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Lesson 7 - Bank, money and payment

28.4.2020, , Izvor: Verlag Dashöfer

Lesson 7 – Bank, money and payment

Introduction

Probably, there is no need to extensively deal with terms of bank, money and payment itself, since we know the basic definitions. We meet with bank, money and payment in our business life, in our private and family life as well and much of financial language has become a part of everyday talk.

Let us look at some basic terms used in world of finance and some new trends that come upon us such as electronic banking and ethical investment.

1.1. Objectives of the Lesson

  • - To have the closer look on the topics of bank, money and payment
  • - To practice usage of appropriate language and to learn new vocabulary

connected with traditional and electronic banking, finance and payment

  • - To acquaint with new trends in banking products
  • - To encourage you to read, think and express your opinion about article
  • - To foster new and already known vocabulary and phrases

Reading

2.1. What is finance and banking?

Finance studies and addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time, taking into account the risks entailed in their projects. The term finance may thus incorporate any of the following:

  • - The study of money and other assets
  • - The management and control of those assets
  • - Profiling and managing project risks
  • - As a verb, “to finance“ means to provide funds for business.

Finance includes many interconnected fields:

  • - Getting paid (shipping and billing, trade credit, accounts)
  • - Assets, depreciation, liabilities
  • - Accounting (pre-tax, net or gross loss or profit)
  • - Trading (market indexes, market activities)
  • - Finance and economics (inflation, unemployment, trade, growth and GDP, recession, stagnation, depression)
  • - Personal finance (investments, credit and debit transactions, banking)

And what are the pros and cons of banking?

Banking enables you to access your money quickly and easily, such as by writing checks and by withdrawing money from an Automatic Teller Machine (ATM). Second, a bank is the safest place you can put your money, because in most countries funds in bank accounts are insured against loss by the government. Third, you pay for the convenience and safety of banking. Some accounts pay interest while others don't, but those interest rates will be well below the rates offered by mutual fund companies and brokerages. You can earn significantly more by putting it into a certificate of deposit, but to do so you'll have to agree not to withdraw it for a fixed period of time. Fourth, bank fees may seem small, but they really add up. If you're not paying attention, a simple checking account could cost you quite some money, after the monthly fee, the per-check fee and ATM charges are added up. And while many banks offer “free“ checking if you maintain a substantial balance, the account isn't free at all, since you could be making a few hundred dollars a year by investing that money elsewhere.

Test yourself 1.2


Exercise 1: What are the pros and cons of depositing your money to a bank? Up to you – Do you prefer convenience of electronic banking, or classical way of taking care of your money?

Features and Fees

Some of these will be very important to you, while some won't matter at all. When comparing banks, all that matters is what's important to you.

Features:

  • - Interest Rate: If the account pays interest, what is the rate currently? Ask for the “Annual Percentage Yield“, which makes it easier to compare banks that compound their interest at different frequencies. Keep in mind that after you open your account, your rate will continue to change from week to week.
  • - Convenience: How close is the nearest branch? How long are the lines when you go? Is the bank open when you need them, or do they open late and close early as many banks do?
  • - Is deposit insured for bankruptcy? Are they a member fro instance of the Federal Deposit Insurance Corporation in the US?
  • - Size: Is the bank large or small? Some people feel more comfortable with a larger bank, while others believe small banks can offer better customer service.
  • - Minimum deposit: What is the minimum deposit required to open an account (if any)?
  • - Limitations: Are there any limitations imposed on the account? (for example, the number of checks or transactions per month)
  • - Availability of Funds: How soon after you make a deposit are you able to withdraw against those funds? Different banks have different rules.

Fees

Banking fees have risen significantly in recent years, and show no signs of falling. Before you sign up, take a close look at the fees associated with the account, and try to estimate what it will cost. Once you've gone through the process of selecting a bank and signing up, you probably won't be inclined to switch for awhile. When comparing the expected fees of one account with another, be sure to also factor in any difference in the interest rate the two accounts offer. If one account pays sufficiently higher rates than another, it might more than offset the additional fees that account charges.

Here are the most common fees, along with a few tips on avoiding or minimizing them:

  • - Maintenance fees: A small fee is reasonable. But make sure the amount is competitive with what other banks are charging.
  • - Low-balance penalty: While most big banks offer “free“ checking if you maintain a substantial balance, typically $2,000 to $4,000, you should realize that this isn't free at all, you're paying the opportunity cost of tying up your money in a low- or no-yield account while the bank lends it out at a hefty interest rate.
  • - ATM surcharges, “Foreign“ ATM fees: Find out if you'll be charged by your bank for ATM usage. Either way, try to use only your bank's ATMs, to avoid the additional fee from the ATM owner. Another way to avoid ATM fees is to ask for extra cash when you make a purchase with your bank's debit card, such as when buying groceries. Also consider taking out more each time in order to make fewer withdrawals; a $3 fee on a $100 withdrawal can eat up a full year's earned interest. Also guard your ATM card, as some banks charge a lot to replace it.
  • - Returned check: If someone writes you a bad check, you may be charged.
  • - Overdraft Protection: If there's any chance you might bounce a check, you should ask for overdraft protection. Instead of getting charged about $25 for bouncing a check, overdraft protection will in effect provide you with an instant loan. The interest rate will be exorbitant, but if you pay it off quickly it
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