Credit Basics II
(continued)
Types of Financial Institution Services
Savings Accounts
You use a savings account to store money you don’t plan
to spend right away. As you work toward meeting your financial
goals, the use of a savings account provides a safe place to
store cash—safer than a secret hiding place in your house.
The biggest benefit of savings accounts is that your money earns interest. Interest
is the amount financial institutions pay you to use your money. Banks use your
money to loan to other customers. This is completely legal.
 Lenders
like to see routine deposits to savings accounts—no matter the amount.
It is the habit of routine deposits that is important to establishing and
building good credit. |
Over time, your money grows just by sitting in your savings account because it
is earning interest. The more you deposit (add money to your account) the more
interest you earn. On top of that, you can withdraw (get your money back) anytime
you want. You’ll receive a monthly statement showing your savings balance
and your deposits and withdrawals. You may also be able to view your statements
online.
Ask a mentor, friend, or your Habitat advisor for a recommendation on where to
open a savings account. You may want to visit several financial institutions
to find out what they offer, then make a decision.
| Individual Development Accounts (IDAs) |
| Eligibility
for IDA accounts is partially based on your credit. If you have too
much debt, you might not qualify for an IDA. |
IDAs are savings accounts that help people with low incomes save money.
You can access them through various community programs in your area. People
usually use IDA accounts for saving money to:
• Continue their education
• Purchase a home
• Start a business
• Save money for the future
| Three Benefits of IDA Accounts |
| • |
Every dollar you put into your IDA account (deposit) is matched. Some
programs will give you $1 for every dollar you deposit. Other programs
give you
$2 or $3 for every dollar you deposit. |
|
| • |
Your IDA program sponsor provides financial education to
help you manage your money. |
| • |
Participating in IDA programs does not disqualify you from
other government programs, such as Temporary Aid to Needy Families (TANF). |
Find out if you qualify for an IDA
To find out if you qualify for an IDA account and how to open one, call the Corporation
for Enterprise Development at 1-202-408-9788 or visit www.IDANetwork.org.
Find an IDA program
You can search for an IDA program in your state by using CFED’s
IDA
directory. |
ATMs (Automated Teller Machines)
These are electronic machines that allow you to deposit cash or checks, withdraw
cash, and transfer money between accounts at any time of the day or night. When
you open your checking or saving account, you’ll receive a plastic card,
usually a debit card, and personal identification number that allows you to use
the ATM. Make sure you record your ATM deposits and withdrawals in your check
or savings register.
Are ATMs Safe?
You are protected by the Electronic Funds Transfer Act (EFTA) when you
use an ATM. On lost or stolen ATM cards, your liability for an unauthorized
withdrawal can vary. According to the EFTA:
| • |
Your loss is limited to $50 if you notify the financial
institution within two business days after learning of loss
or theft of your card or PIN (Personal Identification Number). |
| • |
But you could lose as much as $500 if you do not tell the
card issuer within two business days after learning of loss
or theft. |
| • |
If you do not report an unauthorized transfer that appears
on your statement within 60 days after the statement is mailed
to you, you risk unlimited loss on transfers made after the
60-day period. That means you could lose all the money in
your account plus your maximum overdraft line of credit,
if any. |
Here is an example of how the EFTA law works:
Yesterday, Adelle’s debit card and PIN were stolen. On Tuesday, the
thief withdrew $250, all the money Adelle had in her checking account.
Five days later, the thief withdrew another $500, triggering Adelle’s
overdraft protection. Adelle did not realize her card was stolen until
she received her bank statement, showing withdrawals of $750 she did not
make. Adelle called her bank right away. Her liability is $50.
Source: www.federalreserve.gov |
A huge benefit of ATMs is that you don't have to
use expensive check-cashing companies. Because there are so many ATMs
available for use
at any time
of the day, you can conveniently deposit your checks
then withdraw your money, usually within 24 hours. Banks take up to 24
hours to verify that the person or company who wrote you the check to has
enough money to cover it. If you already have cash in your account, you
can withdraw it at any time.
Financial institutions charge fees to use ATMs, but waive them if you use
your financial institution’s ATMs. Be sure to read the small print
on your account documents that state ATM fees and where they are charged. |
Credit Cards
Financial institutions loan you money every time you pay for
something with a
credit card. How? You don’t pay cash for the item at the time of purchase,
your credit card company does. The loan amount equals your purchase amount. If
you don’t pay the loan, or your purchases, in full by the due date listed
on your credit card bill, you end up “carrying a balance.” And credit
card companies charge you to do that. To avoid paying interest on that loan,
or your purchases, you must pay your credit card bill in full by the due date.
| Important things you need to know about credit cards
include: |
| • |
The most important reason for using a credit card is to prove that you
can pay back a loan, on time. |
| • |
You don’t need to carry a balance to establish or build credit. |
| • |
You need to use your credit card to establish and build credit. Purchase
small items listed in your spending plan, then pay for them in full by
the due date. |
| • |
To avoid paying interest on balances, pay for your purchases in full
by the due date. |
Direct Deposit
Your employer may offer direct deposit. This means your paycheck will automatically
be deposited into your checking account every payday. With this service,
you can skip the trip to the bank.
Is Direct Deposit Safe?
With direct deposit, you don’t have to worry about your check being
lost or stolen, and you can withdraw funds as soon as it you paycheck is
deposited. Your paycheck is transferred to your bank electronically. It
is the same type of transfer as requesting a financial institution to wire
money to a friend or family member’s bank account. This transfer
occurs only within the banking system, not over the Internet. |
|
| Direct deposit makes it easy to save if
you are able to specify that a portion of your paycheck be automatically
deposited into your savings account. A wonderful thing happens
when you do this: you don’t miss the money. If you never
see the money, it is kind of like not having it around to spend. |
|
Loans
A common type of credit, a loan is money you borrow from someone or a financial
institution with the promise to pay it back by a certain date. You pay interest
and fees to take out a loan from a financial institution.
| Save your money order receipts. You can use them
as evidence that you paid your bills on time. The fastest way to establish
or improve your credit is to pay your bills on time, every month. |
Money Order
A money order is a cash payment for a specified amount of money. It looks like
a check, and you use it like a check to pay businesses that do not accept cash
(such as the utility company). You pay a fee for a money order, so if you use
them often, shop around for the best fee.
Online Banking
With an Internet connection, you can view your savings and checking account
activity, transfer money between accounts, and pay many bills while you’re
online.
Telephone Banking
Banks allow you to conduct financial transactions over the phone, such as paying
bills or transferring money between accounts. You can also check on account
balances and stop payment on a check.
| Some financial institutions offer low-cost money
orders or free wire transfers if you have an account there. Ask your
financial institution for details. Be sure to ask if it charges any
fees to use these services. |
Wire Transfer
A wire transfer lets you transfer money from your financial institution to
another one.
©2008
NEFE. All rights reserved.
