Introduction
Most people tend to hold multiple accounts including an Everyday Banking account and Savings bank account.
An Everyday Banking account is the account where your salary is deposited and where you make most of your payments from, usually using your EFTPOS card. The interest rate applied to this sort of account is extremely low and you therefore don't earn any interest on the money you have there.
A Savings bank account is an account that you set aside just to deposit money you wish to save and grow. These accounts earn a higher interest rate than your everyday account and are therefore better for saving.
Ideas
Savings Calculators
Most banks provide customers with a range of interactive calculators to help decide which account to use.
A savings calculator allows you to investigate how much you would need to deposit, and how often, to reach a particular savings goal you might have.
The Commonwealth Bank has a Savings Calculator that you can use to plan your savings. (https://www.commbank.com.au/personal/can/budgeting-and-planning/savings-calculator.html)
Examples
Example 1
How long would it take you to save \$10\,000 if you can afford to put aside \$100 a month and you can earn interest of 3.5\% per annum?
A savings calculator allows you to investigate how much you would need to deposit, and how often, to reach a particular savings goal you might have.
How to understand your account statement
Below is the account statement for a sample bank account provided by a bank to help customers understand their statements.
| Date | Description | Ref | Withdrawals | Deposits | Balance |
|---|---|---|---|---|---|
| \text{10-08} | \text{Previous balance} | 0.55 | |||
| \text{10-14} | \text{Payroll Deposit - Hotel} | 694.81 | 695.36 | ||
| \text{10-14} | \text{Web Bill Payment - MASTERCARD} | 9685 | 200.00 | 495.36 | |
| \text{10-16} | \text{ATM Withdrawal - Interac} | 3990 | 21.25 | 474.11 | |
| \text{10-16} | \text{Fees - Interac} | 1.50 | 472.61 | ||
| \text{10-20} | \text{Interac Purchase - Electronics} | 1975 | 2.99 | 469.62 | |
| \text{10-21} | \text{Web Bill Payment - Amex} | 3314 | 300.00 | 169.62 | |
| \text{10-22} | \text{ATM Withdrawal - First Bank} | 0064 | 100.00 | 69.62 | |
| \text{10-23} | \text{Interac Purchase - Supermarket} | 1559 | 29.08 | 40.54 | |
| \text{10-24} | \text{Interac Refund - Electronics} | 1975 | 2.99 | 43.53 | |
| \text{10-27} | \text{Telephone Bill Payment - VISA} | 2475 | 6.77 | 36.76 | |
| \text{10-28} | \text{Payroll Deposit - Hotel} | 694.81 | 731.57 | ||
| \text{10-30} | \text{Web Funds Transfer - From Savings} | 2620 | 50.00 | 781.57 | |
| \text{11-03} | \text{Pre-Auth. Payment - Insurance} | 33.55 | 748.02 | ||
| \text{11-03} | \text{Cheque No. - }409 | 100.00 | 648.02 | ||
| \text{11-06} | \text{Mortgage payment} | 710.49 | -62.47 | ||
| \text{11-07} | \text{Fees - Overdraft} | 5.00 | -67.47 | ||
| \text{11-08} | \text{Fees - Monthly} | 5.00 | -72.47 | ||
| \text{Totals:} | 1515.63 | 1442.61 |
Typically you'll receive a statement like this once a month or once a quarter detailing withdrawals (purchases, fees...) and credits (payments into your account).
Notice that this account is overdrawn, the end balance is a negative amount, meaning that this individual spent more money than they have in their account and they will have to pay penalty fees to make up for this.
Below is an account statement for a savings account that this business makes available for their clients to see.
| Date | Description | Withdrawals | Deposits | Balance |
|---|---|---|---|---|
| \text{12-31} | \text{Interest Payment} | 2.15 | 63\,308.52 | |
| \text{12-31} | \text{Bonus Int Payment Bus Bonus Rate Int} | 4.29 | 63\,306.37 | |
| \text{12-03} | \text{E-Bankoh Transfer CR}\\\text{Ref 3360824L Fund Transfer}\\\text{Frm Dep 81933383 From Internet} | 250.00 | 63\,302.08 | |
| \text{11-30} | \text{Interest Payment} | 2.07 | 63\,052.08 | |
| \text{11-30} | \text{Bonus Int Payment Bus Bonus Rate Int} | 4.13 | 63\,050.01 | |
| \text{11-01} | \text{E-Bankoh Transfer CR}\\\text{Ref 3060725L Fund Transfer}\\\text{Frm Dep 81933383 From Internet} | 250.00 | 63\,045.88 | |
| \text{10-31} | \text{Interest Payment} | 2.14 | 62\,795.88 | |
| \text{10-31} | \text{Bonus Int Payment Bus Bonus Rate Int} | 4.25 | 62\,793.74 | |
| \text{10-01} | \text{E-Bankoh Transfer CR}\\\text{Ref 2751031L Fund Transfer}\\\text{Frm Dep 81933383 From Internet} | 250.00 | 62\,789.49 | |
| \text{09-30} | \text{Interest Payment} | 2.15 | 62\,539.49 | |
| \text{09-10} | \text{E-Bankoh Transfer DR}\\\text{Ref 2541438L Funds Transfer}\\\text{To Dep 81933383 From Internet}\\\text{To pay for Lae St. rock wall} | 10\,000.00 | 62\,537.34 | |
| \text{09-04} | \text{E-Bankoh Transfer CR}\\\text{Ref 2450642L Funds Transfer}\\\text{Frm Dep 81933383 From Internet} | 250.00 | 72\,537.34 | |
| \text{08-31} | \text{Interest Payment} | 2.39 | 72\,287.34 | |
| \text{08-31} | \text{Bonus Int Payment Bus Bonus Rate Int} | 4.76 | 72\,284.95 | |
| \text{08-08} | \text{E-Bankoh Transfer CR}\\\text{Ref 2211123L Funds Transfer}\\\text{Frm Dep 81933383 From Internet} | 9000.00 | 72\,280.19 | |
| \text{08-08} | \text{Credit Memo}\\\text{Refund of bank service fee} | 1.87 | 63\,265.19 | |
| \text{07-31} | \text{Interest Payment} | 15.00 | -67.47 | |
| \text{07-31} | \text{Service Fee Bus Bonus Rate Sav}\\\text{Under limit balance as VIM }\\\text{withheld funds} | 15.00 | 63\,263.32 | |
| \text{07-31} | \text{Bonus Int Payment Bus Bonus Rate Int} | 3.74 | 63\,278.32 | |
| \text{07-03} | \text{Customer Deposit}\\\text{Check from Valley Isle to empty }\\\text{ASB account} | 63\,174.58 | 63\,274.58 | |
| \text{06-29} | \text{Customer Deposit}\\\text{Maximum to open account - }\\\text{loan from owner} | 100.00 | 100.00 |
You can see that regular deposits of \$250 are made and interest is accrued and paid each month. Bonus interest has also been added for the months when no withdrawals where made. Banks often offer this an incentive to avoid withdrawing.
Examples
Example 2
Look at the account statement below, and answer the following questions:
| Date | Description | Ref | Withdrawals | Deposits | Balance |
|---|---|---|---|---|---|
| \text{10-08} | \text{Previous balance} | 0.55 | |||
| \text{10-14} | \text{Payroll Deposit - Hotel} | 694.81 | 695.36 | ||
| \text{10-14} | \text{Web Bill Payment - MASTERCARD} | 9685 | 200.00 | 495.36 | |
| \text{10-16} | \text{ATM Withdrawal - Interac} | 3990 | 21.25 | 474.11 | |
| \text{10-16} | \text{Fees - Interac} | 1.50 | 472.61 | ||
| \text{10-20} | \text{Interac Purchase - Electronics} | 1975 | 2.99 | 469.62 | |
| \text{10-21} | \text{Web Bill Payment - Amex} | 3314 | 300.00 | 169.62 | |
| \text{10-22} | \text{ATM Withdrawal - First Bank} | 0064 | 100.00 | 69.62 | |
| \text{10-23} | \text{Interac Purchase - Supermarket} | 1559 | 29.08 | 40.54 | |
| \text{10-24} | \text{Interac Refund - Electronics} | 1975 | 2.99 | 43.53 | |
| \text{10-27} | \text{Telephone Bill Payment - VISA} | 2475 | 6.77 | 36.76 | |
| \text{10-28} | \text{Payroll Deposit - Hotel} | 694.81 | 731.57 | ||
| \text{10-30} | \text{Web Funds Transfer - From Savings} | 2620 | 50.00 | 781.57 | |
| \text{11-03} | \text{Pre-Auth. Payment - Insurance} | 33.55 | 748.02 | ||
| \text{11-03} | \text{Cheque No. - }409 | 100.00 | 648.02 | ||
| \text{11-06} | \text{Mortgage payment} | 710.49 | -62.47 | ||
| \text{11-07} | \text{Fees - Overdraft} | 5.00 | -67.47 | ||
| \text{11-08} | \text{Fees - Monthly} | 5.00 | -72.47 | ||
| \text{Totals:} | 1515.63 | 1442.61 |
How much did John Jones withdraw from A.T.M.s over the course of the statement period?
How much was taken out of the account in fees during the statement period?
How much was the specific withdrawal from the account which was later added back in?
How much payment did John Jones receive during the month?
Example 3
The table below shows one month of records from a savings account:
| \text{Date} | \text{Item} | \text{Debit (\$)} | \text{Credit (\$)} | \text{Balance (\$)} |
|---|---|---|---|---|
| 3/8/15 | \text{Deposit from dad} | 0 | 70 | 124.52 |
| 8/8/15 | \text{iTunes account} | 10 | 0 | |
| 10/8/15 | \text{Wage} | 0 | 233.02 | |
| 16/8/15 | \text{Supersave E.F.T.} | 0 | 217.95 | |
| 20/8/15 | \text{Savings} | 0 | 25 | |
| 24/8/15 | \text{Wage} | 0 | 361.45 | |
| 1/9/15 | \text{Interest} | 0 | 0.30 |
Complete the table by filling in the missing figures.
What were the total debits from the account over the month?
What were the total credits on the account over the month?
What was the opening balance on 1/8/15?
A deposit is money put into a bank account for safekeeping.
A withdrawal is money that's taken out of your account.
Balance or Account balance is the amount of money that is available in your savings account.
Credits are amounts that are added to the balance.
Debits are amounts that are subtracted from the balance
Credit accounts
Credit cards are a form of loan in the form of continuous line of credit where consumers are allowed to have a continuing balance of debt if they cannot repay the full balance.
The level of debt among teenagers is rising at an alarming rate. It is important to understand how credit cards work and how interest is calculated to avoiding ending up in debt and repaying a huge amount of money.
The interest rate is normally written as a rate per annum however, the interest may actually be calculated daily, weekly, monthly etc. So how is the equivalent interest rate calculated knowing the rate being charged per day? Since there are 365 days in a regular year, divide the annual interest rate by 365. Conversely, to go from a daily rate to an annual rate, multiply by 365. The number you multiply or divide by will change depending on what units you are converting to and from.
Interest on credit card debt compounds so debt can very quickly increase is repayments are not made.
Examples
Example 4
Calculate the equivalent annual rate of interest when the monthly rate is 0.2\%. Write your answer as a percentage to two decimal places.
Example 5
The opening balance on a credit card is \$1600, and purchases of \$631 and repayments of \$419 are made during the month. If the credit card company requires a minimum payment of 8\% of the closing balance, find the minimum payment required. Write your answer to the nearest cent.
Terminology:
Balance: the total amount owing on a credit card.
Charges: purchases or expenses charged to a credit card.
Repayments: money paid back to the bank for any charges that may have been incurred.
Statement: a document generated by a bank or financial institution showing all transactions and the final account balance within a given period of time.
Per annum: each year.
Account fees and charges
When you start earning or saving money you need to decide how you will store it. Having and using a bank account costs money. Fees and charges need to be paid regularly to the bank for holding an account with them.
Examples
Example 6
A bank charges a periodic payment dishonour fee of \$25,an overdrawn account fee of \$25, a cheque dishonour fee of \$40, a stop cheque fee of \$15, a late payment fee of \$30 and an over-limit fee of \$30.
Calculate the total penalty fees needed to be paid by a customer who incurs 4 periodic payment dishonour fees, 3 overdrawn account fees, 5 cheque dishonour fees, 4 stop cheque fees, 4 late payment fees and 4 over-limit fees.
Account Service Fee: The most common fee an account holder will usually pay to the bank to maintain the account. This is typically paid on a monthly basis.
Transaction fee: a small fee is often charged every time a transaction is made, such as withdrawing or depositing money. Some banks charge the same general transaction fee for all types of transactions. Others prefer to charge separate transaction fees for transactions that occur at an ATM (Automatic Teller Machine), on the phone to the bank, at a local branch, or on the internet.
Late payment penalty: charged if you don't pay your regular fees on time.
Overdrawn account fee: charged if you withdraw more money from your account than there actually is, then this means the bank is forced to lend you extra money that it did not expect to. Your balance will drop below zero and you will be charged a fee. If you use a credit card, a similar over-limit penalty can be charged if you spend over the agreed limit.
Dishonour fee: If you have set up periodic payments to an individual or business who you pay regularly, or write them a cheque, the bank will charge a if your account has insufficient funds.