Escolar Documentos
Profissional Documentos
Cultura Documentos
If you use check-cashing outlets or the piggy bank, you're missing out on the many benefits of managing
your money with a bank account.
If you have a checking and saving account with the same institution, you can have your money
transferred periodically from checking to savings, putting the money aside to help grow your savings.
Cashing checks: Using a check cashing outlet really adds up. You can deposit and cash your checks
at the institution where you have a bank account for free.
Paying bills: Without a bank account, you probably rely on check cashing outlets, telephone bill pay or
money orders—all of which have attached fees—to pay your bills. With a checking account, you can
write checks for free or pay online at a low cost.
Transferring/wiring money: If you use a money transfer company to wire money to another person’s
account, you will pay a fee, usually a percentage of the amount of the transfer. Depending on the
amount you want to transfer, this fee can be expensive. If you wire from your bank account to another
person’s account, your bank will usually charge a flat rate that is generally lower than the money
transfer company.
Accessing cash: When you need cash but don’t have a bank account, you may decide to use a credit
card to get a cash advance from an ATM. The credit card company will charge you a transaction fee
and interest. If you have a bank account and an ATM or debit card, you can access your money from
your own bank’s ATM for free. Although you can access your money from any ATM, you will likely pay
a transaction fee if you use an ATM other than your bank.
While bank accounts are preferred over check cashers and piggy banks, banks will also have fees that
you should be aware of. For example, banks will charge you if you use your debit card on an ATM that is
not theirs. Also, depending on the type of account you have, you must maintain a minimum balance of a
certain amount to avoid being charged. It's always best to shop around for the best product that fits your
needs.
Interest Rates
An interest rate is the percentage of principal charged by the lender for the use of
its money. The principal is the amount of money lent. As a result, banks pay you
an interest rate on deposits. They are borrowing that money from you.
Anyone can lend money and charge interest, but it's usually banks. They use
the deposits from savings or checking accounts to fund loans. They pay interest
rates to encourage people to make deposits.
Banks charge borrowers a little higher interest rate than they pay depositors so
they can profit. At the same time, banks compete with each other for both
depositors and borrowers. The resulting competition keeps interest rates from all
banks in a narrow range of each other.
Simple Interest
Simple interest represents the most basic type of rate. Simple interest is paid only one
time and does not change. For example, if you borrow $100, the “principal,” for one
year, at a “term,” or rate, of 10 percent, after a year you’d owe $110. To calculate
simple interest, multiply the principle by the rate and the term.
Compound Interest
Compound rates charge interest on the principal and on previously earned interest.
For instance, if you borrow $100 at a rate of 10 percent for a term of two years, you’ll
owe interest of $10 at the end of the first year and $11, or interest on the first year’s
total of $110, at the end of two years, bringing the total interest owed to $21.
Compound interest rates are often used for credit cards and savings accounts.
Amortized Rates
Amortized rates, common in car or home loans, are calculated so borrowers pay a
larger amount of interest and a smaller amount of principal at the start of the loan. As
time passes, the amount of principal paid each time increases, shrinking the principal
and therefore the amount of interest charged on it. Thus, the amount of interest
charged on the principal decreases over time while the interest rate stays the same.
Fixed Interest
A fixed interest rate stays the same over the life of a loan. Often used in mortgage or
other long-term loans, fixed rates are pre-determined. Borrowers benefit from a fixed
interest rate because they know the rate won't rise. The loan payment then remains
the same, making it easier to include in the family budget.
Variable Interest
Variable interest rates change depending on an underlying interest rate, usually the
current index value. Commonly used current indexes include the Cost of Savings
Index and the 11th District Cost of Funds Index. Variable interest rates are used on
loans such as adjustable rate mortgages, or ARMs. Variable interest rates usually
change weekly or monthly, and can increase or decrease.
Prime Rate
The prime rate refers to the interest rate that commercial lenders use with their best –
or most credit-worthy – customers. This rate is based on the federal funds rate, or a
daily rate that banks use when they borrow and lend funds with each other. Though
large corporations are normally the recipient of prime rate loans, the prime rate affects
consumers, as well; personal, mortgage and small business loan interest rates are
influenced by the prime rate.
Discount Rates
When the Federal Reserve Bank makes a short-term loan to a financial institution,
they apply an interest rate known as discount. Discount rates are based on cash flow
analysis, which takes both the time value of money and the risk of future cash flow
projections into account.