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Military Banking--Your Best Choice in Banking!

Military Banking History

It was in 1941 when the War Department first realized the need to provide its military and civilian personnel with financial services on Army installations. Because the establishment of banks proved to be more difficult than expected, the Treasury Department was asked to assist. That agency did so in 1942 by asking Congress to pass legislation to permit the Comptroller of the Currency to allow national banks to open and operate on Army posts and Navy bases. Action was swift and, utilizing the provisions of the National Bank Act of 1864, the Military Banking Facility (MBF) program commenced with the first banking facility opening at Fort Sill, Oklahoma, in 1942.

By 1943, the Treasury Department had authorized 155 banks to operate on 160 Army and Navy installations in the continental United States. As concerns about state banking laws arose as those banks were being established, the United States Court of Appeals confirmed that the Treasury Department had acted properly and had the authority to establish MBFs. Since that time, the military banking program has been an integral part of the military's quality of life program.

Even though the size of our nation's military has decreased substantially since the military banking program began during World War II, banking offices still exist on most installations in the United States and at more than 100 locations overseas. Stateside installations are served by many different banks, ranging in size from small banks with only one office to large, multinational banks. Overseas locations are all served by one bank, the Community Bank.

The Community Bank is unusual in the banking industry in that the bank's buildings and equipment are owned by the U.S. Government, while the bank's operations are performed by a commercial U.S. bank under contract with the Department of Defense. This unique arrangement ensures that personnel serving our nation around the world have access to a full line of financial banking services much like they have back home.

All accounts in military banks located in the United States and in the Community Bank at its overseas locations are insured by the Federal Deposit Insurance Corporation (FDIC). Currently, the insurance coverage is $100,000 per account. This gives military bank customers the assurance that their accounts are protected just as they are in any FDIC member bank. This is an important feature and a good reason to bank at a military bank.

Today, most military banks, including the Community Bank, and many other banks not directly affiliated with our nation's Armed Forces, share a common link. That link is membership in the Armed Forces Financial Network (APFN). The network was founded in 1985 by the Association of Military Banks of America (AMBA) and the Defense Credit Union Council. With a focus on the military customer, the AFFN offers automated teller machine (ATM) and point of sale (POS) services to bank and credit union customers worldwide.

Currently, there are approximately 50,000 ATMs and countless thousands of cash registers processing POS debit and credit card transactions through the AFFN network. The AFFN logo that appears on an ATM or cash register signals the customer that the financial institution or merchant he or she is dealing with is a member of the network dedicated to serving our nation's military personnel.

The AFFN has also been active in developing new and unique services for our Armed Forces. Two projects tested in recent years were on the cutting edge of technology at the time they were undertaken. One was the development of a stored value card, known as the @ease Cash Card. The concept behind this card, which was successfully tested at Hickam Air Force Base, Hawaii, now is commonly used by many commercial, nonprofit, and government organizations nationwide. The concept allowed money to be transferred from an ATM account to a stored-value card, which then could be scanned through a reader at the merchant's point of sale to deduct the value of the transaction from the card's balance. While relatively new at the time, a variety of cards issued by a wide range of organizations now use this concept.

A second concept tested successfully by the AFFN has been the "ATMs at Sea" program. This program used on-line "ATMs on the U.S.S. Constellation (CVN-64) and the U.S.S. Theodore Roosevelt (CVN-71) so that sailors could gain access to banking services even while underway. This effort was recognized by the Navy as a major improvement in the quality of life of our nation's sailors. The use of on-line ATMs is expected to be expanded to many other ships within the fleet.

By offering their own services and additional services designed specifically for the military when they participate in AFFN, military banks ensure first-class service for members of our armed forces, other DoD personnel, and their family members.

To help them accomplish this, most military banks participate as members of the AMBA. This association was organized in 1959 at the conclusion of an American Bankers Association convention in Miami, Florida. A number of military bankers attending the convention realized it would be useful to have a vehicle to coordinate banking activities with officials in the Pentagon who write policy and oversee their operations on military installations. The specific purposes of the association were outlined in its formation documents and remain applicable today, more than 40 years later:

* To cooperate in assisting military personnel in establishing banking relationships in the areas of their posts, camps, or stations of duty

* To cooperate in developing and expediting credit for military personnel

* To establish relationships between member banks to facilitate transactions relating to persons in the military service

* To cooperate in developing reasonable prices for banking services offered to military personnel

* To assist in rendering efficient and satisfactory banking services by member banks to persons in the military service

The AMBA's first annual meeting was held on September 21, 1960, in New York City. The initial nine banks that came together to form the AMBA now have grown into an association of more than 100 banks with branches on approximately 120 military installations in the continental United States, at many overseas locations served by the Community Bank, and at several thousand bank branches in civilian communities. While most AMBA member banks join the association because they operate on a military installation, others join to become eligible to participate in AFFN, the ATM and POS network open only to banks that are members of the association.

Over the years, the AMBA has earned the respect of the many organizations with which it maintains relationships. These include the American Bankers Association and the Independent Community Bankers of America, the U.S. Treasury Department, the Federal Deposit Insurance Corporation, other federal agencies involved in the banking industry as well as the Department of Defense (DoD), including the Military Services and the Defense Finance and Accounting Service (DFAS). By helping these organizations perform their missions, the AMBA helps the customers of its member banks to receive the best banking service available.

Military Bank Services

Banks are authorized to operate on military installations primarily to serve individual customers, the military and civilian personnel who find it convenient to bank with these institutions. In addition, military banks serve the banking needs of many of the government operations located on DoD installations, such as the military disbursing office, the military exchange, the commissary, and nonappropriared fund activities. The services provided to military bank customers are numerous.

One of the most important services offered by military banks are checking accounts, which can receive direct payroll deposits and give customers ready access to their funds. There are many different types of checking accounts, some with free checks, no service charges, or minimum balance requirements. These accounts usually earn no interest, while other checking accounts may require higher minimum balances but pay the depositor some interest.

The fees associated with checking accounts can vary greatly, depending upon the services included. Some checking accounts, for example, offer overdraft protection under terms that might include an additional fee or a minimum balance requirement.

Military banks also offer various savings accounts, some of which permit the writing of a specific number of checks per month. One of the more popular accounts is the money market account. This account usually pays a reasonable interest rate while permitting a limited number of checks, usually 3 to 5 per month, to be written against the account. A higher rate of interest is usually paid on a statement savings account where no check writing is allowed.

The highest interest rates paid by banks are normally on fixed-term savings accounts where a certificate of deposit is issued to the customer. Bank certificates of deposit may be issued for periods as short as 6 months or as long as 10 years. While a penalty may occur if the certificate is cashed in prior to its expiration, many bank customers find these instruments to be a safe and convenient way to gain access to higher interest rates over a longer period of time. Interest rates usually are set weekly by the bank and relate to other benchmark securities such as U.S. Treasury bond rates, the federal funds rate, or the bank's internal need for funds.

The Individual Retirement Account (IRA) is another popular savings account offered by military banks. Both the traditional IRA and the increasingly popular Roth IRA can be opened, with most military banks offering a wide array of investments to use in an IRA. These may include mutual funds, equities (stocks), fixed income (bonds or certificates of deposit), variable annuities, or tax-deferred annuities. In addition, a military bank can purchase and redeem U.S. Treasury bonds and U.S. savings bonds for customers.

While ensuring that customers have a safe place for their funds is an important part of a bank's services, gaining access to funds is an equally important part. In addition to allowing checks to be written against checking account balances, most military banks offer their widely dispersed customers exceptionally responsive bank-by-phone, e-mail, or Internet banking options for accessing their funds. Often, these options allow a customer to pay bills, check account balances, and transfer funds electronically from anywhere in the world.

Other electronic ways to access funds involve the use of cards. ATM cards give bank customers the convenience of drawing on their accounts 24 hours a day, 365 days a year through the use of automated teller machines. While a fee is sometimes charged for the use of an ATM withdrawal, customers often find the convenience of gaining access to their funds while away from their bank well worth the cost.

Bank-issued debit cards, which are rapidly gaining in popularity, offer another method of accessing funds at the point of sale when purchasing goods or services. Credit cards issued by banks give customers with good credit records access to short-term loans while making purchases.

Credit card loans are usually interest free if paid in full within the billing period specified in the card's contract. As long as minimum payments are made as stipulated in the card agreement, payments may be stretched out. While a borrower will have to pay interest for those extended payments, if properly used, a credit card can be a useful tool in managing one's personal finances.

Bank credit cards are issued under the bank's name but will be administered by another credit card issuer. Rates and fees differ among card companies and make it necessary to check the details from the several credit card issuers to obtain the most favorable terms and conditions.

With the wide acceptance of electronic banking in recent years, concerns over the security of electronic bank transactions have increased. In response to those concerns, banks have established relationships with commercial firms to ensure proper encryption of transactions and to guarantee that digital signatures are protected. The banking industry has long been in the forefront of efforts to develop secure methods of transmitting and processing data electronically, and military banks have been major players in that effort. When you use a military bank, you can be assured your bank transactions are safe and secure.

The consumer loan also is a very important service offered by banks. These loans, usually made for a specific time (from 5 to 7 years), are typically for automobile purchases or other short-term needs such as college tuition payments, vacations, bill consolidation, etc. Banks usually allow automatic repayment of consumer loans from checking or savings accounts.

The most common long-term loan issued by a bank is a home mortgage loan. There are a variety of fixed-rate conventional mortgages commonly given for periods of 10, 20, or 30 years. Payments including principal and interest remain the same each month. A fixed interest rate ensures that the interest rare will stay the same for the term of the loan.

There also are adjustable rate mortgages where the interest rate will change periodically to reflect current market conditions. The rate of interest on these loans usually is tied to the U. S. Treasury interest rates for comparable time periods.

Mortgages are offered in many forms. One of the more common made by military banks is the Department of Veterans Affairs (VA) mortgage, which requires little or no down payment. The VA guarantees the loan and has more flexible arrangements than are found in most conventional mortgages. Another popular mortgage with a government guarantee is the Federal Housing Administration (FHA) mortgage. FHA mortgages also can be arranged through military banks.

Still another type of mortgage is the home equity loan or line of credit. These loans take a lien against the equity in ones residence and rank second to the first lien (the regular home mortgage). Home equity loans may be used for such needs as debt consolidation, home improvements, education costs, medical expenses, large-ticket items, or a down payment on a retirement or vacation home. The term for repayment can be up to 10 to 15 years.

In addition to issuing credit cards and making consumer and mortgage loans, military banks can assist customers in aranging business loans.

Personal Financial Planning

One of the most valuable services offered by a military bank may be the personal financial counseling offered to individuals and families. With the high debt levels in our society, including lower-graded military personnel, military bankers often find opportunities to discuss budgeting and debt consolidation with bank customers and with military personnel in general. This counseling will look at increasing personal income where possible and, most important, at decreasing personal expenses.

The importance of establishing sound credit is emphasized in bank counseling sessions. Creditworthy personnel, whether military or civilian, are much more

productive than are those who experience financial difficulties. Writing a bad check or not honoring one's financial obligations can have a negative effect on career advancement and may cause strains in family relations as well as reduced efficiency at work--and some loans have government guarantees that can trigger collection actions.

One of the best ways to begin establishing a good credit record is by opening an account at a financial institution such as a military bank. If there is no history of poor credit, many military banks will assist customers to establish good credit by issuing them their first credit card or by offering a line of credit that customers may draw upon. Generally, credit agencies give their best ratings to personnel who have demonstrated stability, maturity, and a steady employment record. Being married also helps.

The amount of debt one has is a major factor in determining credit status. While different stores and credit departments vary in their requirements, some judge candidates by whether they have a car and a telephone, the length of time in their present job, and whether they have a checking or savings account.

A credit agency reduces all of the information that determines one's credit worthiness to a single number, which quickly identifies that individual's relative position in the credit rating. Every person should check his or her credit information with a credit agency at least once a year to ensure that it is correct. If an error has occurred (and there are serious mistakes found in some files), the person reported on should take action immediately to correct the record. Good credit is important!

Military banks are pleased to offer lectures at military schools and training sessions for both officers and enlisted personnel, at command information briefings, and at gatherings of associations and clubs both on and off the installation. A military bank also can help orient newcomers to an installation by informing them of the financial services available in the community while warning them of the many financial scams being peddled around military bases. Commanders often take advantage of the knowledge that military bankers possess by seeking them out for presentations.

Military banks also take pride in being good corporate citizens in the military community. Military banks are commercial enterprises that must make a profit to continue operating. But, like their customers, they work hard, pay their taxes, and contribute to the overall good of their communities. Military banking has come a long way since the nation's first military bank opened almost 60 years ago. But one thing has remained the same: the commitment to provide our Armed Forces and other customers with first-rate banking service. That is a commitment that will never change!

MG George W. Miller III (USAF, Ret.) is President of the Association of Military Banks of America.

Colonel Henry W. Neill, Jr. (USA, Ret.) is the Executive Vice President of the Association of Military Banks of America.
COPYRIGHT 2001 American Society of Military Comptrollers
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Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Author:Neil, Henry W., Jr.
Publication:Armed Forces Comptroller
Geographic Code:1USA
Date:Sep 22, 2001
Previous Article:A Matter of Debt: Service Members Need to Take Advantage of the Personal Financial Services That Defense Credit Unions Are Providing.
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