Financial Institutions

Financial institutions like banks channel money from savers to investors. When choosing a financial institution, you want to consider the services being offered. Credit unions, which are owned by the members, and commercial banks, which seek to make profits for stockholders, offer many of the same services with different levels of interest. Both offer checking and savings account, loans, mortgages, credit cards, ATMs, wire transfers, and more. However, a credit union seeks to benefit its members by offering lower interest rates on loans and higher interest rates on investments than a big, commercial bank; credit unions also offer lower fees for checking accounts, ATM surcharges, overdrafts and stopped payments.

Perhaps you just need some quick cash. Both a payday lender and a title pawn lender are prepared to offer cash loans. A payday lender loans money based on your next paycheck, while a title pawn lender will give you money in exchange for your car title. However, both payday and title pawn lenders are considered predatory lenders as the interest rates charged for both of these services can be very high.

Financial Institutions ID Practice

Now that you have a bank account, how do you access your money? Banks and credit unions typically offer debit cards to take money directly from your checking account, credit cards that offer short term, high interest loans, and prepaid cards that only have as much money on them as you pay up front. Mobile payment apps, a newer way to transfer money and buy goods and services, are becoming very popular. Peer-to-peer or person-to-person mobile payment apps like Venmo, Cash App, or PayPal allow you to send money to friends and family. Messenger-based apps have launched, with Apple, Google, and Facebook all allowing users to send cash through their normal messaging product. You can use Apple Pay to buy goods and services in stores and with online merchants, too; Samsung and Google offer similar services.

With any mobile or online banking options, you should take safety precautions to protect your identity and your money. Recovering from fraud or theft can be expensive and time consuming. Here are five safety tips.

Use strong passcodes
Protect personal information
Be alert for suspicious emails
Verify email attachments
Watch what you share on social media

Saving and Investing

Saving money can be as simple as opening a savings account. Sometimes, you might even earn a little interest on your savings. However, you may be more interested in investing your money, which means you want to use your long-term savings to earn a financial return. You have several options, including stocks (indicate ownership in a corporation), bonds (loans to a corporation or government), and mutual funds. Let’s compare them.

Information about Starbucks corporation

Image about Pepsi corporation

A mutual fund takes advantage of diversification by spreading your risk among many types of investments, including both stocks and bonds. You might also consider investing in:

Certificates of Deposit (CD) – a timed deposit that earns fixed interest for a specified period of time
Individual Retirement Account (IRA) – a retirement savings plan that allows individuals to set aside up to a specified amount each year and delay paying tax on the earnings until they begin withdrawing it at age 59 ½ or later
- Roth IRA – a type of IRA where contributions are taxed, but earnings are not
- 401(k) Plan – a defined-contribution plan for employees of companies that operate for a profit
- 403(b) Plan – a defined-contribution plan for employees of schools, non-profit organizations, and government units
529 Savings Account - a tax-advantaged savings plan designed to help pay for education

With investments, the greater the risk, the greater the return, or reward, for your money. Typically, stocks are the riskiest investment with the highest return. Bonds are fairly safe, which means they offer less return than stocks. Mutual funds are somewhere in between as they diversify your investment between riskier stocks and safer bonds.

A speculative investment is one with a high degree of risk where the focus of the purchaser is on price fluctuations. Cryptocurrency is a popular, modern speculative investment; people buy a coin hoping someone will pay them more for it in the future. Another speculative practice, buying on margin, allows you to buy stocks with borrowed money. This practice was one of the major contributors to the stock market crash of 1929 that led to the Great Depression!

Risk vs. Return Practice

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