William Penn Life, 2003 (38. évfolyam, 1-12. szám)
2003-05-01 / 5. szám
Focus cn youth Check this out How to use banks and checking accounts from www.addsup.org, Money is just ONE of many resources people have to satisfy human needs and wants. Money comes in and goes out of our wallets like a stream. This is known as cash flow. A positive cash flow means that you have more money coming in than you have going out. In the story that follows, you will learn the basics of how to manage your money by learning the basics of using banks. You will gain control of your spending and learn how to get the most from your dollars. How Banks Work You've probably visited banks, credit unions or savings and loans before, yet do you know how these savings institutions really work? Banks and credit unions are institutions which store people's money and lend it out to others. When you put your money in the bank, the bank then goes and lends your money in the form of loans to people who need it to start businesses or buy houses. How can the bank, credit union or savings and loan just give away your money? The trick is that the bank knows how much money people have put into it, and keeps enough cash on hand for people who decide to take their money back out. But in reality, the bank only has three to 10 percent of the money that people have entrusted it with. If everyone that deposited money in the bank decided to take their money out at the same time, the bank would not have enough to pay everyone back. People who put money in banks enter an agreement of trust that the bank will have their money when they need it. Understanding Interest You might ask yourself, if a bank only keeps a little bit of the money that is put into it, why is saving money in a bank any better than saving it in a piggy bank? The answer to that question is interest. Interest is the way that the bank makes a profit, and also the way that you profit from a bank. When a bank lends money out to others, people have to pay interest on that loan. That is, they must repay back the loan with an extra amount of money, called the interest. It is like you lending your friend $2 for lunch today if he or she promises to pay you $3 back tomorrow. The bank also pays interest on the money that you put into it, because in a way, you are lending money to the bank. The interest rate is the amount of money the bank pays you for letting it loan your money. If you were to put $100 in the bank at the beginning of the year, at the end you might end up with $105 dollars, depending on the interest rate. This might not seem like a lot, but after a long time, interest can grow tremendously. Types of Accounts When you put money in a bank, you have to specify what kind of account you want to put it into. Different accounts may have different interest rates and different rules regarding how you can take money out of the account. Here are some of the more common types of accounts: • Savings Accounts: These are basic accounts which pay a small amount of interest. You can take your money out whenever you would like, but savings accounts are most useful if you leave your money in for many years to accumulate interest. • Checking Account: These accounts are designed to give you quick access to money. Usually they do not pay any interest. You put money into a checking account in order to be able to write checks or use a bank's ATM services. • Certificate of Deposit: With this 4 Willi« Pm Life, May 2003
