Personal Finance – Banks and What They Do Introduction Banks and security Current accounts Accounts for younger people Cash, debit and credit cards Standing orders and direct debits Insurance and banks.
Assessment At the end of this unit are six multiple choice questions. You need to get four out of six correct to pass this unit.
Banks – what do they do? They move money around. This may sound odd but the whole money system relies on banks doing this.
Banks and you Here are FIVE things that banks do. 1)
Banks were originally set up to keep money safe from thieves.
2)
Banks can lend you money to buy things from cars to houses.
3)
Banks can pay you interest on your savings.
4)
They can transfer money from your bank account to pay your bills electronically – mobile phone, gas, electricity etc.
5)
Wages can be paid into your bank account each week or each month.
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Banks and business Banks do much the same for companies and businesses as they do for you. They just do it on a bigger scale.
The big supermarkets Tesco, Asda, Morrisons and Sainburys are the biggest supermarkets in the UK but they still need the following: Here are FOUR ways that businesses use banks: 1)
They send their money (cash) to the bank. The banks actually charge the supermarkets for taking their cash. That’s why they always ask if you want any cashback. It saves them bank charges.
2)
They pay workers’ wages directly into their bank accounts
3)
They pay their suppliers directly as well
4)
They get loans from the bank to build new supermarkets.
Basic bank accounts - Current account This is the name often used for a basic bank account. It means, depending on your age, you can have a number of different services.
Basic bank accounts aged 7 -17 At different ages you can have different things.
Credit cards and cheques You CANNOT have a credit card or a cheque book until you are 18.
Debit card and cash card You can have a cash card for getting money out of your account as well as a debit card for shops in town or online. The usual age people get these is 16. However, some accounts give them to children, with parental permission, as young as 11.
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Banks in different places Here are some ways in which you can use a bank: Telephone Internet Branch Post.
Special needs Banks are geared up to help people with special needs. For example, things can be in Braille and the internet and postal accounts are great for people who can’t get to a branch of a bank in a town.
Your current account Here are four different things you can get from a Current account: 1)
Interest – extra income from money you have in the bank
2)
Standing orders – paying bills
3)
Direct debits – paying bills
4)
Overdrafts – debt charged at a high rate of interest.
Plastic cards There are FOUR cards you can get from a Current account: Cash card – use for cash in ATMs (hole in the wall) Debit card (pay now) - buying stuff (shops and Internet) Credit card (pay later) - credit to buy stuff (shops and Internet) – must repay this Cheque guarantee card and cheque book – writing cheques
Under 18s You are not allowed to get in to debt until you have reached the age of 18. This means no credit and no cheque book. Any plastic card you get will freeze if you go in to debt.
Shops and online Once you get a debit card usually 16+ (some accounts 11+) you can buy stuff in shops or the Internet using this plastic card. But again it will freeze if you try to spend more than you have.
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Electron, Solo, Maestro etc These cards are just some of the names of cards which are generally for young people under 18 and don’t give credit.
Basic bank account 18+ Once you’re 18 you can have credit and get into debt.
Visa, MasterCard If you’ve got a bank card and you’re 18+ these names will be somewhere on the plastic card. When you buy from a shop or internet Visa and MasterCard charge the company between 2 – 4% of the money spent for the use of this plastic card.
Debit or credit card what’s the difference? Debit cards – pay now. Credit cards – pay later.
Debit cards – pay now These take money straight out of your bank account and send it to the place where you bought the stuff.
Credit card – pay later These allow you to buy stuff with money you DO NOT have at present. The credit card company sends you the bill later. You can be charged INTEREST.
Debit cards They have debit card written on the card itself.
Credit cards – pay later Credit cards don’t.
Except Switch cards Switch is a debit card (pay now) – it doesn’t say so on the card but it is.
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Basic bank accounts and bills You can, of course, pay for your bills with cash, cheques etc but it’s much safer electronically.
Transferring money Through your bank account you can pay any bill to anyone who has a bank account and will give you their bank details. This is again much safer and easier.
Paying bills Types of bills: Rent Phone Gas Electricity Water and sewerage Council tax.
Remember If you forget to pay your bills, services like gas, electricity could be cut off. Other people could take you to court for not paying these bills.
Electronic payment It’s easier to set up a payment directly from your bank (current account) to the gas or electricity company.
Standing orders and direct debits These are the two ways you are most likely to use to pay REGULAR monthly or quarterly (3 monthly) bills.
Similar but different It’s important to know the difference as it could cost you money if you get it wrong.
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Agree and cancel You have to agree to both direct debits and standing orders. You can cancel them AT ANY TIME.
Standing orders and direct debits (details) Standing order – amount not changing This is a fixed amount of money you pay from your current account. Once you’ve decided, it cannot be changed without your permission. Direct debit – amount changes The amount you pay varies and you agree that the mobile phone or gas company etc takes your full bill directly out of your account. Your mobile phone or gas bill will vary so the amount taken from your account will vary.
Standing orders and direct debits (examples) Standing order – £10 monthly top up Mobile phone - your monthly top up is £10. You pay it directly, by standing order, from your current account. Only £10 can be taken – no more, no less.
Direct debit – pay as you go The amount you use changes each month so you CAN’T pay by standing order. One month it’s £12, the next it’s £15. You CAN pay this each month by direct debit from your current account.
Bank accounts and overdrafts If you spend more than you have in your bank account you go OVERDRAWN.
Different names Sometimes it’s called GOING IN THE RED. But usually it’s just called an overdraft.
Agreed overdraft – no interest charged? You can make an agreement with the bank to let you go overdrawn for a certain amount, for example, £100. Some banks will NOT charge you any interest on this if it’s AGREED.
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But If it’s not agreed with the bank and you go overdrawn they will REALLY charge you a lot of interest and usually a penalty fee as well.
Activity 1 Yyan has NO agreed overdraft with the bank and has just paid a gas bill of £287. This has meant that s/he is £150 overdrawn. Yyan’s monthly wages will be paid in to the bank in 5 days time. Will the bank charge Yyan interest? (the answer’s on page 8.) Yes No
Taking out insurance to cover a loan Principle of insurance You pay a relatively small amount. You only get money back if something nasty happens.
Example You take out Payment Protection Insurance (PPI) on your mortgage so if you lose your job the insurance company pays your mortgage. It will probably only pay it until you get another job or for the first 12 months maximum.
Other stuff too You can insure against not being able to pay any loan.
For example: Rent loans Credit card payments Household bills.
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You can insure yourself against some of these nasty things happening to you. Redundancy Illness Disability etc. All three together.
Money for nothing If you're OK then you've paid money for insurance you haven't needed.
If it turns rough If you are made redundant or can't work etc through no fault of your own then insurance is really useful.
You have to decide It's not cheap so you have to decide if it's worth the risk.
Shop around Don't just sign a form from the company giving you the loan. Do a proper search for the best deal.
Example of costs For an insurance policy that gives you a £1,000 a month for 12 months to cover all your expenses etc you would need to pay around £35 a month in insurance costs every month.
Answer Activity 1 Correct answer Yes The bank will charge interest on the £150 for 5 days at a very high rate. They may also charge Yyan a penalty for being overdrawn. So always agree an overdraft with your bank.
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Unit test Here are six questions about this unit. You need to get four out of six correct to pass.
Question 1) Which type of bank or building society account is the one most likely to have your wages paid into and your bills paid out from? Select ONE only. An investment account A current account A deposit account A debit account.
Question 2) You pay your electricity bill directly from your bank account to the electricity company. You pay the electricity company ÂŁ35 a month exactly from your bank account. Is this an example of a: Select ONE only. Direct debit Standing order.
Question 3) If you had your wages paid in to your bank account the safest way of doing so would be: Select ONE only. By post By recorded delivery By carrier pigeon Electronically
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Question 4) Which ONE of the following accounts would be LEAST suited to someone who had mobility problems (had difficulty walking)? Select ONE only. Branch based bank account Postal bank account Web based bank account.
Question 5) What is the principle of insurance? You pay money later for cover you receive now. The insurance company gives you money if things go well You pay the insurance company now and if anything goes wrong they pay you All three.
Question 6) You pay your electricity bill directly from your bank account to the electricity company. The electricity company takes the amount of your bill each month (which can vary in amount) from your bank account. This is an example of a Select ONE only. Direct debit Standing order.
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Unit Test The answers are highlighted. 1)
Which type of bank or building society account is the one most likely to have your wages paid into and your bills paid out from? An Investment Account A current account A deposit account A debit account.
2)
You pay your electricity bill directly from your bank account to the electricity company. You pay the electricity company ÂŁ35 a month exactly from your bank account. Is this an example of a Direct debit Standing order.
3)
If you had your wages paid in to your bank account the safest way of doing so would be: By post By recorded delivery By carrier pigeon Electronically.
4)
Which ONE of the following accounts would be LEAST suited to someone who had mobility problems (had difficulty walking)? Branch based bank account Postal bank account Web based bank account.
5)
What is the principle of insurance? You pay money later for cover you receive now. The insurance company gives you money if things go well You pay the insurance company now and if anything goes wrong they pay you All three.
6)
You pay your electricity bill directly from your bank account to the electricity company. The electricity company takes the amount of your bill each month (which can vary in amount) from your bank account. This is an example of a: Direct debit Standing order.
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