Posts Tagged ‘banking’

Mobile Banking Reaches Ravaged Port-au-Prince

Friday, January 14th, 2011

port-au-prince.jpg

credit: newbeatphoto

Effective humanitarian aid isn’t always about food and shelter. Find out how the Gates Foundation is pursuing some long-term solutions to Haiti’s problems…

  • Mobile technology is changing the world – especially in places where wireless technology can sidestep problems with a nation’s telecommunications infrastructure.
  • Now this technology is going to help Haiti in a different way, by making cell phone banking widely available.
  • After a natural disaster, local banks may be destroyed and Internet access nowhere to be found. Plus, mobile banking is safer. In the security crisis of post-earthquake Haiti, carrying cash has become a hazard.

Facts & Figures

  • Over $30 million was raised for humanitarian relief after the quake
  • Many of those donations came in via text message, $10 at a time
  • The Gates Foundation and USAID are donating a total of $10 million to companies that can bring mobile banking to Haiti
  • Fewer than 10% of Hatian citizens have ever used a commercial bank, but nearly every family has access to a cell phone

What Do You Think?

Would you donate to an organization that focused solely on bringing technology to people in need? Would you choose that over a traditional food-and-shelter humanitarian aid organization?

Why would my bank let me spend money I don’t have?

Friday, June 18th, 2010

Whenever you write a check or use your debit card, the money you use is taken out of your checking account. When the money you owe exceeds the amount of money you have available in checking, the extra money is called overdraft. Many banks will allow you to spend more than you have (at least temporarily) and charge you a fee each time you do. But why does overdraft even exist? Shouldn’t your bank just make it impossible for you to get credit for money you don’t have?

Normally, when you write a check for more money than your checking account contains, the check will “bounce” when someone tries to cash it, and your bank will charge you a fee. But some banks won’t fine you for bouncing a check if you use a service called overdraft protection. With overdraft protection, any overdraft you generate becomes a kind of instant loan – the bank lets you have the money, but you have to pay it back with interest. Interest on overdraft tends to be incredibly high, but as long as you pay it back quickly, it’s usually still cheaper than the fine you’d pay for bouncing a check. Your bank still profits from the interest, and it can also charge you a fee just to get overdraft protection in the first place.

It’s worth noting that you don’t have to have overdraft protection if you don’t want it; for example, if you turn off overdraft protection on your debit card, when you don’t have enough money to pay for something, the transaction simply won’t go through. In some cases it doesn’t make sense to have your bank let you go over the limit just so it can charge you, but when it’s used intelligently, overdraft protection can be worthwhile both for you and your bank – you save money, and your bank makes money.

What’s the difference between checking and savings?

Tuesday, March 2nd, 2010

You probably see the words “checking” and “savings” most often when you’re hitting the ATM. Although both checking and savings are bank accounts that hold money you’ve deposited, when people withdraw money, they almost always take it from checking. Why?

Generally, a checking account is designed to hold spending money – money that you don’t want to carry around with you or stash under your mattress, but that you want within reach when you need to pay for your expenses. A savings account, as the name suggests, is designed for money that you want to save for later use. Because of this distinction, there are important differences between the two types of accounts.

When people or corporations cash checks you’ve written them, that money usually comes out of your checking account. You can withdraw money from either account, but people usually want to take the money from checking if they can. The logic behind this decision is that savings accounts generate interest, while checking accounts don’t necessarily (or if they do, there are usually a ton of conditions attached). The more money you leave in your savings account, the more you get paid in interest, so it makes sense not to take out any of that money unless you absolutely have to.

Checking accounts are created under the assumption that the amount of money they contain will fluctuate, while savings accounts are meant for money that you expect will stay with your bank for a while. Checking and savings differ from each other in accordance with their designated purposes, but they’re meant to complement one another.

Who is watching the banks?

Tuesday, December 22nd, 2009

Since banks play such an important role in the economy and in your life (assuming you’re not keeping your money under a mattress), they are are heavily watched by several government agencies.

The government wants your money to be safe and to ensure that any business calling itself a bank subscribes to a very high operation standard – you shouldn’t worry if the local bank on the corner is legit. That being said, there are three main federal organizations along with individual state agencies that regulate banking on both a national and local level.

The main federal organizations focus on different areas, but work together to ensure that the banking system runs smoothly:

  • Comptroller of the Currency – approves new banks, issues banking laws, and makes sure banks are following the law
  • Federal Reserve Board – provides financial services to banks, watches out for risky behavior, and maintains stability of banking system
  • Federal Depositors Insurance Corporation – insures people’s money against any possible bank failures

State agencies act in similar capacities (regulation, enforcement, and oversight), but only for banks within their borders. All in all, these federal and state agencies are carefully monitoring and analyzing every bank to make sure your money is safe.

What does it mean to be Sharia-compliant?

Monday, August 10th, 2009

Sharia, or Islamic law, strictly forbids the lending of money for fees or interest. Today, many modern Muslim countries (such as Saudi Arabia, Pakistan, and Malaysia) still rule according to elements of Sharia law. So, in order to bring banking to the Islamic world, investors have created products and services that are Sharia-compliant, or that follow the principles of Islamic law.

In order to be Sharia-compliant, an institution cannot offer or receive interest, nor can it profit from any activities considered illegitimate, such as gambling, tobacco, drinking, or pornography. But how can Sharia-complicit banks profit if they can’t offer loans at a rate of interest? So far, there are several varieties of transactions that produce profits without breaking Islamic principles, but the most basic method is through risk sharing. According to this model, a Sharia-compliant bank shares the risk of an investment with a customer, and the two split any profits. There are also mortgages, current accounts, and even personal loans that are Sharia-compliant.

The goal of all these modified products is to attract Muslims who don’t currently use established banking because they want to live according to their religious principles. This is an incredibly valuable target demographic because Islam is the largest religion in the world, and for a long time the Western business world wasn’t catering to the needs of this group. So financial institutions think it’s worthwhile to tweak their established methods if it means securing an untapped market.

Principal is…

Wednesday, June 17th, 2009

Principal is the original amount of money making up a debt or investment. For example, if you take out a $10,000 loan, interest will increase your debt over time, but the principal is that initial $10,000.