Smart Money Training Program

Topic 6.1: Financial Institutions & Products

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We will discuss how your needs should determine which financial products, services, and providers you select.

Financial Institutions: Banks and Credit Unions

Banks and credit unions are financial institutions. They offer a wide range of products and services to help you manage your money. They accept deposits and loan money. For example, they offer checking accounts and savings accounts.

They may also offer credit cards, car loans, personal loans, mortgages, and other products and services.

Differences Between Banks and Credit Unions

Banks and credit unions share similarities, but they also have distinct differences.

Banks have customers. Credit unions have members. You have to meet a credit union’s criteria for membership to open an account.

Credit Unions are not-for-profit organizations owned by their members. Most banks are owned by shareholders.

Banks and credit unions are regulated and insured to keep your money safe.

Note: We use the term “financial institution” to include banks and credit unions.

FDIC deposit insurance protects you if the bank fails, meaning that it is closed down by the government.

Since the FDIC was established in 1933, no depositor has lost a penny of FDIC-insured funds.

The FDIC insures deposit accounts at banks, including savings accounts, checking accounts, and certificates of deposit. It also insures cashier's checks, money orders, and other official items issued by an FDIC-insured bank.

The FDIC provides insurance of at least $250,000 per depositor, per FDIC-insured bank, per ownership category—single account, joint account, certain retirement accounts, for example.

You may notice that banks mention they are a member of the FDIC when you visit a branch or their website. 

Products and Services available at Financial Institutions
 

Deposit products include: 

• Savings accounts: Used to set money aside for use in the future. Money in a savings account earns interest.

• Checking accounts: Transaction accounts used to deposit money into them and take money out frequently. Money in a checking account may earn interest.

• Certificates of deposit (CD): Used to set money aside for use in the future. They typically offer a higher interest rate than savings accounts. You need to keep money in a CD for a specific period of time; otherwise, you likely must forfeit some of the interest you earn.

• Money market accounts: Used to earn a higher rate of interest with a higher minimum balance than savings accounts.

Credit products include:

• Credit cards: Revolving credit. You can borrow money over and over again up to your credit limit.

• Lines of credit: Another form of revolving credit, allowing you to borrow money up to a certain amount.

• Installment loans: Loans repaid in equal payments over several months or years. The final payment may be different than the regular payment amount.

• Mortgages: Loans secured by your home, usually to purchase it or refinance an existing mortgage. They are usually installment loans.

Other products and services include:

• Check cashing: Converting a check to cash.

• Money orders: Used to send money, such as to pay bills.

• Prepaid cards: Have money deposited onto them. They usually aren't linked to your checking or savings account.

• Debit cards: Used to access money that is in your checking or savings account.

• Cashier’s checks: Checks guaranteed by a financial institution.

• Automated teller machines (ATMs): Machines that can process a variety of banking transactions, including accepting deposits and loan payments, providing cash for withdrawals, and transferring money between accounts.

• ATM cards: Used at an ATM for various account transactions. You might also be able to make some purchases with an ATM card.

• Online or mobile banking, including bill-paying services: Used to manage your accounts using the Internet on a computer or mobile device.

• “Person-to-person” payments (P2P): Apps or other web-based services that you can use to transfer money to someone.

• Remittance (“wire”) transfers: Moving money to a person or business in another country.

Benefits of having Savings and Checking Accounts

Opening a savings or checking account at a federally insured financial institution provides you with many benefits:

• Safety and security from federal deposit insurance

• Earning interest, depending on the account

• Convenience

• Ability to develop a relationship with a financial institution that may be useful when you need to borrow money

• Important consumer protections 

Remember the Key Takeaways:

• Consider your needs and shop around for financial products and services.