Banks and Banking Options

Banks and Banking Options

It all started with a piggy bank…or a glass jar, or a shoe box. Whatever you might have used to stash your cash in as a child, you knew you wanted it to be a safe place to keep your money. You wanted to know where it was so that you could get to it, add to it, and use it when you needed or wanted to buy something.

But as time passes, your financial life can become a bit more complicated. As you get a job and take on new responsibilities—like paying rent or a mortgage and/or getting a car loan—your saving and spending needs are suddenly much more than a simple piggy bank can handle. Yet the basic need to know that you have a safe and secure place to keep your money remains constant. That’s where banks come in.

Banking services

Banks not only provide a safe place to stash your cash, but they also offer accounts and products that allow you to pay your bills and, at the same time, earn interest and help your money grow. Having a bank account allows you to:

·         Keep your money safe from loss, theft, or fire

·         Earn interest and grow your savings

·         Deposit your paycheck directly

·         Pay bills easily and inexpensively

·         Track your spending and manage your finances

·         Establish credit

·         Have access mortgage loans, car loans, and other products

Banks come in many types and sizes, from large financial services companies with a national or even an international presence to local community banks, savings and loans, credit unions, and Internet banks that exist solely online. Most offer a diverse range of products and services like consumer checking and savings accounts and loans along with similar services designed especially for businesses.

Banks offer their customers many different ways to access their services:

·         A branch is a retail location where a bank offers face-to-face service to its customers.

·         An ATM (automated teller machine) allows you to conduct daily transactions—check account balances, make deposits, withdraw cash—in a public space without the need for a bank teller.

·         Telephone banking allows you to perform basic transactions (like checking account balances, transferring money, and paying certain bills) over the telephone.

·         Online banking allows you to conduct nearly all of your banking transactions—including transferring money and paying bills—over the Internet through a secure website.

·         Mobile banking allows you to use your cell phone to conduct simple banking transactions by remotely linking into a banking network. Mobile banking also allows you to have certain account alerts sent to your phone—like warning you when your account balance is low or when a monthly bill payment is due.

Bank Products

For many people, the first financial institution they deal with, and the one they use most often, is a bank or credit union. That's because banks and credit unions provide a safe and convenient way to pay your bills and accumulate savings, as well as other services that can help you to manage your money.

Banks offer two main products:

1.    Transaction accounts, better known as checking accounts, which allow you to transfer money by check or electronic payment to a person or organization that you designate as payee; and

2.    Deposit accounts, which include savings accounts and money market accounts, which pay interest on your money in those accounts.

Deposit accounts are a good place for funds that you want to be safe, liquid and easy to get to—such as savings for a down payment, or a cushion for unexpected expenses like car repairs or emergency medical expenses. And if you're setting aside money for future financial goals with a known deadline, you can consider another type of savings product called a certificate of deposit (CD).

 

Federal Insurance

The money you put in a bank account is insured by the Federal Deposit Insurance Corporation (FDIC), an independent agency of the U.S. government. There's comparable protection for credit union deposits from the National Credit Union Share Insurance Fund. With this protection, your deposits are secure up to the maximum coverage that Congress has approved, even if your bank or credit union goes out of business. This coverage applies separately to each bank where you have accounts.

The exact amount of insurance at each bank depends on two factors—the kinds of accounts you have and the way those accounts are registered:

·         Single accounts: Your total deposits in all the checking and savings accounts you own solely in your own name are currently insured up to $250,000. 

·         Joint accounts: Your total share of all the checking and savings accounts you own jointly with others is currently insured up to $250,000.

·         Self-directed retirement accounts (such as IRAs): The balances in your self-directed retirement accounts are insured up to $250,000, provided that the money is in certificates of deposit or other bank accounts.

·         Revocable trust accounts (including payable-on-death accounts and living trust accounts): Each account that names a different beneficiary is insured up to $250,000.

Let's assume, for example, that you had the following accounts at one bank:

·         $5,000 in a checking account plus $245,000 in various savings accounts held in your name

·         $200,000 in a savings account that you own jointly with another person

·         $250,000 in certificates of deposit in an IRA

·         $200,000 in two payable-on-death account with different beneficiaries

According to the FDIC insurance rules, all of those deposits would be insured fully by the FDIC since each account is within limits of the coverage. In the case of the joint savings account, the insurance coverage would be shared by your co-owner, with each of you being eligible for $250,000 insurance.

Suppose, however that the only money you had in a particular bank was a certificate of deposit valued at $300,000, and you were the sole owner. In that case, $250,000 of that amount would be covered, and $50,000 would be uninsured.

 

What FDIC Insurance Doesn't Cover

In contrast to these bank products, securities investments such as stock, bonds, and the mutual funds that invest in them are not insured or guaranteed by the FDIC. They could lose value even if you hold them in an account, such as an IRA, that you open with your bank. That's true even if the bank's name is used in the name of investment, such as Bank X Growth Stock Fund. Insurance company products that a bank sells, including life insurance and annuities, aren't covered by the FDIC either.

 

Basic Savings

Bank savings accounts have traditionally been one of the simplest and most convenient ways to save. These accounts typically have the lowest minimum deposit requirements and the fewest withdrawal restrictions. But they often pay the lowest interest rates of any of the savings alternatives. However, when banks are competing for your deposits, they may offer substantially higher interest or other benefits for opening a savings account.

Traditional savings accounts used to be called passbook savings accounts, since tellers would record your deposits and add the interest you'd earned in a small booklet called your passbook. These days, electronic records make passbooks unnecessary. But some banks still offer old-fashioned passbook accounts, especially for children's savings accounts.

 You’re Savings Account Interest Payments

Most savings accounts pay compound interest, which means that your earnings are added to the balance to create a larger base on which future interest is paid. The bank will tell you whether the interest compounds daily, monthly, or on some other schedule, and when the interest is credited to your account. The more frequently it compounds, the faster your earnings will accumulate—though with small balances the increases won't be very dramatic. You generally begin to earn interest as soon as the money goes into your account, and that interest continues to accrue until you withdraw.

The bank will also tell you the basic interest rate and the annual percentage yield (APY). The APY is larger than the basic, or nominal, rate since it takes into account the impact of compounding. Banks often advertise the APY since it more accurately reflects the amount of interest the account will actually pay, and it makes the savings account a more attractive place to park your money.

Online banks may offer higher interest rates than more traditional brick-and-mortar banks. That's because online banks tend to have lower overhead, and can pass their reduced costs onto consumers in the form of increased earnings rates. Before deciding on a savings account, it pays to compare interest rates, along with other features, such as convenience of making deposits and withdrawals. Even a small difference in the rate can result in a substantial difference in interest over time, depending upon the amount you put into the account.

 

Other Savings Account Features

With a basic savings account, you can make as many deposits as you like, whenever you like. And you can usually withdraw as much as you like when you need the money. However, some banks may require minimum opening balances for basic savings accounts, and some banks charge fees if your balance falls below that minimum. Other banks don't have minimum balance requirements, so if your savings balance tends to be low, you may want to consider these fees in choosing a bank account.

You can also ask if the bank offers low-cost savings accounts. Many banks offer more flexible alternatives for children, college students, and senior citizens, and for people whose income falls below certain limits. But the way these accounts work vary from banks to bank.

One thing you can't do with a basic savings account is transfer money to another person or institution, so you can't pay bills from your savings account. But you can generally transfer funds from your savings to your checking account electronically, or withdraw funds from one of your savings account and deposit them in another. You should be aware of Federal Reserve Regulation D, though, which limits you to six transfers from your savings account in any four-week period, whether these transfers are made electronically, automatically, or by phone.

 

Emergency Funds

It's a good idea to have a separate savings account to serve as your emergency fund. Most experts agree that's important to set aside enough money to cover your living expenses for three to six months in an account you use exclusively for this purpose. This money would come in handy, for example, if you were to stop earning income temporarily, or if you were faced with unexpected events, such as big medical bills, or any other expense that could arise without warning. Without savings, you might need to rely on credit cards and other borrowing to pay for emergencies, which could result in serious debt.

 

Money Market Accounts and Money Market Mutual Funds

Money market accounts are similar to savings accounts, but may pay higher interest rates. However, they tend to have higher balance requirements than savings accounts, and different interest rates may apply to different account balances. For example, there may be one rate for balances below $10,000, a higher rate for balances between $10,000 and $25,000, and an even higher rate for $25,000 and above. In addition, you may need a larger deposit to open a money market account.

Unlike traditional savings accounts, money market accounts let you write a limited number of checks each month, in essence combining features of savings and checking accounts. The ceiling is usually three checks—another of the restrictions imposed by Federal Reserve Regulation D. If you exceed the limit, the bank won't process any new transactions until the next period. However, you can make all the withdrawals you want by visiting a bank branch office in person, and you can deposit that money into your checking account without penalty.

You may want to use a money market account for a portion your emergency fund, or to park money you intend to invest until you've accumulated enough to make a particular purchase.

Money market mutual funds are similar to money market accounts in some ways. They typically pay interest at about the same rate and many offer check-writing privileges. One advantage is that there's usually no limit on the number of checks you can write each month. However, any check you write against the account may have to be for at least the required minimum, such as $500. One drawback is that money market funds, unlike money market accounts, are not FDIC insured, although some offer their own insurance. While fund companies try to keep their money market share price stable at $1 a share, there is the possibility you could lose some of your principal.

 

Certificates of Deposit (CDs)

Certificates of deposit (CDs) are time deposits. When you choose a CD, the bank accepts your deposit for a fixed term—usually a preset period from six months to five years—and pays you interest until maturity. At the end of the term you can cash in your CD for the principal plus the interest you've earned, or roll your account balance over to a new CD. But you must tell the bank what you've decided before the CD matures. Otherwise the bank may automatically roll over your CD to a new CD with the same term at the current interest rate. And you might earn a better interest rate with a CD that has a different term, or one offered by a different bank.

CDs are less liquid than savings accounts. You can't add to or withdraw from them during the term. Instead, to buy a CD, you need to deposit the full amount all at once. If you cash in your CD before it matures, you'll usually pay a penalty, typically forfeiting some of the interest you've earned. To make up for the inconvenience of tying up your money, CDs typically pay higher interest than savings or money market accounts at the same bank, with the highest rates for the longest terms—though there are exceptions to this pattern. Like other savings accounts, bank CDs are insured by the FDIC, with your CD account balances counting toward your total insured amount.

 

CDs for Different Interest Rate Environments

In the past, each CD paid a fixed rate of interest over its term. But today you can also find variable rate CDs, sometimes called market rate CDs. With these accounts, the interest rate may rise and fall with changing market rates or be readjusted on a specific schedule. If the current rate is low, it may make sense to purchase a variable CD. That way, if interest rates rise, you won't miss out on the rate increase. On the other hand, if you expect rates to fall in the future, it may make more sense to buy a fixed-rate CD to lock in the higher rate for a specific term.

Another alternative is to create a CD ladder. You might start by dividing the amount you plan to invest in CDs into four equal amounts and buy four CDs with varying terms—say three months, six months, nine months, and one year. As each CD matures, you replace it with a one-year CD, so you have an amount to cash in or reinvest on a regular schedule. If you used a longer ladder, so that your CDs matured on an annual instead of a quarterly basis, you would never have all your money invested at the same rate, which would allow you to avoid locking in a large sum at a low rate.

 

Take Care With Long-Term CDs and Call Features

CDs are usually described, quite accurately, as conservative investments because of their FDIC insurance and relatively short terms. However, not all CDs are alike. In addition to regular CDs, whose terms are rarely longer than five years, banks may offer long-term, high-yield CDs that pay a much higher rate of interest for terms as long as 10 or 20 years. These CDs may be callable, which means that the bank has the right to terminate the CD and pay you back your principal plus the interest earned to that point. This usually happens if your CD is paying higher interest than CDs currently on the market, and it means you would have to reinvest your principal at a lower rate than your old one paid. However, unlike the bank, you don't have the right to end a CD contract if the situation is reversed and your CD is paying less than the current market rates.

In fact, you may want to think twice about any long-term CD because of the early withdrawal penalty. Generally speaking, investments that cost you money simply for changing your mind are rarely the best alternative.

 

Brokered CDs—Not Always FDIC Insured

You may also be offered a brokered CD by a stockbroker or other investment professional who serves as a deposit broker for the issuing bank. Brokered CDs may have a longer holding period than a CD you purchase directly from a bank, and they may be more complex and carry more risk. Although most brokered CDs are bank products, some may be securities—and won't be FDIC insured.

Brokered CDs differ in other ways from traditional CDs. For example, you may have to pay a fee to buy a brokered CD, either as a fixed amount or as a percentage of the amount you are investing. If the fee is modest and the CD is paying a higher rate than you could find on your own, you may come out ahead. But you should take the fee into account. You may also have to invest a minimum amount, such as $10,000 or more.

If the bank issuing the CD is FDIC-insured and if the CD is a bank product, your account value should be insured for up to $250,000. Keep these two things in mind, though: To be eligible for insurance, you must be listed as the CD's owner, so you'll want to confirm that it's registered to you or held in your name by a custodian or trustee. Second, if the issuer happens to be a bank where you already have money on deposit, the total value of your accounts could be higher than the amount of the insurance. If the bank fails, you might be vulnerable to loss.

Unlike a traditional CD, brokered CDs can't simply be cashed in with the issuing bank. As a result, some firms that offer brokered CDs may maintain a secondary market—but these secondary markets tend to be quite limited. If you want or need to liquidate your brokered CD before maturity, you may be subject to what's known as market risk. This means the CD may be worth less than the amount you invested because other investors are not willing to pay full price to own it. This might happen if the interest rate that new CDs are paying is higher than the rate on your CD.

 

Questions to Ask About CDs

Before you buy any CD, you should ask several questions:

·         What interest rate does the CD pay and what is the annual percentage yield (APY)?

·         Is the rate fixed or variable, and if it's variable, what triggers an adjustment and when does the change occur?

·         When does the CD mature?

·         What's the penalty for early withdrawal and are there exceptions to the early withdrawal fee?

·         Does the bank have the right to call the CD, and if so, when could that occur?

·         Is the issuing bank FDIC insured?

And if you purchase a brokered CD through a deposit broker, you should also ask the following additional questions:

·         Is the brokered CD a bank product or a security?

·         What is the name of the issuing bank?

·         Is the issuing bank insured by the FDIC?

·         Is the deposit broker someone you know—whose credentials you have checked?

CDs are useful additions to most investment portfolios because they offer safety and a predictable return. If you keep a portion of your assets in cash, CDs or U.S. Treasury bills are usually the most logical choices. And if you've been accumulating money to pay for specific goals, such as making the down payment on a home or paying tuition bills, you may want move some of this money into CDs as the date you'll need the money gets closer. That way, you can be sure you'll have it when you need it.

 

Beyond Banking

In addition to checking and savings accounts, your local bank may offer you investment accounts that you can use to save for college or retirement, insurance coverage for your home or your life, or annuities to help you generate retirement income. But it's important to remember that just because you're buying these products from a bank doesn't mean they're FDIC insured. In fact, they're not.

However, you may find that the convenience of having all of your financial activities under one roof makes your life easier. And if you already have a relationship with a particular bank, you may feel more comfortable going there for a broader range of financial services. In fact, some banks now employ investment professionals, as well as tellers and account managers to help you coordinate your whole financial strategy. If you are unsure about which accounts are insured and for how much, be sure to ask.

Banks provide the following: 
1. A safe place to deposit your money which you can withdraw anytime you want for a small fee. 
2. Bank can provide you with credit card+checks+debit cards. 
3. Banks can provide certain organizations with individuals credit reports. 
4. banks can offer people with loans for a variety of things, ex. house, cars, etc.

Customers and their expectations

Customers are people who buy products and services from other people (usually companies of one sort or another). What customers think and feel about a company and/or its products is a key aspect of business success. Attitudes are shaped by experience of the product, the opinions of friends, direct dealings with the company, and the advertising and other representations of the company.
Irrespective of whether a business' customers are consumers or organizations, it is the job of marketers to understand the needs of their customers. In doing so they can develop goods or services which meet their needs more precisely than their competitors. The problem is that the process of buying a product is more complex than it might at first appear. 
Customers do not usually make purchases without thinking carefully about their requirements. Wherever there is choice, decisions are involved, and these may be influenced by constantly changing motives. The organization that can understand why customers make decisions such as who buys, what they buy and how they buy will, by catering more closely for customer’s needs, become potentially more successful.

Customer requirements

The supermarket industry provides a good example of the way in which different groups of customers will have different expectations. Some customers just want to buy standard products at the lowest possible prices. They will therefore shop from supermarkets that offer the lowest prices and provide a reasonable range of goods. In contrast, some supermarket shoppers are seeking such aspects as variety and quality. They will therefore choose to buy from an up-market supermarket. Additionally some customers will have special tastes such as wanting to buy FAIRTRADE products or organic fruit and vegetables. It is clear therefore that to be successful a business has to have a clear understanding of their target customers and the expectations of this group.
Most markets are made up of groups of customers with different sets of expectations about the products and services that they want to buy. Marketing oriented businesses will therefore need to carry out research into customer requirements to make sure that they provide those products and services which best meet customer expectations in the relevant market segment.

The Six Basic Needs of Customers

1. Friendliness
Friendliness is the most basic of all customer’s needs, usually associated with being greeted graciously and with warmth. We all want to be acknowledged and welcomed by someone who sincerely is glad to see us. A customer shouldn’t feel they are an intrusion on the service provider’s work day!

2. Understanding and empathy
Customers need to feel that the service person understands and appreciates their circumstances and feelings without criticism or judgment. Customers have simple expectations that we who serve them can put ourselves in their shoes, understanding what it is they came to us for in the first place.

3. Fairness 
We all need to feel we are being treated fairly. Customers get very annoyed and defensive when they feel they are subject to any class distinctions. No one wants to be treated as if they fall into a certain category, left wondering if “the grass is greener on the other side” and if they only received second best.

4. Control 
Control represents the customers’ need to feel they have an impact on the way things turn out. Our ability to meet this need for them comes from our own willingness to say “yes” much more than we say “no.” Customers don’t care about policies and rules; they want to deal with us in all our reasonableness.

5. Options and alternatives
Customers need to feel that other avenues are available to getting what they want accomplished. They realize that they may be charting virgin territory, and they depend on us to be “in the know” and provide them with the “inside scoop.” They get pretty upset when they feel they have spun their wheels getting something done, and we knew all along a better way, but never made the suggestion.

6. Information
“Tell me, show me – everything!” Customers need to be educated and informed about our products and services, and they don’t want us leaving anything out! They don’t want to waste precious time doing homework on their own – they look to us to be their walking, talking, information central.