Different Banking Services: Debit Cards, Wire Transfer & More

Learn about the different banking services that customers enjoy today including certificate of deposit, debit cards, wire transfer and more.

Different Banking ServicesApart from savings, loans, credit cards, etc., there are other useful services that banks provide to their customers, as follows:

The Different Types of Banking Services




Some of these include bank guarantee, certificate of deposit, debit cards, factoring, bank draft, wire transfer, and trade finance.

Bank Guarantee

A bank guarantee is a popular alternative to providing a bond or deposit to a seller directly. It is an undertaking by a bank on behalf of its customers that it going to pay a certain amount of money upon receiving a written demand for payment from the seller. If the debtor fails to make payment as agreed, the bank will make the payment on behalf of the debtor. A bank will only offer a guarantee when you have some cash as deposit in your account with the bank or if you have any other form of security acceptable by the bank.

The benefits of a bank guarantee

  1. A guarantee makes it possible for you to meet your obligations to a seller/supplier while still having the comfort of having your money in the bank. When you constantly use these guarantees, you will never have problems that arise from payment with the suppliers.
  2. A bank guarantee assures a vendor or supplier of payment. They know that will receive payment for the good supplied to the buyer when they send a written demand to the bank. There is no need for them to hold or manage bonds from the customers. This helps them to ensure that their businesses will run smoothly.
  3. Bank guarantees can have expiry dates. There are others which can be open ended. You should talk to your supplier or vendor so that he can advise you on whether the guarantee should be open ended or whether it should have a fixed expiry date. An open ended guarantee provides maximum security. A bank guarantee that has an expiry date will automatically cease after the expiry date.

A small fee is usually paid by the buyer on the day that the bank issues a bank guarantee to the supplier. You should talk to your bank to learn about all the fess involved.

Certificate of Deposit

Learn what is a certificate deposit or bank CD and of the benefits and disadvantages to the customer holding one.

What is a Certificate of Deposit?

A certificate of deposit (CD) is one of the safest investment options. It is basically a time deposit account. You have to give your bank money for a predefined period of time in exchange for interest payments. This type of account restricts you from withdrawing the funds that you have in your account on demand. Although its possible to withdraw your money when you need it, you will have to incur a penalty. A CD usually has a fixed interest rate and a maturity date. The term for CDs range from 1 month to 5 years. Like other types of investment, CDs have benefits and disadvantages.

Benefits of a Bank CD

Most people choose CDs because they are considered to be very safe. They have no risk. CDs are covered by the federal deposit insurance. Banks consider them as savings deposit. Things will only go wrong when the economy is in very bad shape.

Another key advantage of CDs is the fact that you will have control over the term and the amount of money invested. If you don’t want to lose control over your money for a long time, you can buy a CD with a term of 3 months. If you still want to invest at the end of the 3 months, there will be nothing stopping you from another 3-month CD.

Although the return on investment is not high, its always higher than the rate of inflation in most cases. This means that your money will not be losing its purchasing power.

Disadvantages of a CD Account

You will have limited liquidity if you decide to buy a CD. This is because you will not be able to access your money without penalties when you have an unanticipated need. Your money may also lose its purchasing power if inflation rate overtakes the rate of interest.

Debit Cards

Well, a debit card is a card issued by a bank and which allows the card holder to transfer money via electronic medium fro, one bank account to the other or from one account to the other while making a purchase payment. Using this form to pay bills or even to make an account transfer is an assurance that whatever you are doing will be fast and secure. There are three major types of debit cards and the following is a list of those three.

Prepaid debit cards

Even if it is called a debit card, this type of card is a little bit deviant from a bank account debit card. A normal bank account debit card is directly linked to one’s checking account but a prepaid debit card is not. As the preceding type can be used without a prior deposit to your account, prepaid debit card demands that one should deposit the cash first in order to activate the card or rather to render the card useful.

Re-loadable debit card

A re-loadable debit card is more or less like any other credit card but spends like a debit card hence, in other words, it is a card which possesses the same characteristics as both credit and debit cards. As far as it looks like a credit card and works like a debit card, a re-loadable debit card is categorized into a class of its own. This type of card is on its own class and its market is really exploding as it is gaining popularity at a faster pace.

Virtual Debit card

This is a tool that can be used as a substitute to a normal regular debit card. With this type of debit card, a user’s card number is going to be generated each and every time one needs to use the services of maybe paying bills or buying goods. Transaction with this type of debit card is wholly online and there is no actual use of physical cards hence the name virtual. This is one of the best ways to make a purchase or even pay bills as there is no need of a card and that the transactions will take the shortest time possible. If you are looking forward to getting the best and secure transaction dealing with a lot of money, then virtual debit cards should be among the tools of trade in your list.

Factoring

Learn what is factoring and of the various steps involved in the service and the advantages to participating companies.

What is factoring?

This service, also referred to as invoice financing, is when a business sells its accounts invoice or receivable to a third party. The third party is usually referred to as a ‘factor’. This is done to help the business receive funds that it would have waited for 30-60 days for. It is not considered to be a loan. There is no debt assumed by factoring. The funds given to a business are not restricted. This provides a business with more flexibility than a traditional bank loan. The service has been used for centuries. Just like other tools, it has evolved to become what it is today.

The five steps of factoring

  1. You offer your services to a customer.
  2. After offering the services, you will send your invoice to the factoring company.
  3. The company provides a cash advance on your invoice.
  4. The company will then collect full payment from your customer.
  5. The company gives you the rest of the invoice amount after deducting a fee.

The advantages

Factoring is a very important financial tool for many businesses. The main reason why many businesses use the service is the fact that it quickly helps to boost their cash low. Most factoring companies will provide funds to businesses within 24 hours. This helps to prevents short term cash issues that can hinder the performance of a business. The other advantages of factoring services include the following:

  1. It can be managed and customized to provide a business with the capital it needs to run efficiently.
  2. The financing will not show up on your business’ balance sheet as debt.
  3. It is based on your customer’s credit history, not your credit history or that of your business.
  4. There is no limit to the amount of cash that a business can be given.
  5. It aligns well with startup which need immediate financing
  6. It creates a line of credit that is based on sales, not the net worth of your company.

International Bank Draft

A bank draft is a check that guarantees that the issuing bank is going to make a payment. Typically, the bank checks the requester’s account to know if sufficient funds are available to clear the check. Once its confirmed that sufficient funds are available, the bank will set aside funds from the requester’s account to pay out. The bank drafts are usually used in transaction that require large sums of money. It’s also used in situations when the parties involved in a transaction do not trust each other.

The different between bank drafts and other similar documents

Bank drafts offer a mix of convenience and security. They are much better than a personal check. The name of the person or party issuing a bank draft for payment does not appear anywhere in the document. Although the party making the will get the document, it contains the name of the recipient. There is I often added security on the document e.g. a hologram. In most cases, the document is signed by two people from the bank.

Rules governing bank drafts

The rules governing bank drafts vary from one place to another. However, all bank drafts are meant to guarantee payment, either for an unlimited amount or up to a certain level. The person receiving the bank draft does not have to worry about bouncing when because of insufficient funds. This is why they are considered to be much better than personal checks. This is also the reason why they are so poplar for paying for expensive items such as houses and cars.

Banks have the right to cancel the payment if necessary. This usually happens if the seller provides fraudulent or counterfeit goods. There is a deadline for doing this. In most places, the time within which the bank can cancel payment does not exceed two weeks.

International Wire Transfer

Learn what is a wire transfer and of the process followed by banks to send money on behalf of their customers.

What is wire transfer?

This service involves the electronic transfer of money through a network. It is administered by hundreds of banks all over the world. Wire transfer makes it possible for individuals to transfer funds to entities or other individual fast. You can easily transfer money to people or organization in different places around the globe through bank wire. Banks collect a fee for wire transfer services. In some cases, banks charge a fee that is based on the amount that is being transferred.

Bank wire process

Wiring money is one of the cheapest ways to transfer funds between different bank accounts. The following steps are usually taken;

  1. The person or entity wishing to wire money approaches the bank and orders it to transfer money.
  2. The sending bank will then send a message using a secure system such as Fedwire or Swift to the bank that is supposed to receive the money. The message requests the receiving bank to effect payments based on the instructions given.
  3. The actual transfer is not instant. It may take several hours, sometimes days for the money to move from the sender to the receiver. The message sent to the receiving bank often contain settlement instructions.
  4. The banks involved in the transfer hold reciprocal accounts. Payments can only be sent to a bank with such an account.

The banks collect payments from both the sender and the receiver for the money transfer service. The sending bank usually collects a fee that separate from the funds that are being transferred. The receiving bank usually deducts fee from the fund being transferred.

Security

To be able to wire money you will be required to prove your identity. The information in the wires is usually encrypted when its being transmitted. It’s one of the most secure ways to transfer money. The cost of wire transfer varies significantly depending on bank and location.

Trade Finance

Trade finance basically means financing for trade. It includes activities like export credit, factoring, insurance etc. The sale of goods or services requires the both a buyer and a seller. There are many intermediaries that help to facilitate transactions between these two parties by financing the trade. Companies that are involved in trade finance include exporters and importers, financiers and banks, export credit agencies and insurers and other service providers.

The role trade finance in international trade

Internal trade has been in existence for many centuries. Trade finance has helped to make international trade more efficient. It has helped to facilities the international trading process further. The enormous growth of import and export trade can be attributed to trade finance.

The exporter may want to ensure that the importer makes payments for the goods before they are shipped. This helps to reduce the risk of not receiving payment after shipping the goods. This is where banks and other financial institutions come in. The importer can provide a letter of credit. This helps to ensure that the exporter gets paid after presenting the documents required (e.g. the bill of landing).

Products and services provides by banks and other financial institutions

Banks and other financial institutions provide the following trade finance products and services;

1. Letter of credit: This is a promise given by the bank on behalf of the importer. It state that if the exporter provides the documents specified by the importer, the bank will issue a payment for the shipment that was sent.

2. Bank guarantee: This is a promise that is given a bank or a financial institution on behalf of the applicant. This type of guarantee states that if the applicant fails to fulfill his obligations as agreed, the bank will make payments on behalf of the applicant when it receives a claim from the seller.