Choosing A Bank

Consumers have the option to use a depository institution to manage their finances. However, approximately 10
million households in America choose to not use depository institutions. 1 Consumers have indicated that primary
reasons for making this choice include banking fees being too high, minimum balances required are too high, and
they want to keep their financial information private. If consumers decide to use a depository institution, they will
benefit the most by conducting research first.

An important element in money management is choosing the correct depository institution to meet an individual’s
needs. Depository institutions are businesses which offer multiple services in banking and finance. These
institutions include commercial banks, savings and loans, and credit unions. The services customers receive may
include savings and checking accounts, loans, investments, and financial counseling. Depository institutions are
regulated by state and federal agencies.

The Federal Reserve Bank is a part of the central banking system in the United States. A goal of each Federal
Reserve Bank is to control the amount of money and credit available to the public. The Federal Reserve Banks
occupy twelve regional locations in major cities throughout the United States. They provide essential services to
depository institutions including collecting checks, electronically transferring funds, and distributing and receiving
cash and coin. Additionally, the Federal Reserve Banks act as banks to the federal government by providing
depository services to the United States Department of Treasury.

There are many different depository institutions available to consumers.  Each offers a variety of services to best meet an individual's needs.

Commercial banks are often called full service institutions because they offer a wide variety of services, including
checking and savings accounts, loans, credit cards, investments, and financial counseling. They operate under state,
and federal laws and usually are the largest depository institutions. Depository institutions are open to all
individuals within a community.

Credit unions are non-profit cooperative institutions that often charge lower fees and loan rates than other
depository institutions. They are owned by their members. Government regulatory agencies require credit union
members to possess a common bond such as people who live, work, or attend school in a well defined geographical
area. Many credit unions offer financial counseling, credit cards, and mortgages. They often provide a higher
interest rate on savings and checking accounts than commercial banks. Credit union accounts offer unique services
such as share drafts (checking accounts), and share certificate accounts (saving accounts).

Savings and loan associations (S&Ls) focus on providing loans and mortgages to customers as well as offering both
savings accounts and checking accounts. Compared to commercial banks, the interest rates are often higher.

A feature of depository institutions that consumers should be aware of is insurance. If the institution is insured, it
will be posted in view for the customer to see. Depository institutions should be insured to protect consumers against loss. The risk of loss is a term that is used to determine which party should be responsible for damage occurring to products after a service transaction has been completed but prior to delivery. Depository institutions are insured by one of the following:

• Federal Deposit Insurance Corporation (FDIC) is a federal government agency which insures federally
  chartered commercial banks and savings and loan associations against loss. Each depositor is insured up to
  at least $100,000 for money deposited in a regular account and up to $250,000 for qualified retirement
  deposits. Under the Federal Deposit Insurance Act of 2005, the former commercial bank insurance and
  savings and loan association insurance programs were merged under one program called the Deposit
  Insurance Fund.

• National Credit Union Administration (NCUA) provides insurance protection for credit unions. Each
  depositor is insured up to at least $100,000 on regular deposit accounts and up to $250,000 for retirement
  savings plans that qualify.

For the consumer, depository institutions differ from one another about services offered and their interest rates.
Interest is the amount of money that is either gained or lost when accessing services offered by a depository
institution. There are two types of interest. Interest bearing accounts charge for money that a consumer borrows
from a depository institution. Interest earning accounts is money earned on a savings account or other investment
instrument. The interest rate is the percentage used annually to calculate the total interest either gained or lost
from an account supplied by a depository institution.

Choosing one depository institution for all financial needs may have certain advantages, including lower interest
rates for consumers who prove their loyalty by having multiple accounts with one depository institution. A variety
of services are offered from an institution to consumers, making this a relatively easy task to accomplish.

Common services offered by institutions:

• Checking account (also known as a share draft account at a credit union)—Paper checks or debit
  cards that are used to withdraw money deposited into the account to pay for purchases of goods and
  services. They may be interest or non-interest bearing.
•  Savings account (also known as a share account at a credit union)—An account in which money
  normally is deposited to earn interest. They are interest bearing.

Interest earning accounts which may be offered by depository institutions:

• Stock—Ownership, represented by shares in a corporation.

• Certificate of deposit (also known as a share certificate account at a credit union)—An insured
  interest earning savings instrument with restricted access to the funds.
•  Money market account—An account which offers higher interest rates than a savings account and may
  offer limited check writing privileges.
• Bond—A debt instrument issued by an organization, such as a business or the government, designed as
  an investment for the purchaser to earn interest.

Interest bearing accounts which may be offered by depository institutions:

• Credit Card—A card used to make a purchase now, with repayment made later without interest (if the
  balance is paid before the grace period ends) or requiring the payment of interest (if the balance is paid
  after the grace period ends).

• Loan—Money borrowed and paid back with interest. Loans can be a mortgage for a person to buy
  property such as a home or personal for items such as a vehicle or school.

Additional services which may be offered by depository institutions:

• Safe-Deposit Box—A secured box in a depository institution to be used for valuable and important
  personal items.
• Financial Counseling—Information and advice is given to customers to help them make financial
  decisions.

When choosing a depository institution, consumers should keep in mind their personal needs and what an
institution can do to meet them. They should visit several depository institutions to compare services and fees, and
to select the best institution for their money management styles and goals.

In this lesson, participants will have the opportunity to learn what others feel are important aspects of their
depository institution choice. Participants will learn what services are offered by depository institutions when
conducting a web quest to complete a chart which will help to compare services.