Reasons to use online banking

Online banking saves time, money and space by automating transactions, reducing billing times, check writing and billing expenses. Online banking can even reduce filing cabinet space that may always seem too full. Online banking may also makes use of secure websites; if you see https in a website address, this means information you provide in online banking transactions can only be read by you and the bank. Encryption of financial data is another reason why online banking is safe.

• Automated transactions

Automated transactions allow banking clients to perform a transaction without even being there for the transaction. These transactions can occur on a one time, or repeated basis. For example, Automated Clearing House (ACH) deposits, pay check deposits, and pre-scheduled bill payment can all be automated using some online banks' electronic banking.

• Bill payer services

Another reason to use online banking is electronic bill payment or e-bill payment. These can be set up through a banks online banking software and once the recipient data is entered, the information is already there for future transactions saving even more time. E-bill payments are set up using account numbers and company information.

• Secure website services

Many people have concerns about financial security when banking online, however online banking may be even safer than in person banking. This is because computers are not subject to human error reducing the probability of this type of error by up to 50 percent. Also, as time has progressed, so has the experience and technology used to prevent identity theft. Additionally, savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) regardless of whether transactions are performed online or not.

• Data encryption

Data encryption is a technique used to protect information transferred over the internet. Encrypted data makes use of ciphers that allow only senders and recipients to scramble and unscramble banking information for the purpose of protecting it. These ciphers are incorporated into online bank programming and are secured by time sensitive online banking.

• Multiple banking privileges

If the above reasons aren't enough to consider online banking perhaps knowing the amount of transactions that can be performed online will. A number of services can be performed using online banking including fund transfers, deposits, withdrawals, bill paying, personal information updates and more. These transactions can all take time, money and space when done the traditional way.

In summary, there a multiple reasons why online banking is a good idea. There are even online money orders through sites like Payko that lower the need to drive to the nearest post office or money order dealer. Online banking doesn't necessarily eliminate the need for in person banking, but can definitely reduce the number of times one has to go to a bank or post office to perform financial transactions or pay bills.

Basic services typically offered by U.S. banks

Typical banking services are designed to serve basic and perpetual financial needs. At the consumer level most people need somewhere to put their money so a savings account is fairly standard. Also, many people require a means to pay bills including checks, credit cards and online bill paying services. Banks often offer their own credit cards and/or debit cards to facilitate the customers spending requirements and preferences. The typical services offered by local banks are as follows:

• Checking and Savings Accounts
• Front desk services including Cashiers checks, Money Orders and Wire Transfers.
• Credit cards and Online Bill Paying Service.
• Car Loans and car loan refinancing.
• Savings vehicles: CDs, Money Market and IRAs.
• Mortgage Lending.
• Automated Teller Machines and drive through banking.
• Merchant accounts and business loans

Although Bank services often exceed the scope and function of typical banking services, they are primarily designed to serve individuals and small business' financial needs. Picking a bank is like picking a friend who is going to manage your money. The different banks may have slightly different services, interest rates and customer support. It can be helpful to visit or investigate several banks before choosing the one that is right for you.

Additional banking services

Since the passage of the Riegle-Neal Interstate and Branching Efficiency Act of 1994 and the Financial Services Modernization Act of 1999, bank services have not only become offered by banks operating across state lines but have also diversified to include a range of financial products and services. This means a banking client does not necessarily have to go to more than one bank to receive different services.

To illustrate the above point, some banks can simultaneously provide brokerage accounts, checking accounts, money market accounts and credit lines. Depending on the financial institution and its policies banking services still differ from financial institution to financial institution. Banking fees for basic banking services may also span a range of prices.

Depending on the liquidity, asset value and lending policy of a bank, loan types and sizes may vary. Some banks may provide car loans and refinancing of mortgages whereas others may not be quite so focused on these types of loans.

When searching for, switching or evaluating a bank, being aware of the financial services it offers, the fees, customer service, loan requirements, and ease of loan process may be a good idea. This can help ensure the bank serves your particular basic banking services, but that it can also work with you on your future banking needs and goals.

The Different Types of Banking Institutions

There are several types of banks in the United States however after banking deregulation in the 1990's some of the services previously prohibited to banks became available. This led to interstate banking and multi-functional banking.

Nevertheless, some banks retain their distinct roles and these represent the different type of banking institutions. Furthermore, banking in the future may change as evident in this banking report entitled 'The Future of Banking' by the Federal Deposit Insurance Corporation (FDIC)

Banking is multi-layered, multi-faceted nexus of institutions that provide for various levels of community, local, national and international finance needs and services. Banking is a fundamental cornerstone of an economy in which money and services are entrusted.

Many nations rely heavily on their banking systems to help manage their everyday personal, business, and financial management priorities. To illustrate the wide variety of banking and banking types a categorization of bank types follows:

• Retail consumer banks

Retail banks are those banks we are most familiar with. They provide savings accounts, checking accounts, small car loans, and credit cards. Retail banks are an essential part of any banking system as they allow a secure place within which to store and grow money. Retail banks are thus important to the banking system and the economy.

• Consumer operated banking services

Consumer banking can involve private banking such as that facilitated through Prosper.com through which private lenders and borrowers interact without the use of traditional banking means. However, the more common type of banks include local banks and Credit unions. The services provided by these banks are typically designed to meet everyday demands such as car loans, bill paying services, savings accounts, Individual Retirement Accounts, cashiers checks, money orders, electronic deposits and withdrawals and mortgages.

• Mortgage Banks

Although many consumer banks provide mortgage servicing, an example being Bank of America some banks specialize in this business. Included in this category are Real Estate Investment Trusts (REITS), Federally Subsidized Mortgage Financiers such as Freddie Mac and Fannie Mae, Public Mortgage lenders like Countrywide Financial Inc. and online banks such as Lending TreeAll specialize in different types of loans but often distribute their loans over various types such as Sub-Prime loans, Prime Loans and Alt-A loans. Mortgage banking can also be accomplished through online banks.

• Investment Banks

Investment banks such as Morgan Stanley primarily provide investment services such as financial planning, asset management and retirement forecasting and savings services. Although the role of banking institutions has changed with banking regulations, these banks still focus on the investment side of banking.

• International Banks

International Banking can involve very large amounts of money. Corporations and Banks borrow money from overseas banks in large quantities if the price is right. Overnight banking, exchange rate swaps, and interest rate hedging are some of the services utilized in overseas banking. At a larger scale are banks such as the World Bank and International Monetary Fund that finance countries and large scale developmental projects.

• Corporate Banking

Many corporations do banking of their own. They offer corporate bonds similar to Government bonds that can be only slightly more risky depending on the corporation providing them. An example of Corporate banking is State Farm Bank which provides banking services, credit cards and loans. Many corporations provide banking services in addition to their primary function to help facilitate business operations.

• Government Banking

The United States Federal Reserve Bank plays a major role in national banking. It is the hub for all retail banks in the United States. The Federal Reserve implements banking regulation, monitors money supply, sets interest rates and manages the Government's money. Government banking also includes mortgage banking such as loans administered by the Federal Housing Authority (FHA) and the Housing and Urban Development program (HUD). What's more, federal and municipal governments raise funds by issuing debt instruments such as bonds and treasury bills.

Summary

In summary, the above illustrations indicate the primary tasks and functions of banks and what sectors of the economy they serve. The scope and nature of these banks is generally more complex and involved than a brief description can illustrate. Also, other types of banking do exist as banking can become highly specialized.

An example of a niche banking experiment is micro-lending, a form of banking recently implemented in India on a large scale by the 2006 Nobel peace prize winner Muhammad Yunus of Grameen bank. In this type of banking very small loans are provided to poorer individuals with flexible loan terms to assist them in generating income from their skills and resources.

Banking is an ever evolving field that requires constant oversight, legislation and design as banking needs, technology and the business environment change. Our modern day Banking system is probably the most advanced the World has ever known and is truly a marvel of human organization.

Source:

Donald R. Fraser, Benton E. Gup and James W. Kolari. 'Commercial Banking: The Management of Risk 2nd ed' Cincinnati, Ohio. South-Western College Publishing, 2001.

The functioning of offshore banks

Offshore banks provide financial opportunities and services not necessarily possible or available in one's place of residence. Many people associate offshore Banking with gangsters and criminals trying to hide their money. To some extent these stereotypes are true but it is not the complete picture. Criminals may take advantage of the greater confidentiality to launder money and evade taxes, but law abiding banking clients may also benefit.

• Regulatory environment of offshore banking

Not reporting income earned in offshore banks is illegal in the United States as per U.S. tax code. However, several additional beneficial services and legal protections are facilitated by offshore banks. Fees and account maintenance expenses vary from offshore bank to offshore bank, but this information is generally available upon inquiry by the potential bank holder.

The reasons contributing to an offshore banks profitable operations include the unique advantages they have as 'offshore' Institutions. Often the countries they are located in do not heavily regulate them enabling them much freedom of service and lower operating costs associated with taxation.

In other words, the unregulated banking atmosphere in which these banks operate can increase their profit margin because they themselves may not have to pay high taxes and can charge rates and fees that are above typical. This can also make the banks more liquid, have great financial leveraging and offer potentially more profitable investment opportunities to international investors. In this sense the banking must comply with the national banking regulations in which the offshore bank is regulated and in terms of any applicable international laws.

• Offshore banking services

Services provided from offshore banks can include greater privacy, financial security and investment vehicles which may not be available to clients in their home countries. An example of some favorable investment vehicles not necessarily available at local banks include access to international markets according to Bahamasb2b.com Offshore banks have a lower operating cost environment due to less regulatory constraints.

The offshore banking environment allows its banks to operate in greater ease and with less fear of failure. In other words because these banks are not as heavily regulated as banks in developed countries such as the United States or Member of the European Union, they are not subject to the same constraints on fees, rates, legal reporting requirements, scope of services and associated operating costs. This freedom from regulatory constraint may allow them to offer better rates on loans and offer services not traditionally offered by local banks.

Offshore banks may not pay competitive interest rates on deposited money. Nevertheless, these banks can also offer asset protection from legal proceedings according to Shelter Offshore. Such protection enables individuals under litigation to protect themselves from total financial loss.

Individuals who are residents of countries with political instability can also benefit from offshore banks because they offer a safer environment to do banking. Offshore banking allows businesses that are registered in foreign countries to operate in a favorable tax environment. So a company that trades on an American Exchange does not necessarily have to operate solely out of the country in which the exchange listing is offered. The cost implications and benefits of such a business operation can make the difference between provability and loss.

• Where to find an offshore bank

Several countries offer offshore banking services and include panama, Bahamas, Bermuda and many others. Theoretically, money held in these banks can be frozen under international law that protect country's citizens from potential harm, and/or extreme criminal activity.

Some countries such as Anguilla have their banking law posted on the Internet. The link at the bottom of the page demonstrates this 'transparency' of operational activity but not necessarily transparency of the activities that occur under such law.

Due to the fact offshore banking has the potential to be vague in its reporting requirements this may also conceal the details of its financial success. For in investor placing money in such a bank, it is worth considering the stability of the bank in addition to the stability of the country in which the bank is located. Swiss offshore banks are recognized for their quality of service and relative stability in terms of the banking system within which they exist.

When considering whether to open an offshore bank, several factors may come into play with the decision. Items such as 1. quality of service 2. products and services, and 3. cost and ease of banking may all be pertinent concerns that offshore banks may or may not be able to meet.

Offshore banks exist to provide additional commercial revenue to the nation-states that allow for this type of banking via their national regulation. The services provided by offshore banks may not be available in one's home country or the offshore bank may offer security that one cannot easily obtain in one's own country.

Sources:
1. http://bit.ly/cHE3Vy (Yahoo Finance)
2. http://bit.ly/dtLqJP (ShelterOffshore.com)
3. http://bit.ly/a9c9Un (Bahamas Business to Business)
4. http://bit.ly/dbrxvh (Offshore Legal)
5. http://bit.ly/b9rLX8 (Targetwomen.com)

Bank accounts: Considerations when opening your first account

Knowing what to consider when opening your first bank account is a decision that you will have to live with as long as you utilize a bank account you have opened. There are a number of factors and considerations that may be useful and pertinent to the services and of the account. This article will discuss these variables in terms of 1) reasons to open a bank account, 2) banking products and services, and 3) additional items to consider.

A good reason to open a bank account at all is because bank accounts tend to have more protection from theft than do homes, and funds in a bank accounts are more likely to be insured without deductibles. For example, bank account deposits in the U.S. are insured by the Federal Deposit Insurance Corporation (FDIC) which requires no deductible as with many home owner's insurance and renter's insurance policies. In addition to the physical and electronic protection banks are able to provide, bank accounts also offer incentives, banking products and banking services to give existing and potential clients a good reason to open and/or continue banking with clients.

Reasons to open a bank account

When deciding to open a bank account thinking about personal financial needs and goals may be important. To do this, asking oneself questions like where is the bank located? how friendly are the bankers? and how easy is it to make use of the bank's services? may all be good questions to ask. In addition to these questions the following reasons may also be of assistance when choosing a new bank account:

• Helps manage bill paying, and employment payments
• Can assist with building a personal credit rating
• Establishes and/or builds a financial identity
• Facilitates other banking services available through the account
• Provides a sense of financial security

Banking products and services

When the different reasons to open a bank account have been made and the decision to open an account is in the affirmative, one may then begin shopping for a bank account. Different banks and financial institutions offer different incentives and benefits. Banks generally try to compete for clients which is good for someone looking for a new account. Some of the things that might be worth looking for in a first bank account include the following:

• No maintenance fees for checking or savings accounts
• Free first book of checks
• Low ATM charges for non-bank ATM usage
• Multiple branches and offices
• Reputation and credibility among friends and neighbors
• Financial reputation of bank within the banking community

New bank accounts sometimes give free gifts as an incentive for opening an account, however a new set of knives or a handy new cooler may not always be a great start to a new bank account, but rather a potentially unfortunate prelude to a banking relationship that didn't take into account what banking is really about.

While free gifts are nice, they generally shouldn't be the primary reason to choose a particular bank and/or bank account. Instead, one might consider aspects of banking that are going to assist one with a financial life that is easier and more manageable.

Additional items to consider

In addition to all the above free or low cost incentives are the banking products and services that make the account functional and useful. In other words, the more one can do with a new bank account the better. This can be especially true, if one has a lot of different financial obligations, and banking needs. A few such additional items that might be worth consideration in the search for a new bank account are the items listed below:

• Overdraft protection
• Credit/Debit Card with usage benefits
• Online Banking
• Free services and gifts
• Quality of Banking services

Opening a new bank account doesn't have to be a stressful experience, but might be best given some thought instead of just choosing the first bank one comes across near one's home or place of work. In other words, selecting a bank and bank account that meets one's financial expectations and provides products and services one finds useful can help make the decision to open a new bank account more fruitful.

Some of the reasons for choosing a new bank account in addition to various products and services that may be useful are provided in this article. When choosing to open a second bank account or open a new bank account altogether giving thought to the information in this article may be helpful in making one's banking experience more positive and financially beneficial.

History and functioning of commercial banks

Commercial banking is a field in which services are provided based on an individual or businesses financial capacity and ability. In other words when lending money banks look for several things to ensure their money is returned with interest. These factors include credit risk, assets, liabilities, payment history, credit rating, number of credit inquiries etc. In the case of a business loan a business plan is submitted to a loan officer and reviewed for potential profitability. If the business plan is sound and acceptable to the loan officer a loan contract is offered.

The business of commercial banking is competitive as many banks exist. This creates what economists call 'monopolistic competition' at the retail level and this is where pricing power is largely determined by market forces such as prime rate, competing loan rates, federal funds overnight rate and competitor rates. Sometimes commercial banks borrow money with rates in the 100's or the third decimal point in after the singles digit. For example, a bank may borrow money from another bank at a rate of 1.234% interest.

Commercial banking after the depression of the 1930s

After the Great Depression of the 1930's the Banks became heavily regulated to prevent another Depression from occurring. After time improvements in economic management allowed for deregulation of Banking which began around 1980. Since then new Banking legislation has given commercial banking more scope and ability to pursue expanded Banking functions. This enables banks to compete across banking services and improves banking functions as whole. Some of this recent legislation includes the Financial Services Modernization Act of 1999, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Omnibus Budget Reconciliation Act of 1993 and the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) (Fraser, Gum and Kolari p.44)

Competition in commercial banking

To compete commercial banks use a strategy combining advertising, interest rate adjustment, fees, market positioning, product positioning and a host of other factors relating to daily operational activities. With an increase in competition from Banking deregulation these services have become more refined and efficient. Bank performance can be measured using metrics such as ration analysis. Some of the more widely used ratios are Profit Rations such as Return on Equity (ROE), Return on Assets (ROA),; Risk Ratios such as 'Provision for Loss Ration, Liquidity and Operating Efficiency. (Ibid p.74-77). These ratios help clients, managers and investors determine the safety, security, profitability, efficiency and competitiveness of a bank.

Since banks have so much assets and liabilities how they manage these finances is crucial to their success. Combining fees, interest rates, and financial leveraging in profitable ways allows a bank to continue operating. If a bank has too much debt and not enough assets and that debt becomes faulty or delinquent in can damage a banks reputation leading to an undesirable bank performance rating. These ratings are measured and monitored by the Federal Deposit and Insurance Corporation (FDIC). They maintain statistics and analytics pertaining to commercial banks. The link at the bottom of this page is a gateway to a wealth of banking information.

Thus we have a brief overview of the Commercial Banking environment and how they function. Banks are highly specialized institutions whose main product is money. Money is a banks business and the business of their clients whether they be individuals, companies or countries. There are many laws and nuances to banking that create a nexus of commercial ingenuity and financial management that is highly evolved.

Sources:
1. Donald R. Fraser, Benton E. Gup and James W. Kolari. 'Commercial Banking: The Management of Risk'. Cincinnati, Ohio. South-Wester College Publishing, 2001.
2. http://www.fdic.gov/bank/index.html (Federal Deposit Insurance Corporation)