft if they feel it is an unsafe situation for the bank

• overdraft protection – A feature offered by banks that essentially offers a user an instant loan, or automatic withdrawal of money from another account if a person bounce’s a check rather than charging them $25 for bouncing a check. Some banks still charge a fee even with overdraft protection, but is much less than without the protection. The interest rates are usually very high, but if paid quickly will be less than an overdraft fee. To get overdraft protection, apply at your bank branch.

• http://www.investorwords.com/3543/overdraft.html• http://www.investorwords.com/3544/overdraft_protection.

html

General Checking Account Terms• ATM (Automatic Teller Machine) – a machine that allows

users to access money from their banking accounts even when their bank is closed. (Checking accounts and ATM are related because they both allow the user to manage funds within an account.) ATM cards are available for savings accounts.

• Debit Card – A card issued by banks that is similar to a credit card, as it can be used to purchase items directly from a seller whether in a store or online. The card can also be used at an ATM for 24 hr banking. Debit cards are commonly available for checking accounts.

• http://wordnetweb.princeton.edu/perl/webwn?s=atm• http://wordnetweb.princeton.edu/perl/webwn?s=debit%20card

CDs• A CD (certificate of deposit) is an account that can be deposited

and will yield high interest rates, however the funds can only be withdrawn with a penalty unless the deposit has fully matured.

• Maturity is the period a CD was originally agreed to be active for. This period could be anywhere from 3 months to 10 years.

• The interest gained is based off a percentage of the initial deposit.

• There is no age requirement for someone to start a CD.• CD rates are set by individual banks • Currently CDs are insured by the FDIC (Federal Deposit

Insurance Corporation) for up to $250,000, but on December 31, 2014 only $100,000 will be insured by the FDIC.

• http://www.investopedia.com/terms/c/certificateofdeposit.asp• http://www.todaysseniors.com/pages/FDIC_Insurance.html

NOW Accounts

• Stands for Negotiable Order of Withdrawal• A now account is an account that earns a user interest

while still allowing the user to write checks paid with the funds from the NOW Account

• These accounts are considered to be good choices for consumers but liabilities for banks because they offer interest and the ability to write checks.

• http://www.investopedia.com/terms/n/nowaccount.asp• http://www.google.com/search?q=define:NOW+Account

&btnG=Search&hl=en&biw=1020&bih=555&rlz=1R2GGLD_enUS335&sa=2

Savings Accounts

• A savings account is an account that generates a moderate level of interest, currently around 1.10% of the funds within the account.

• Passbook accounts and high yield savings accounts are the two main types of savings accounts.

• Savings accounts are safe places to keep money, and are NCUSIF secured up to $100,000 for normal accounts and $250,000 for retirement accounts.

• http://www.lendingtree.com/smartborrower/saving-money/checking-savings-accounts/savings-account-basics/

Passbook Savings Account

• A passbook savings account is an account which is recorded in a passbook, and has few if any restrictions regarding initial deposits and active balance requirements. Because of this, these accounts offer low interest rates, around 1%.

• These accounts can be accessed via ATM, and can be linked to checking accounts.

• http://www.passbooksavingsaccount.org/

High Yield Savings Account

• High Yield Savings Accounts are accounts that generate higher interest rates than Passbook Savings, usually around 1.25%, and have substantial initial deposits to show the interest of the consumer, and high minimum balance requirements.

• These accounts can be accessed by ATM, and many banks allow them to be connected to a checking account, although not all banks do.

• http://banking.about.com/od/savings/a/highyieldsaving.htm

Bank vs. Credit Union• Banks:

– Privately owned, produce profit– Insured by the government (FDIC)– More branches– Often larger and more formal– More variations of accounts offered

• Credit Unions:– Owned by members of the bank and are nonprofit– Insured by the government (NCUA) National Credit Union

Administration – Please see the next slide for more info.» This is the FDIC equivalent only for Credit Unions

– Fewer Branches– Often smaller, more personal and casual– Offer slightly higher interest rates than banks because they are

nonprofit– **You should go to a Credit Union when taking out a loan,

as Credit Unions often offer more favorable rates for the consumer**

• http://banking.about.com/od/creditunions/a/bank-vs-creditunion.htm

NCUA – Insurance For Credit Unions

•  What is NCUA? NCUA -- short for the National Credit Union Administration -- is an independent federal government agency that charters and supervises federal credit unions and insures accounts in federal and most state-chartered credit unions across the country through the National Credit Union Share Insurance Fund (NCUSIF), a federal fund backed by the full faith and credit of the United States government.

• What is the purpose of NCUSIF?The NCUSIF protects members’ accounts in federally insured credit unions, in the unlikely event of a credit union failure. The NCUSIF covers the balance of each member’s account, dollar-for-dollar up to the insurance limit, including principal and posted dividends through the date of the failure.

• What is the NCUSIF insurance amount?Properly established member accounts in federally insured credit unions are insured up to the Standard Maximum Share Insurance Amount (SMSIA). The basic insurance amount is $250,000 per individual account holder, per federally insured credit union. This includes principal and posted dividends up to a total of $250,000. Joint account holders are insured up to $250,000 per joint account holder, per federally insured credit union. For example, an account with two joint account holders is insured for $500,000 separately from the holders’ individual accounts. This includes principal and posted dividends. IRA and KEOGH accounts are insured, separate from other accounts, up to $250,000 per institution, including principal and posted dividends.

Quiz• In Canada, what is the term for checking

account? • Given the high interest rate, do you think

overdraft protection is worth it?• Order checking, NOW, and CDs from most liquid

to least liquid, and then most interest earned to least interest earned.

• What type of account is best for you, and why?• What are the benefits and disadvantages of a

CD account?

Answers

• Current Account• Yes, because if it is paid in a timely fashion, fees

will be lower than constant overdraft fees.• Checking, Savings, CDs• A savings account is best for me, because I do

not need to make constant payments, yet I can still access my funds while gaining interest.

• Benefits: high interest ratesDisadvantages: long maturing time, and inability to access funds until the account has matured