Banking is an important part of the economy as industry and commerce. When people manufacture products and when they buy and sell these products they need banks to handle the money the financial transaction. Can you imagine the owners of a big gold mine selling their gold output for cash, and then locking the cash in a cupboard until they need it to buy new machinery?
Private individuals also need banks. Banks act as intermediaries between customers who want to save (invest) money and customers who want to borrow money - and between customers who want to deal with one another, for example buyers and producers.
"It is good to establish a personal relationship with your bank. Get to know your personal banker or consultant. He or she will get to know your particular circumstances, and will be able to ensure that you get the best advice at all times."
The main services that banks offer
Modern banks provide a wide range of services to the public. The services listed here are the main ones that most people are likely to use. As your needs grow, you can ask your bank about any other services it offers. South African banks have branch networks all over the country. Shop around and find the one that offers you the best services and fees.
Savings account
This is mainly for saving, but you can also use it to make other transactions. You need only a small amount of money to open a savings account and maintain a minimum balance. - and you are paid interest on your money. Some banks allow you to make a certain number of cheque withdrawals from your savings account. ATMs (Automatic Teller Machines) give you access to your savings 24 hours a day.
Personal loan
When you have a good track record with your bank, they may allow you to take out a personal loan.
Cheque account and overdraft
With a cheque account (or current account) you receive a cheque book, and you can pay people by cheque. But there is a fee for every transaction. Your cheque account often pays no interest, but your bank may allow you an overdraft ( a type of loan) on it, depending on your credit record. Interest is payable on an overdrawn balance.
Credit card
With a credit card, you can pay for your shopping without having to carry a cheque book or cash. All your purchases go into your account
(you buy "on credit") and you pay the bank once a month. You will only qualify for a credit card once you have a good credit record
. Don't
use it for term purchases and avoid only paying the minimum instalment. If you can't pay the full amount, pay as much as possible. The interest rate on credit cards is very high.
Debit card
A debit card gives you the benefits of "electronic banking" without the danger of spending money you do not actually have. Managing your finances is easy
- you can only spend money that you have in your account and it comes out of your account immediately! You also get a printout once you have finished your transaction, showing how much money is left in your account. You can now pay for your shopping with a debit card at more and more businesses.
Notice deposit account
Notice deposit acounts earn you higher intest, but there are restrictions
. The minimum amount needed to open the acount is higher than for an ordinary savings account. The main difference is that you have to give the bank an agreed period of notice
(for example 32 or 60 days) before you can draw the money from your account.
Hire Purchase (HP) account
Certain banks
specialise in hire purchase loans which are registered over the items you buy. If you don't pay your instalments, the items you have purchased are repossessed. Usually, the dealer negotiates the loan with the bank on your behalf, but you can talk to the bank directly to try to get a better interest rate
. Before you take out an HP application, the company usually checks your credit record
. A bad credit record may mean the HP application is turned down.
Fixed deposit account
The account offers a fixed interest rate
over a fixed period of time
(say 12 or 24 months). The money must remain in the account for the specified period of time. This protects you from the temptation of drawing the money, and is a good form of saving for a particular goal
, such as education or a new car.
Dormant account
Some accounts have no upper or lower limits, as long as you keep them open and you use them regularly. When an account has been dormant
(not used) for a certain period, the banks have the right to close it and keep your money unless, and until, you claim it.
Home loan account (mortgage bond)
A home loan account, or mortgage bond
, is probably the most important contract, apart from marriage, that you will sign in your life. It is a long-term agreement
between you and your bank. If you qualify, the bank lends you the money to buy or build a home. The loan, with interest
, is repayable over 20 or 30 years. If you repay it sooner, you will save on interest. Your home is the bank's security. If you fall behind with your repayments, the bank may repossess your home to recover any money that you still owe and to protect its other clients' deposits.
Most banks nowadays offer customers the convenience of re-borrowing as much of the original bond amount as they have repaid. If you have paid off enough, you can draw money from your home loan to pay for new furniture, travel, or even a car - at a much lower interest rate than normal.
This is a convenient and economical way of buying on credit. But it is dangerous too. You can find yourself in a position where your home loan never
gets paid, and you eventually face retirement with a massive amount still outstanding ... and the risk of losing your home in your old age.
A much better idea is to use your home loan as a savings plan. Pay off extra each month. This is often the most efficient way of investing until your bond is fully paid. In so doing, you can save huge amounts of interest.
In this way you save a large amount in interest and your home loan may get paid off sooner too. Ask your bank to help you work out the details if you want to use your home loan to plan for a future expense.
A home loan is the single biggest debt the average South African will incur in his or her life. You should aim to have repaid your home loan by the time you retire.
Society or group account
Designed for a group of people who want to save together
, this type of account is similar to a stokvel. Bank costs are low and your savings earn interest
. A minimum amount has to remain in the account to keep it open.
Remember the golden rule:
Money that you save makes you money. Money that you borrow costs you money - at higher interest rates than you earn on your savings.
Consolidating your debt
When you are in financial trouble, it is sometimes appropriate to consolidate your debts. In certain circumstances your bank may be willing to help you do this by lending you enough money to pay all your accounts and then you need to repay only one lender, the bank. If you think this may be a good idea in your case, talk to your personal banking adviser. She or he will explain the conditions to you.
Internet and telephone banking
If you have a computer
(and you subscribe to the internet) or you own a touch-tone phone
, you can do a lot of your banking from home or from your office.
Investment advice
Whenever you are ready to plan your investment strategy for the next few years, one of your first stops may well be to your bank. Bank staff members are professionally trained to provide good advice on different forms of investment. They will also be able to refer you to a reliable insurance broker, if you do not have one yet. Choosing the right investment account can make a big difference to the interest you earn - and to the future value of your investment portfolio.
Foreign exchange payments
In the modern world of international travel, the banks play a key role in advising you and arranging for you to have access to your money when you are out of South Africa. There are regulations regarding the amount of money you are allowed to take out of the country and in what form. The appropriate bank staff member will explain the legal requirements and what can and cannot be done, as well as organise travellers' cheques in the currency you will need and arrange for you to be able to use your credit cards in other countries. There is a charge for these services, which may vary from one bank to another. The banks also arrange for purchases made outside the country and for the transfer of funds. If you have arrived at a point where you would like to invest money directly overseas, your bank will be able to explain the Reserve Bank's requirements to you.
Keeping banking fees down
Banks charge their customers banking fees for the services they provide. By carefully selecting the services or accounts that you need, you can minimise these fees. You can also shop around and compare the fee structures of the different banks. Finally, you can ask the bank you have chosen to offer you the best possible fee structure.