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Avoid unaffiliated ATMs. Depending on how much you withdraw, the use of an unaffiliated bank’s ATM fee can cost you over 20% of the amount withdrawn. That’s a ridiculous fee for accessing your own money. Know the location of your bank’s affiliated ATMs. Avoid using unaffiliated ATMs. Reflect on Learning: Can you list strategies to avoid bank fees? Shop and compare bank products, read the Disclosure, download and use the bank's app, maintain an above-minimum balance, raise the minimum balance threshold, link accounts, ask for a waiver, close unused accounts, use only affiliated ATMs. IV. What Do Banks Do with Deposits? Money Pool. When you deposit your paycheck or other money in the bank, what happens to it? Where does it go? Some people are under the impression that the money goes into a special fund or cash drawer maintained just for them. However, banks don’t hold on to the money depositors entrust to them. They give it away! Actually, they lend it to other bank customers. When you make a deposit into your account, the bank pools your funds with the money of all the other depositors and lends it to people who want to borrow money for things like improving their business, buying a home, or buying things with a credit card . The bank charges a rate of interest on those loans that is substantially higher than the amount of interest it pays to depositors. The difference is retained as bank profit. Deposit Reserves. If banks were required to hold on to all of their depositors’ money, there would be none to lend out. On the other hand, if they lent out every last cent, depositors would not be able to use their own money. So banks are required by the Federal Reserve Bank, which is the U.S. government’s independent bank oversight institution , to hold on to a portion of their total deposits (usually about 10%). Those are called deposit reserves. When you withdraw money from a bank, you are pulling from the bank’s deposit reserves. To learn more about how banks work and about the Federal Reserve Bank system, refer to Chapter Four of The 21st Century Student’s Guide to Financial Literacy – Going Global. V. Alternatives to Traditional Banking Technology is changing the way people manage their money. Once stalwart and steady pillars of financial tradition, banks are changing with the times to reflect consumer needs and preferences in the digital age. Another change relatively new to the financial world is digital money . Let’s look at how traditional banking and money are changing in the 21st century. On-line Only Banks. For a generation that hates standing in line for anything other than a concert, and accustomed to managing most every thing from their mobile device, there’s an exciting new trend in banking: internet banking. Also known as online-only banking , these are commercial banks with no branches — zero physical locations for customers. All transactions are done online. PRODUCT PREVIEW
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THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY
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