Vea esta pagina en español aquí: Cooperativas de crédito, bancos y otras instituciones financieras
Financial products and services help you manage, save, spend, and borrow money. Financial institutions like banks and credit unions accept deposits of money, lend money, and offer other financial services that can help you.
This module takes about 30-45 minutes to complete. By the end of this module, you will be able to…
- …recognize differences between credit unions, banks, and other financial institutions.
- …identify various financial services offered by financial institutions and how to use them.
- …open and manage a bank or a credit union account.
Complete the following pre-learning check to test your knowledge. Answer “true or false” to the three statements below. Click on the blue box to find the correct answer.
True, some financial institutions are a better fit for your particular situation than others. You can potentially save lots of money in fees and interest by switching from payday lenders and check cashers to institutional banks or credit unions.
You can open a checking account for free with many financial institutions like banks and credit unions.
True, some institutions require a small initial deposit, but some may not even require that.
False, establishing a relationship with a financial institution provides you with many benefits, such as interest on your savings and other services like lines of credit.
Financial services are provided by institutions such as banks and credit unions. In addition, financial services are provided by mobile applications, stores, check-cashing stores, payday lenders, pawn shops, and vehicle title lenders, among others.
Commonly used financial products are:
- Checking and savings accounts
- Credit and debit cards
Financial institutions offer other financial products as well such as check cashing, money market accounts, personal loans, Certificates of Deposits (CDs), prepaid cards, cashier’s checks, online banking, and Automated Teller Machines (ATMs).
Let’s learn more…
- You are a customer.
- Usually no membership criteria.
- Banks are typically owned by shareholders.
- You are a member.
- There are criteria for membership. For example, you may need to live in the same state as the credit union is located in.
- Credit unions are owned by members and are not-for-profit organizations.
The United States government insures most banks and credit unions for at least $250,000 per depositor. So, your deposits at each institution are guaranteed to be protected for at least $250,000, regardless of whether the bank or credit union stays in business or not. Banks display signs that they are FDIC-insured (Federal Deposit Insurance Corporation) and credit unions display signs that they are NCUA-insured (National Credit Union Administration). Make sure your financial institution is insured, both signs mean that they are insured by the United States government and the signs are placed in visible locations in the institution. Places like pawn shops and mobile applications (Venmo, Cash App etc.) are not insured by the government.
Consumer Financial Protection Bureau has tips on selecting financial products and services.
Why should you open an account at a financial institution?
- It provides safety and security for your money from disasters or theft, insured by the government.
- Many institutions offer free or low-cost services.
- You can earn interest on your savings.
- Financial services make bill-paying and shopping convenient.
- You build a relationship with your institution.
Usually, you can fill an application at one of the institution’s locations which you can access by making an appointment or simply walking in. Some institutions may allow you to open an account online or on their mobile application.
You will need to verify your identity so you will need identification such as a driver’s license or a passport. You may also need to provide them with your Social Security Number (or Individual Taxpayer Identification Number (ITIN)), Date of birth, address, and other personal information.
Once you have set up an account, you will choose the financial services you want. You could be provided with a checking and a savings account, a debit card, online banking, and a line of credit for example. Some banks and credit unions may require a small initial deposit to your account to have your account set up. For example, credit unions usually require you to deposit enough money to qualify for a membership. This is usually a modest amount, like ten dollars, which you receive back if you close your account.
To finish your application, you’ll receive disclosures, sign documents, and can ask any remaining questions you have.
Consumer Financial Protection Bureau has a checklist for opening a bank or credit union account.
What if you are not approved for an account?
You may be unapproved for an account if you have negative banking history such as unpaid balances or suspected fraud.
You have the right to receive one free banking history report from each nationwide consumer reporting company once per year. You can find an up-to-date list of the reporting companies on this List of Consumer Reporting Companies starting on page 20. Check the companies’ websites and contact them directly for a report.
If you’re not approved for an account, it is a good idea to request a banking history report, verify that the information they have is correct, and filing a dispute if they have incorrect information.
Using financial services
- A checking account is for frequent transactions. You can deposit money, make purchases, pay bills, withdraw cash and so on.
- Consumer Financial Protection Bureau has a guide on ways to pay your bills and managing your checking account.
- Most checking accounts have the option to use checks (telling your institution to pay someone else from your account).
- More checking account tips here: Checking Account Basics.
Debit and credit cards:
- You can use a debit card to pay for things directly from your checking account. A credit card is used to pay for things from your line of credit if you have one. You need to pay back the money borrowed from your line of credit to the institution. If you pay it back before they bill you, you may not need to pay interest on the amount borrowed.
- An overdraft fee (may be $35 for example) is applied by the bank if your checking account balance goes negative (you spend more money than you have available in your account).
- Overdraft fees can be a real burden, especially if you live paycheck to paycheck. To avoid overdraft fees, keep careful track of your automatic payments and the checks you write and make sure that you always have enough money in the account.
- Tip: mark your automatic payments in your calendar so then you can double-check that you have enough in your account before the money is withdrawn.
- Some institutions may offer overdraft lines of credit. Then, if your account overdrafts, the institution automatically inserts money from the line of credit to your checking account, so you avoid an overdraft fee. Ask your financial institution if you qualify for one.
- Some institutions offer so called “Bank On” accounts with a small monthly fee of about $5. These safe “Bank On” accounts do not have any overdraft fees. You can find a list of these accounts on the Bank On website.
- This worksheet can be used to determine all possible account fees: Do You Know Your Financial Service Fee Facts.
Using a savings account:
- Usually offers a higher interest rate but is not designed for frequent transactions.
- Use to build savings and earn interest on them.
- For large savings, Certificate of Deposits (CDs) and money market account can offer even higher interest rates but may offer even fewer free transactions.
- Additional savings tips here: Savings Account Basics.
- You can usually access your institution by visiting them in-person or through a drive-through service. Most institutions also have phone service, mobile applications and ATMs.
- Consumer Financial Protection Bureau has tips when using mobile devices for financial services.
- You can set up direct deposit to receive your paycheck directly on your account, and most institutions even allow automatic transfers to save a portion of each paycheck automatically.
- Many bills can be paid automatically but be careful when setting up auto-payments to make sure you always have enough in your account when the payment is due.
- You can revoke automatic payments by contacting the billing company, or your bank. You can also send your bank a letter like this: Sample Revocation Letter To Your Bank Or Credit Union (Downloadable Word document).
- Check your monthly statements from the institution to make sure you’re only getting charged for things you have spent money on.
- If you ever lose a debit-, prepaid- or credit card, report it to the institution immediately. They can close it and prevent its use right away.
- Sometimes if you use a card in an unusual way (for example an unusually expensive purchase) or location, the institution may deny its use by “flagging” the card. If this happens, contact your institution to confirm that it is you who is trying to use the card. They do this to prevent someone else from using your cards. You can avoid your card from getting flagged by letting your institutions know before you travel or make a big purchase.
- Some stores or financial institutions offer prepaid cards where you deposit money into a card and then can use it to pay for things.
- Safer than carrying cash.
- May include fees.
- A viable option if you do not qualify for an account at a financial institution. Some prepaid cards are reloadable, and some are not.
- Often charge fees.
- Financial institutions often allow check cashing and direct deposits for no fee.
Payday and Auto Title Loans:
- High fees, extremely high interest rate, and short re-payment periods.
- Risk losing vehicle.
- Credit card advances or personal loans from financial institutions offer much better terms, if available.
- Story about what taking a payday loan might look like in the video below:
- Risk losing the collateral of the loan, often much more valuable than the amount of the loan.
Credit Counseling, Debt Management Plan, Debt Consolidation, Credit Repair, Debt Settlement and Negotiation:
- There are good agencies and bad ones.
- Locate a reputable credit counseling agency for a credit report review and to learn about options.
- State of Wisconsin website has information about reputable counseling agencies, a list of licensed operators, and tips on how to find a legitimate agencies here: Credit Counseling
- Some agencies may include high fees, may over-charge, or may have you paying for a service you don’t need or that you can do yourself.
- UW-Madison Division of Extension offers financial coaching free of charge. More information here: Contact a UW-Madison Division of Extension Financial Educator.
Online-Only Financial Services and Applications
- In general, deposits are not insured by the government.
- May be a convenient way to transfer money to others.
- Mobile Applications for Financial Services Money Matters Moments on this video:
More information about alternative financial services here: Understanding the Impact of Alternative Financial Services.
Test your knowledge
Financial Services Quiz. Take this 10-question quiz to review the basics and test your knowledge. You can take it as many times as you want.
Certificate of Completion
If you’d like to certify that you’ve completed this module, be sure to contact a UW-Madison Extension Financial Educator to find out about program requirements.