Banking 101

Establishing a relationship with a financial institution is a smart step toward financial security. Let’s review some basic information about the types of financial institutions out there – and what they can offer you.

What is a Financial Institution?

A financial institution is an organization that provides financial services for its clients or members. This includes banks, credit unions, investment services and insurance companies. Each type of financial institution varies in terms of the services they provide, their ownership structure, the laws they must follow and other factors.

Credit Unions and Banks: What's the Difference?

Banks and credit unions may seem the same on the surface, but there are some big differences worth knowing about. Both take deposits, distribute cash, make loans, and also deal with certain kinds of securities. But unlike credit unions, banks are for-profit financial operations, which means they earn profits for stockholders or bank holding companies.

A credit union, on the other hand, exists solely to serve the financial needs of its members and communities. Credit unions are not-for-profit financial cooperatives, which means they return earnings to their members in the form of better rates and lower-to-no fees.

Types of Financial Institutions

Credit Union	Bank
You're a member-owner and earnings are returned to member-owners through lower fees and better rates. Takes deposits Distributes cash Makes loans Deals with Certain kinds of securities	Shareholders and earnings are returned to shareholders. Takes deposits Distributes cash Makes Loans Deals with certain kinds of securities

Benefits of Using a Financial Institution

So what's the point of using a credit union or bank? For starters it's a great way to keep your money safe. Today, deposits are federally insured to at least $250,000 per individual; deposits through banks are insured through the Federal Deposit Insurance Corporation (FDIC); deposits through credit unions are insured through the National Credit Union Administration (NCUA).

Another major benefit is that you can earn interest—which means you get additional money on your money. The rate of return you receive will depend on a number of factors including the type of account you have, the amount of money that's in there, and the length of time you've committed the money to be deposited.

Generally speaking, accounts with higher balances and fewer transactions get higher interest rates. Accounts with lower balances and more transactions get lower interest rates. Some financial institutions also have "zero – interest accounts", which means you won't earn any interest at all. Members may prefer these types of accounts for a variety of personal reasons.

Types of Accounts

A checking account offers easy access to your money. This type of account is primarily used for daily purchases and to pay bills. You can withdraw money from your checking account using checks, ATMs and electronic debits. Checking accounts can have high transaction activity, low or no interest and usually have unlimited withdrawal access.

Savings accounts are primarily used to save money for emergencies, future purchases or investments. They tend to have low transaction activity, generally offer higher interest than interest-bearing checking accounts and may have limited withdrawals per month.

A money market account is a different kind of savings account. It requires a larger minimum balance and allows a limited number of withdrawals. In exchange, the owner will receive higher interest-rates than a traditional savings account.

With a certificate of deposit (CD), you commit your money for a fixed period of time which is called a term. When the term is met, or the CD reaches its maturity date, you have access to your money, plus the interest you've earned. CDs have a higher fixed interest rate in exchange for requiring you to commit your money for a set term. If you need to access the funds before the CD's maturity rate for any reason, you'll be charged a small penalty for early withdrawal.

Let's compare the types of bank accounts.

Accounts

Checking	Savings	Money Market	Certificate of Deposit (CD)
Daily purchases and bill payments	Short-term savings, like an emergency fund	Short and medium-term savings	Medium and long-term savings
Low to no interest	Some interest	Higher interest than savings accounts	Higher interest than savings accounts
Unlimited transactions	Typically low transaction frequency	Limited transactions	Withdrawals possible at term; penalties incurred if funds withdrawn earlier

Accessing Your Money

Once your money is in an account, how do you get it out? You have a number of options. ATMs (automated teller machines) are secure machines found at branches of financial institutions, supermarkets, gas stations, convenient stores and many more locations. They're a convenient way to withdraw cash from your accounts, make deposits, transfer money between accounts and check your balance.

To use an ATM, all you need to do is insert your debit or credit card into the machine, punch in your personal identification number (PIN), and follow the instructions on the screen.

In most cases, making a transaction from an ATM provided by your bank or credit union is free. Some ATMs, especially those in retail outlets like gas stations and convenience stores, might charge a fee, ranging up to a couple of dollars. While this might not seem like much, if you're making frequent transactions, these fees can really add up.

BECU members have an advantage, since they can enjoy free access to nearly 30,000 ATMs across the country through the CO-OP Network. And through a special partnership, BECU members can get cash with no surcharge fee at any Rite Aid store throughout Washington.

If you like the idea of engaging directly with a person, a teller is another way to access your money. Tellers are employees of a financial institution who work at a branch or in many cases, a drive-through. They can provide hands-on assistance with most of your basic transactions, including deposits, cash withdrawals, account transfers and balance inquiries. While using a teller is usually a free service, some financial institutions may charge a small fee.

Shuffling the Cards

Let's talk about the similarities and differences between debit cards and credit cards. Both are small plastic cards with the magnetic strip on the back. And both can be used to make purchases in stores or online.

When you use a debit card, you're withdrawing funds from your checking account directly. Even if a cashier asks you whether you'd like to use your card for debit or credit, the funds will always come from your checking account if you're using your debit card. This means if you don't have money in your account, your account will be overdrawn.

When you use a credit card, you're borrowing money. You will have to pay this money back, potentially with interest.

Monitor Your Money

With so many financial tools at your disposal—debit cards, credit cards, interest-bearing accounts—it may seem impossible to get a timely and accurate picture of your financial situation.

Fortunately, there are a lot of options for monitoring your accounts. Each month, your credit union or bank will send you a monthly statement detailing all your transactions. You can also go into a local branch of your financial institution and ask your teller for a copy of your statement.

With online banking, you can get a real-time look at your financial situation from a computer. Mobile banking takes convenience one step further, allowing you to access your online banking accounts from mobile devices.

Protect Yourself From Fraud

Technology can make it easier for you to access your money, it can also make it easier for thieves. While accounts like savings, checking and money markets have NCUA insurance, it pays to be very protective of your private information so you don't become a victim of identity theft or fraud.

There are a few basic things you can do to protect yourself and your money from fraud. Don't tell ANYONE your PIN. Regularly change your online passwords. Monitor your accounts regularly and check for errors. If you notice something out of the ordinary, contact your financial institution immediately.

Getting Started

Credit unions, big banks, community banks—where do you go to start your first banking relationship? It's important to look for a partner who has a reputation for good customer service and can give you what you need. What are your banking needs and wants?