Exercises: Everyday banking: accounts, cards, and security

A checking account is for everyday use (paycheck, automatic payments, debit card); a savings account is for storing money you do not need immediately so that it earns interest. Explain the difference and decide where you would place each item: weekly allowance, $\$300$ saved for a laptop, money for the monthly bus pass.

There are three types of payment card: debit (the payment comes out of your account immediately), credit (you pay even if you do not have a balance and repay it later, sometimes with interest), and prepaid (you top up only what you want to spend beforehand). State which card describes each situation: (a) paying for groceries and having it deducted immediately from your account; (b) buying headphones online after topping up only $\$60$ beforehand; (c) paying for a trip at the end of the month even if you do not have the balance today. Then explain the risk of a credit card if you defer payments.

The figure shows a bank card and what can be done with each piece of information. The red box highlights the two secret details that should never be shared, but one of them is covered up.

1. a) State which three-digit code, written on the back of the card, completes the red box, and explain what it is used for when shopping online.
2. b) Make a complete list of what you would never give out over the phone, via text message, or by email, even if they claim to be from your bank: the two details in the red box, your app login details, and the verification codes sent to your phone.

Setting up automatic bill pay (also called autopay or an ACH direct debit) means authorizing the bank to pay a bill automatically from your account: electricity, the phone, the gym.

1. a) Explain what advantage it has (you don't forget to pay) and what care it requires: if the bill is due and there are insufficient funds, the payment is rejected and there may be a fee.
2. b) Make a list of the bills paid by autopay in your home or in that of an adult you know, and decide which one you would not set up without checking it first every month.

To make a transfer you need the recipient's account number and routing number (their bank account details). An ordinary ACH transfer takes one business day and is usually free; an instant one arrives in seconds and may carry a fee.

1. a) Explain when you would choose each one: paying the rent that is due tomorrow versus helping out a friend today.
2. b) Argue why it is worth re-reading the account number and routing number twice before confirming (transfers are very hard to undo).

Taking money out at your own bank's ATM is usually free; at another bank's it can cost around $\$2$ per withdrawal.

1. a) Explain why that fee exists (your bank pays the ATM's owner) and how to avoid it.
2. b) Calculate how much you would pay a year in fees if you take out $\$20$ every week at other banks' ATMs at $\$2$ a time, and say what you would rather spend that money on.

Going overdrawn means spending more than you have: the account goes into the negative (for example, $-\$30$) and the bank charges you for that automatic "loan."

1. a) Explain the difference between having a zero balance and being overdrawn.
2. b) Argue why a $\$30$ overdraft over a few weeks can end up costing several dollars in interest and fees, and which two habits prevent it (checking the balance before paying, turning on low-balance alerts).

The bank's app is the door to your money. Write five security rules for using it and explain what risk each one prevents: a unique password that isn't the school one, two-factor authentication, not logging in on the station's public Wi-Fi, not leaving your phone unlocked for anyone, and keeping the app updated.

Bank A offers a fee-free account but charges $\$0.50$ per bank transfer; Bank B charges a $\$3$ monthly maintenance fee with free transfers. Nora makes about $4$ transfers a month.

1. a) Calculate how much she would pay per year at each bank.
2. b) Explain what else you would compare before choosing (free ATMs, minimum age, app quality, nearby branch) and how to deal with a bank when you are young (asking about student accounts, reading the fine print).

Phone-to-phone payments (such as Venmo, Zelle, or instant bank transfers) move money from your account to another person's using their phone number, and arrive instantly.

1. a) Explain two safety rules when using them (sending money only to known contacts, checking the recipient's name before confirming).
2. b) Common scam: a stranger texts you saying "I sent you a cell phone payment by mistake, please send it back", but no money has been credited to your account. Explain what they are trying to do and what you should do.

Vera receives this text message: "BANK: Your account has been blocked. Verify it immediately at bnc-security.example.com with your username and password."

1. a) Point out three clues showing that this is a scam (sense of urgency, threat, unofficial URL, asking for login details).
2. b) Explain step by step what Vera should do and what scammers gain if someone enters their details there.

This is the June statement of Abril's account: opening balance $\$240$; a payment from her parents $+\$50$; the cell phone bill $-\$15$; a debit card purchase $-\$32.90$; a Venmo transfer to her sister $-\$10$; a payment for a job $+\$40$.

1. a) Calculate the account's closing balance.
2. b) Explain what reviewing the statement every month is for (spotting charges you don't recognize, knowing where your money goes) and what you should do if an unknown charge appeared.

Mateo's account has $\$45$ and today the gym automatic payment is charged: $\$60$. The bank pays it anyway and leaves his account overdrawn, charging him a $\$4.50$ overdraft fee plus interest of $\$0.10$ for each day it stays overdrawn.

1. a) Calculate how much Mateo owes the bank right after the charge and the fee.
2. b) If he takes $10$ days to deposit money, calculate the total cost of the mishap (fee plus interest).
3. c) Explain what he should have done to avoid it (warning the gym, keeping a small cushion, low-balance alerts).

'Revolving' credit cards let you put off paying for everything bought during the month at extremely high interest (an APR of $20\ \%$ or more). Sophia owes $\$600$ on one of them and decides to pay only $\$50$ a month.

1. a) Explain why, with that interest, the debt goes down very slowly: a good part of each payment is interest, not repayment of what was spent. Estimate how many months she will take to clear it.
2. b) Argue why courts have declared some of these credits usurious and what cheaper alternative Sophia had (an ordinary personal loan to pay off the card).

Emma has to pay $\$300$ for the end-of-year trip. Options: an instant transfer ($\$1$ fee, arrives in seconds), an ordinary transfer (free, arrives tomorrow) or Venmo (free and instant, but the recipient must have it activated).

1. a) Recommend one option for each case: the deadline ends today and the organizer has Venmo; the deadline is the day after tomorrow and they only gave their bank account and routing numbers.
2. b) Explain why paying $\$1$ for the instant one can work out cheap if it stops you from losing your spot (the cost of the alternative is much greater).

Mateo's mother gets a call "from the bank": they say there are suspicious charges and, to block them, they need her to read out the code that has just arrived by text message.

1. a) Explain what vishing is and why the text message code is the key they are after: the real bank never asks for it over the phone.
2. b) Write the correct script: what she should say, what she should do after hanging up (calling the official number on her card herself or checking the app) and who to warn if she already gave the code.

Compare three bank account offers for young people in the Spanish market:

• Account Alfa: 0 dollars maintenance fee and free online transfers. It has no ATMs of its own in your town: it allows 2 free withdrawals per month at ATMs of any institution if at least 60 dollars is withdrawn each time; if you withdraw less or from the 3rd withdrawal onwards, the full ATM fee is passed on (between 1.50 dollars and 2.50 dollars per transaction).

• Account Beta: Monthly maintenance fee of 2 dollars (100% waived if a paycheck of at least 400 dollars is direct-deposited or an average balance over 1,000 dollars is maintained). It offers a wide network of free ATMs and branches in your city.

• Account Gamma: 0 dollars maintenance fee, but mandatorily linked to a credit/revolving card that charges a 25 dollars annual fee starting in the second year unless a minimum of 6 deferred-payment purchases are made per year.

1. a) A 16-year-old student receives a 50 dollars monthly cash allowance, makes digital payments of 10 dollars to 15 dollars using their phone, and usually withdraws 20 dollars in cash two or three times a month. Calculate and quantify the estimated real annual cost that each option would entail, and point out any legal or suitability hurdles some of them present for a minor.
2. b) Design the financial user profile for which Account Alfa is the most efficient alternative and the profile for which Account Beta would be, justifying your proposals with opportunity cost and payment habit criteria.

Mateo starts the month with an available balance of 15 dollars in his checking account. His forecast of income and expenses for November is:

• Day 1: Cell phone bill (14 dollars).

• Day 4: Receipt of his monthly allowance transferred by his guardians (50 dollars).

• Day 5: Release of a video game he wants to buy with a debit card (45 dollars).

• Day 18: Automatic payment of a music subscription (9.99 dollars).

• Day 28: Automatic payment of a fee for an extracurricular activity (20 dollars).

The account contract states: "In the event of an overdraft (negative balance), the institution may authorize the debit by charging a fixed fee for claiming debtor positions of 30 dollars plus an overdraft interest rate of 7.5% per annum, or reject the automatic payment due to insufficient funds" (in which case the phone company charges a 10 dollars return fee).

1. a) Prepare Mateo's monthly cash flow table recording balances day by day if he carries out all planned transactions. Determine at what points liquidity pressures or overdrafts occur and calculate the direct financial cost he would face if the bank covers the overdraft charges versus if it rejects the bills.
2. b) Design a financial restructuring plan for Mateo without resorting to loans or asking for extra money, applying the expense prioritization criterion ("pay yourself first") and establishing a feasible timeline to purchase the video game without generating bank charges.

Mark financed a 1,200 dollars computer using a credit card with deferred payments (revolving credit). The terms on his statement are:

• Interest rate: 21.5% nominal interest rate (23.75% effective annual rate, EAR).

• Fixed monthly payment chosen by Mark: 30 dollars per month.

• Breakdown of the first payment: 21.50 dollars corresponds to accrued interest and 8.50 dollars to principal repayment.

• Outstanding debt after paying the first month: 1,191.50 dollars.

Mark states: "It's a bargain: I enjoy a new computer paying only 30 dollars a month, what I spend on a dinner, without hurting my checking account."

1. a) Refute Mark's perception using calculations and financial arguments: deduce why this repayment schedule generates the effect known as "perpetual debt" or "snowball effect" and why courts have declared similar contracts void on grounds of usury.
2. b) Model and compare this situation with two alternatives: (1) paying the entire amount in a single lump sum at the end of the month, and (2) financing the 1,200 dollars over 12 months with constant payments of principal plus interest. Justify which option is the most rational for a responsible consumer and what psychological biases revolving credit exploits.

Carmen's grandmother receives a message on her cell phone from an unknown number: "Hi Mom, my phone broke and I can't receive calls, this is my temporary number. I urgently need to pay a 400 dollars bill before 14:00 so they don't cut off my service; please send me a Venmo payment to this number, don't call me because the speaker isn't working". Distressed, the grandmother immediately sends the 400 dollars via Venmo. Half an hour later, her daughter calls her from her usual phone mentioning that everything is normal.

1. a) Analyze the characteristics of instant transfers and the Venmo system (immediacy, irrevocability, traceability) to explain why cybercriminals prefer this medium over an ordinary bank transfer. What legal obstacles prevent the bank from automatically canceling the transaction once the fraud has been reported?
2. b) Design a family action plan against social engineering fraud covering two phases: preventive out-of-band authentication measures (alternative verification channels and transaction limits) and the immediate actions that must be taken with banks and law enforcement if the scam has already taken place.

Topic Challenge. Imagine that next school year you decide to become independent to study or work. Develop your own "Financial Solvency and Survival Guide" in a brief report with a reasoned proposal.

1. Day-to-day banking and budgeting: Go to the website of the Federal Reserve's consumer resources or compare two real institutions. Select a checking account for young people with direct deposit and an associated fee-free debit card, specifying two key cybersecurity rules for operating online. Design a balanced monthly budget with a hypothetical income of $950$ dollars and realistic fixed/variable expenses for your city.

2. Financing and debt: You need to purchase a computer for $1,200$ dollars. Compare two options: financing it with a loan at $8.5$ % nominal interest rate (APR) versus allocating prior savings of $15$ % of your monthly income. Calculate the additional cost and reason through the risk of over-indebtedness.

3. Risks and insurance: Research the premium of basic insurance (renter's insurance or health insurance for young people) and assess whether it is worth taking it out or assuming the risk by setting up your own emergency fund equivalent to $3$ months of expenses.

Grading criteria:

• Consistency of the monthly budget and thoroughness in selecting accounts, cards, and security guidelines.

• Calculation and critical assessment of the additional cost of financing versus saving.

• Reasoned justification of risk management through insurance or an emergency fund.