It’s difficult enough to master the verbiage in all of our various contracts: our mortgage, credit cards and of course, our bank contracts. Ever wondered the difference between state-chartered member banks and bank holding companies? Keep reading as we brush up on our bank talk.
Government Jurisdiction
Different arms of the government have jurisdiction over different bank dynamics. For instance, foreign branches of U.S banks fall under the jurisdiction of the Federal Reserve, as do state chartered member banks and bank holding companies. The Office of the Comptroller of the Currency, or OCC, oversees the traditional national banks that are found in many communities around the nation. Finally, credit union members receive their assurances from the National Credit Union Administration, or NCUA.
Despite the distinctions, consumers should know every bank shares the same foundation – its purpose is to serve as safe way to hold a customer’s money. Most Americans are familiar with what’s known as “retail banks”. These are the ones you visit to deposit payroll, sign loan papers or cash a check. Each local branch is exactly that: a branch of a retail bank.
Investment banks are designed to focus on bigger companies and global corporations. They deal with stock offerings and mergers and acquisitions as do commercial banks. These two dynamics usually serve similar purposes and offer the same services and products as the other.
Credit Unions
Credit unions, as many are aware, are non profit bodies that have members instead of customers. They pool their members’ monies which then results in each member maintaining a small partnership in the credit union.
While those differences are important, it’s perhaps more important to understand the common phrases and word choices you’ll hear as you go about your daily banking routine.
Many of us have some type of overdraft protection attached to our accounts. These are typically complimentary services banks will offer their customers. Some banks will extend this courtesy only to customers who’ve built a relationship with their local banks over the years. A new law was passed in 2010 and it’s now no longer legal for a bank to assume a customer wants this service. When a bank extends the courtesy of paying a check drawn on an account with insufficient funds, the bank usually assesses an overdraft fee.
Now, though, that courtesy will only be extended if you state in writing you want that service as part of your bank’s offering. For those who’ve made an error in balancing their checkbooks, this convenience is a lifesaver – but it’s a costly one as some banks charge up to $35 for that convenience. Even if a bank customer chooses not to have that service, they still will pay overdraft fees if there are not enough funds to cover a check drawn against the checking account.
Also, some banks now allow their customers to link their accounts to the credit cards or savings accounts to cover any insufficient funds situations. The fee is generally lower, but keep in mind, it can still cost $12, $15 or more.
NSF
And speaking of insufficient funds fees, or they’re sometimes known as NSF for “non sufficient funds”, these continue to be very costly for many consumers who struggle with keeping their checkbooks balanced. Not only will a customer be charged the bank fee – again, as high as $35 or more in some states, but consumers will also find themselves being hit with another costly fee from whom the check was made payable. This is an expensive lesson for many and it’s why it’s important to understand the legalese associated with bank accounts.
If you’ve ever deposited a check made out to you by someone else, only to receive a notice in the bank a few days later saying the amount was deducted from your balance because of insufficient funds, then you know what a “deposit item returned” transaction is. Worse, you may be penalized further with a fee from your bank and any NSF fees you incurred by believing the check would be honored.
Know what an Annual Percent Yield (APY) is? This is the interest that’s figured each year, including compounding interest, and that a customer earns on his saving account. This is actually a better way of discerning how much money is being earned on an account versus other vague methods. That said, banks routinely don’t interchange APY and APRY for one reason: APR is the money you’re paying on a loan or credit card while an APY is money that’s being paid to you as interest on an account.
Finally, we thought it’s time to put to rest the purpose that series of numbers along the bottom of your personal checks serve. It’s banking’s big secret, right? Not really – but it’s interesting to understand the role those mysterious numbers play.
The first series of numbers is your routing number and these numbers are the same for every bank (or branch’s) customers. It tells the tale about your bank, but doesn’t really tell anything about you, other than which bank you prefer. The second group of numbers is your personal account number. Of course, it’s applicable only to that particular account you have with your bank. Some banks have a third series of smaller numbers – usually three and if you’ll look up at your check number, you’ll see it’s exactly the same as that last series of numbers.
