Lesson 1, Topic 1
In Progress

1.4. Banking

ryanrori January 25, 2021

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Although you need a bank account you also need to manage your costs. The bank issues a bank statement periodically. Different banks have set different charges for various products and services offered. 

Note: There are many terms and definitions associated with financial institutions such as banks.  A list of some of these has been provided in the glossary in this Learner Guide.

The statement the bank sends you reflects their bookkeeping, i.e. they are sending you a copy of their records.  If you were keeping your own records, the debit and credit values would be reversed e.g. what is a credit for the bank is a debit for you and vice versa:

  • Debits on the bank statement are amounts paid out by you, the account holder.
  • Credits on the bank statement are the amounts paid into your account 

A stop order is a deduction from your bank account which you have authorised. Though you may be paying a third party, they have no involvement in the authorisation of the stop order. Stop orders can therefore not be placed on your account without your knowledge. A bank will cancel a stop order on your instruction.

A debit order is a deduction from your bank account by a third party. The third party should have your signed permission to make this deduction. Debit orders can be placed on your account without your knowledge (though this is constituted as fraud). To cancel a debit order you have to give the instruction to the third party, not the bank. So, where you have a debit order abused by a merchant, it can become difficult to change it. The bank will reverse an entry only after the third party’s instruction has come through.

Article:

Banking
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Bank accounts

There are a number of different bank accounts that you can choose from.  The following are but a few of them:

  • Savings account: A safe place to put money away as these accounts are not subject to market volatility, but returns do not generally keep up with inflation. There are no facilities for your creditors (people you owe money to) to collect monthly instalments from or for you to make cheque payments. However, it is a good vehicle for someone who cannot afford high bank charges. On this type of account you can make deposits, withdrawals, use ATMs and debit cards in stores. A debit card allows you to pay for goods and services as long as you have money in your account, but you can’t borrow money. The advantage of this is that you don’t have to carry money around with you.
  • Transmission account: This is a type of savings account with the additional benefit of making a limited number of cheque payments, and having regular amounts deducted from your account in the form of stop orders or debit orders to pay your creditors (people or business to whom you owe money).  The cheques can be obtained through ATM’s or call centres.  With this account you cannot borrow money.
  • Cheque account / Current account: In addition to the services provided by savings and transmission accounts, cheque accounts provide the account holder with a cheque book to make cheques out to their creditors. (A cheque is a written instruction authorised from yourself to your bank to pay money out of your account to the recipient (beneficiary) whose name has been written on the cheque). With some accounts guarantees are issued to the creditors for certain amounts, i.e. bank guaranteed cheques are issued whereby your creditor is assured that up to a certain amount the bank will pay up. Account holders also have the option of an overdraft limit (being able to exceed their cash limit in their account up to an agreed amount with the bank). Sometimes, bank charges are waived (not charged) on these accounts if a certain limit is maintained in the account.  
  • Credit Card Account: The bank grants the account holder a certain credit limit. He/she is able to spend money on the credit card up to that limit and repay the bank within the agreed interest rate (usually very high). This type of account is not advisable for someone who is an impulse buyer and spends money he/she does not have on things he/she does not need, but is very handy for emergencies. Credit cards are handy for positive account balances because the interest rate is higher than that of other accounts.

Please note that these are not the only types of banking accounts.  Contact your bank to find more details of other special banking accounts.

Doing a bank reconciliation

The bank records all the transactions that affect your bank balance, and at the end of the month the bank sends you a copy of all your transactions in the form of a bank statement.

Bank reconciliation is a process to check whether your transaction records match with the bank statement. It is important to do a bank reconciliation to check for possible errors in either record and correct them when necessary.  Doing a reconciliation will also provide you with an insight into where you can save money on specific banking fees.

Remember, there might be items that may not show on your bank statement or that you are not aware of immediately, such as:

  • Deposits that were made after the statement date
  • Cheques that you may have issued that have not been presented to the bank for payment
  • Bank charges / fees that you are not yet aware of