Understanding Banking

What is a bank?

A bank is an organization which manages money. It is a safe place to store your money and where you can get a loan if you need money now but can't pay all of it back until later. When people like you or a business open up a savings account, or put your money in an investment (e.g. Mutual Funds, etc. the bank pays you interest. Then, the bank reinvests your money in other things like loans and tries to earn a larger interest rate for itself. When the loans are payed back to the bank, that money goes towards paying out interest to all the bank customers. The difference between what the bank makes and what it pays you, as a customer, is how it covers its costs and stays in business. When you put your money into a bank, you are actually making your money go to work for you. For every dollar you put into your account you earn extra money just for keeping it in a safe place. Pretty cool!

Top five reasons to choose a bank?

Why stick your money in a bank versus your underwear drawer? Here are five good reasons:

• #1. If it's in a bank you're less likely to forget where you put your money.
  
• #2 You can have access to your money in a bank from virtually anywhere you are in Canada and many parts of the world.
  
• #3 If someone robs the bank, you don't lose your money.
  
• #4 You can make money just by leaving your money in a bank.
  
• #5 Your kid brother or sister won't accidently find your money at a bank.

Personal Account

A personal account is a way for you and the bank to keep track of your money. Every account is given a number. With this number you can access from any branch of CIBC and from CIBC bank machines to make a deposit or withdrawal, pay bills or transfer money between different accounts you might have.

Interest

Interest is the charge made for the use of someone else's money. If you borrow money, you pay interest to the lender. If your investment earns interest, that is what you receive for allowing someone else to use your money.

Question:

What if you have $200 in your Clown Club account and it earns 2.79% interest (yield)? How much money will you earn in one year? In two years? In three years?

Answers:

• After one year, your new account balance will be $205.58.
  Here's how I got this number: $200 x .0279 + $200 = 205.58

• After two years, your account balance will be $211.31!
  Here's how I got this number: $205.58 x .0279 + $205.58 = $211.31

• After three years, your new account balance will be $217.20!
  Here's how I got this number: $211.31 x .0279 + $211.31 = $217.20

  You'll have earned $17.20 in interest in three years!

Deposits and Withdrawals

Money that you put into your bank account is called a deposit; money you take out is a withdrawal.

Credit Cards

A credit card enables you to get a loan that allows you to spend an amount of money at a store, on almost anything you want, up to whatever your maximum credit card spending limit is set at. At the end of the month, you'll get a bill for the amount you spent. If you pay the whole bill immediately, the loan won't cost you anything. If you don't, the bank that gave you the credit card will charge you interest on the amount you borrowed.

Debit Cards

With a debit card you can make an immediate withdrawal from your account to buy anything from groceries to a pair of jeans at a store that accepts it for payment. Unlike a credit card, the money has to be available in your account for the direct payment to be accepted. A direct payment is any amount you transfer from a bank account to pay for something you just bought.

PC Banking

You can now do a lot of banking with a personal computer (PC). This includes paying bills and transferring money between different kinds of accounts.

Bank Machines

An Automated Bank Machine (ABM) is a computer that allows you to make simple transactions by yourself. Bank machines give you 24 hour, 365 day access to your money from any one of hundreds of locations around the world. You can make deposits or withdrawals, pay bills, transfer money between accounts, and get an update on f your account balances.