Name Block Date Checking Accounts Tasks Checking Accounts Notes... page 5 Debit Card Questions... page 7 Writing a Check Activity... page 8 Checking Simulation #1... pages 9-19 Checking Simulation #2... pages 20-29 Responsible Checking Project... page 30 1
Introduction to Checking Accounts People generally use checking accounts to store money in the short term until it is needed for day to day expenses like gas or groceries or to pay bills, and they can usually deposit or withdraw any amount of money in their account as many times as they like. Checking accounts also come with convenient ways to deposit and withdraw money from the account, such as checks and ATM cards. However, people with checking accounts must be careful when using them, since some banks charge fees for certain actions, such as using another bank's ATM, withdrawing more money from your account than the amount in it, or not maintaining a minimum balance. On the other hand, a savings account is used to set money aside for use in the future and allow the money to collect interest. Many people regularly place some of their money into savings accounts rather than spending it in order to achieve financial goals, such as buying the latest gadget or game, without having to go into debt to do it. Compound interest is interest paid on both the money you put into your account and the interest already earned. For example, if you put $100 into an account that earns 10% interest, you will initially earn $10, which will result in a total account balance of $110. The next time your account earns 10% it will be based on $110 instead of just $100, giving you a total account balance of $121. You can earn even more in compound interest if you stretch to put as much money as you can into your account and leave it untouched. See the chart below, which is based on a savings account started with $50 and earning interest at a rate of 3.5% each month. If you add just $10 each month, the account can grow nicely to $714 after five years. If you instead put in a slightly higher amount $15 each month you'd have a balance of $1,042 after five years. But if you had increased your deposits to $50 a month, those extra dollars plus the compounding of interest would give you a balance of $3,333 after five years. There are many banks that offer special accounts for kids and teens, so talk to your parents if you'd like to open an account of your own and start learning how to manage money. But you don't need a bank account to start the habit of saving a simple piggy bank will do! 2
Choose the Account That Is Best for You When it comes to finding a safe place to put your money, there are a lot of options. Savings accounts, checking accounts, certificates of deposit and money market accounts are popular choices. Each has different rules and benefits that fit different needs. When choosing the one that is right for you, consider: 1. Minimum deposit requirements- Some accounts can only be set up with a minimum dollar amount. If your account goes below the minimum the bank may not pay you interest on the money you deposited and you may be charged extra fees. 2. Limits on withdrawals- Can you take money out whenever you want? Are there any penalties for doing so? 3. Interest- How much (if anything) is paid and when: Daily, monthly, quarterly, yearly? 4. Deposit insurance- Make sure your bank is a member of the Federal Deposit Insurance Corporation. This organization protects the money in your checking and savings accounts, certificates of deposit and IRA accounts up to $250,000. 5. Credit unions- A credit union is a nonprofit, cooperative financial institution owned and run by its members. Like the FDIC does for banks, the National Credit Union Share Insurance Fund insures a person's savings up to $250,000. 6. Convenience- How easy is it to put money in and take it out? Are there tellers or ATM machines close to where you work and live? Or would you receive most of your service via the telephone or Internet? If you are considering a checking account or another type of account with check-writing privileges, add these items to your list of things to think about: Number of checks- Is there a maximum number of checks you can write per month without incurring a charge? Check fees- Is there a monthly fee for the account or a charge for each check you write? Holds on checks- Is there a waiting period for checks to clear before you can withdraw the money from your account? Overdrafts- If you write a check for more money than you have in your account, what happens? You may be able to link your checking account to a savings account to protect yourself. Debit card fees- Are there fees for using your debit card? strong>account fees- Banks can charge fees on your checking or savings account to cover things like maintenance, withdrawals, or minimum balance rules. However, the bank must inform you of the fees up front as part of your account agreement and notify you when changes occur. Practices vary from bank to bank, but each must inform you of the fee change on your statement, in a separate letter, or in a pamphlet. The Federal Reserve has more information about account fees. Bounced checks- It s your responsibility to have sufficient funds in your account to cover the checks you write. If you try to cash a check, withdraw money, or use your debit card for an amount greater than the amount of money in your account, you can face a bounced check or overdraft fee. Your bank may pay for the item, but charge you a fee or deny the purchase and still charge you a fee. In addition, the business to which you wrote the check may charge you an additional returned check fee. Bounced checks can also blemish your credit record, so you may want to talk to your bank about overdraft protection. 3
Debit Cards Definition: Debit cards are similar to credit cards, except debit cards only allow you to spend money that you already have -- the money comes out of a checking account linked to the card. Debit cards do not increase your debt burden like credit cards do, although it is possible to borrow small amounts as part of an overdraft line of credit. Where to Use Debit Cards You can use debit cards very much like a plain old credit card. Many retailers will allow you to use a debit card at checkout just like a credit card. You just swipe it and you're done. However, sometimes you have to let the retailer know you're using a debit card instead of credit. You can choose to have your purchase processed as a "debit" or "credit" transaction. Although debit cards can be used almost anywhere, think before you swipe. That card goes directly to your checking account. If your card information is stolen, thieves can drain your account (which will make it difficult to pay expenses). You are somewhat protected against fraud, but avoiding trouble in the first place is much easier. Be especially careful using your debit card online. Debit Cards and the ATM For some people, the main reason to have a debit card is to use it at an ATM. For a while, banks issued "ATM Cards" which were only useful if you were standing in front of an ATM trying to take out cash. Eventually, banks started to add more features so that a debit card can now be used at almost any location. Prepaid Debit Cards Traditionally, debit cards are part of your checking account; they allow you to spend money electronically instead of writing a check. However, newer prepaid cards allow you to pay with plastic (or by punching in your account number online) without the need for a checking account. Many cards can be used without any approval or credit check, and they help you avoid going into debt because you can only spend what you load onto the card. Debit Card Rewards Some debit cards are part of "rewards" programs. Using your card can lead to discounts or accumulating points (which can then be used for travel, gifts, and other goods). If you know how you'll use your debit card, and you know where you plan to spend money in the future, it may pay to pick a debit card that will save you money or help you enjoy perks. 4
Checking Accounts Notes Use the information from the articles entitled Introduction to Checking Accounts, Choose the Account That Is Best for You, and Debit Cards to define these terms and answer the questions. Purpose of Checking Account Deposit Vocabulary Withdraw ATM Minimum Balance Interest Minimum Deposit Requirement Deposit Insurance Credit Union Check Check Fee Bounced Check Debit Card Debit Card Fee Overdraft How can you earn money on the money in your checking or savings account? When will you use a debit card? Questions What is the difference between a debit card and a prepaid debit card? 5
9 best practices for debit card use Debit cards are useful financial tools as they offer the convenience of plastic -- without the risk of racking up debt. Just like credit cards, though, debit cards can lead to trouble if not used wisely. Here are experts' nine best tips for managing your debit card. 1. Know yourself. Do you have bad money habits, such as not balancing your checkbook, losing receipts and getting hit with overdraft charges? If so, avoid pulling out your debit card every time you crave a latte, and pay cash for everyday purchases. "The debit card is a great tool, but it's not for everyone," says Susan Tiffany, director of consumer periodicals for the Credit Union National Association. "Just ask yourself upfront: 'Am I the kind of person who's going to run into trouble with this?'" 2. Keep track of transactions. Keep good records to avoid bounced checks, overdraft fees and stress. "Write down every purchase right away in your check register," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. This goes double for those who have joint accounts, according to Catherine Williams, vice president of financial literacy for Money Management International, a national credit counseling firm. "It's really important that you both record all your transactions and be in close communication with each other," Williams says. 3. Don't automatically "opt in." This summer, new federal regulations prohibit banks from allowing customers to overdraft with debit cards unless they opt in. Banks are urging customers to do so, but Leslie Parrish, a senior researcher at the Center for Responsible Lending, says 80 percent of consumers would rather have their card declined at the checkout counter than get hit with a $30 or more overdraft fee. "Your debit card could become your most expensive credit card if you don't have enough money in your account and are extended credit," Parrish says. Instead of opting in, Linda Sherry, national priorities director for Consumer Action, recommends you set up your own overdraft protection by linking your card to a savings account or a line of credit. 4. Watch out for holds. Before using your debit card to make hotel reservations, rent a car or even buy gas, ask whether any holds will be placed on your account -- and how much and how long those funds will be held. If you don't want your money tied up for what could be as long as a month, consider using a credit card for hotels and rentals instead, Tiffany recommends. (Or, make the reservation with a credit card and pay the final bill with your debit card.) "If you're traveling and don't have the balance to cover the holds they've placed, you could go to buy dinner and have your card declined," Tiffany says. Your debit card could become your most expensive credit card if you don't have enough money in your account and are extended credit. -- Leslie Parrish Center for Responsible Lending 5. Know the difference: debit versus credit. You've just swiped your card to pay for a new pair of jeans, and the clerk asks, "Debit or credit?" If you choose "debit" and punch in your PIN, the transaction happens online and is processed right away. If you choose "credit" and sign instead, the transaction may hit your account several days later, leaving you to think you have more money in your account when you don't. 6
6. Be smart about choosing a PIN number. Try to choose a random combination of numbers that you can remember easily, and avoid choosing a PIN that a criminal could guess, such as your initials, your kid's birthday, the last four digits of your Social Security number or numbers in sequence, recommends Greg Meyer, community relations manager for Meriwest Credit Union. "You wouldn't believe the number of people who want to choose 0000 or 1111," Meyer says. "That's just asking, 'Please rip me off.'" 7. Go online daily to check your account. Stay on top of every transaction to find out right away about unexpected fees or holds, accidental double charges or fraud. This is especially important with debit cards because any money you lose is your own -- not the bank's, says Tom Harkins, chief strategy officer for Secure Identity Systems and former vice president of security and risk for MasterCard International. By federal law, your losses from fraudulent activity on your debit card are limited to $50 -- but only if you notify your bank within two days of noticing a problem. 8. Be careful when linking accounts. If you're going to link your debit card checking account to a savings account, avoid exposing too much of your money to fraud, Harkins says. "The more accounts you link, the more you're giving fraudsters free rein," Harkins says. Your liability might be limited, but it could take days or weeks for the bank to reimburse you. "That's the risky part -- your money is gone, and the mortgage is due tomorrow, you're going to start bouncing checks and you can't even make an ATM withdrawal," he warns. 9. Use a credit card for big purchases. The bottom line: Debit cards don't offer as many consumer protections as credit cards. Cunningham recommends making large purchases -- such as stoves, refrigerators or plane tickets -- with a credit card. "You might want that product protection in case there's a dispute down the road," Cunningham says. A real-life example: When Steve Rhode, a consumer debt expert at GetOutOfDebt.org, lived in England, he used his credit card to buy plane tickets to fly his family back to the United States, but the airline went out of business before his trip. "I was able to file a claim with the credit card company and they wiped off the charge," Rhode says. "If I had used a debit card, that money would have been gone for good." Questions 1. How can you avoid overspending with your debit card? 2. Why is it important to record your transactions? 3. Why might you use your card as credit instead of debit? 4. What should you NOT use to make your PIN? 5. If you could give one piece of advice to someone about using a debit card, what would it be? 7
Writing a Check Activity To spend money held a in a checking account, people can use their debit cards at ATMs, online, or in stores, or they can write checks to make payments for goods and services. When you open a checking account, the bank will supply you with a checkbook full of blank checks and a checking register to record your transactions. It is important to know how to properly write a check so they do not bounce and leave you paying fees! For this activity, follow these instructions in order to write a check from Joe C. Dollar to pay his rent for March. 1 2 3 4 5 6 1. On line 1, write today s date. 2. On line 2, the Pay to the Order of line, write Hackettstown Central Apartments. This line tells the bank who can cash the check. 3. On line 3, in the box next to the dollar sign, write 950.00. You will always write the numerical amount to be paid in this box. 4. On line 4, write out Nine hundred fifty and xx/100 and then draw a line in all remaining space up to where Dollars is typed. It is important to always write out the amount in case your numbers are illegible, and you must draw the line across in empty space so nobody can add to what you originally wrote. 5. On line 5, the memo, write Rent. This is to remind you and the person you re paying what the money is for. 6. On line 6, sign Joe C. Dollar. If you don t sign a check, nobody can cash it! 8
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Responsible Checking Project Over the course of this unit on checking, you have learned the purpose of checking accounts, how to write checks, how to use a debit card, and how to use these tools responsibly. Now, you will create a pamphlet demonstrating what you ve learned. Each page needs the following information: 1. Cover Page 1. Title 2. Your Name 3. Block # 2. Vocabulary 1. Checking Account 2. Deposit 3. Withdrawal 4. Check 5. Checkbook 6. Check Register 7. Debit Card 8. ATM 9. PIN 3. Purpose of Checking Accounts 1. Answer: Why do people have checking accounts? 2. Answer: What are 2 ways to make payments with checking accounts? 4. Checks 1. Explain why a check could be used 2. Include a picture of a completed check 5. Depositing a Check 1. Write how to deposit a check sign the back, fill out a deposit slip at the bank, etc. 6. Debit Cards 1. Explain what a debit card is used for 2. Include a picture of a debit card 7. Debit Card Tips 1. Write at least 2 tips for people to responsibly use their debit cards or how to use an ATM Each page is worth 10 points [10 points x 7 pages = 70 points] 10 Points can be earned in the last 2 categories as well: Mechanics correct spelling, grammar, punctuation, & word usage 21 st Century Skills completed on time; appropriate use of class time; neat & creative overall appearance TOTAL = 100 POINTS 30