2 Unit 4 Vocabulary Bank Statement Blank Endorsements Canceled Check Cashier’sCheckCertificate of Deposit (CD)Certified CheckCheckbook registerChecking AccountCompound InterestDemand DepositDeposit SlipDraftsFloating A CheckLiquidityMaturity DateMoney Market FundOverdraftPenaltyReconciliationRestrictive EndorsementSpecial EndorsementsStop Payment Order
3 Unit 4 Essential Question What checking and banking services are available to you?
4 Essential Question 1 Banking Services What is the purpose, use, and advantages of a personal checking account?
5 Checking AccountsChecking Account: A banking service wherein money is deposited into an account, and checks are written to withdraw money as needed.Drafts: Checks used to withdraw money from an account.Demand Deposit: An account that lets you demand portions of your deposited funds at will.Deposit Slip: A form used to record money put into a checking account.
6 Checking Accounts Cancelled Checks: Checks the bank has processed. Overdraft: A check written without sufficient money (funds) in an account to cover it.NSF: Non-sufficient funds.Floating A Check: The practice of writing a check on insufficient funds and hoping to make a deposit to cover the check before it is cashed.This is illegal!
7 Checking AccountsChecking accounts are convenient and safer than cash.Canceled checks serve as receipts.Budgeting is made easier because check records are kept.
8 Checking Accounts Opening a checking account is quick and easy. A signature card is prepared.Two pieces of identification are needed.
9 Essential Question 2 Banking Services How do you maintain and reconcile a checkbook?
10 Rules for Writing Checks Checks are used to withdraw money from the account.Deposit Slips are used to add money to an account.
11 Rules for Writing Checks The checkbook register should be kept accurate and a new balance calculated after every entry.The checkbook should be reconciled immediately when the bank statement is received.
12 Rules for Writing Checks Use good penmanship when writing checks.Separate dollars and cents with a decimal. Do not write cents as a fraction.Avoid “flagging” numbers such as 1,2,and 7.Avoid curvy and curly-que writing especially with 3s and 5s.No European 4s or 7s.Close all loops with 6,8,9,and 0.
14 Rules for Writing Checks Checks cannot be cashed until they have been endorsed.Blank Endorsement: The signature of the payee written exactly as his or her name appears on the front of the check.
15 Rules for Writing Checks Checks cannot be cashed until they have been endorsed.Restrictive Endorsement: Restricts or limits the use of a check.
16 Rules for Writing Checks Checks cannot be cashed until they have been endorsed.Special Endorsement: Also known as an endorsement in full, is written when the payee signs over a check to a third person.
17 Parts of a Check Check number is located in the upper right corner. American Bankers Association (ABA): located under the check number.Location and district of bank.Routs the check to the specific bank and area.Date is located near the ABA.
18 Parts of a Check Pay to the Order of use to identify the payee. $ used to indicate the numerical dollar and cents value of the check.Dollars used to indicate the value of the check in writing.The $ and Dollars must match.For used to indicate the reason for writing the check.Signature line used to authorize payment.
20 Parts of a Check Write check for $59.28 to Landowner’s Inc. for rent. Write check for $ to Publix for groceries.
21 Parts of a CheckDeposit $22.30 cash, checks # 212 for $28.00 and # 315 for $55.00.
22 Parts of a CheckDeposit checks # 154 for $ and # 351 for $85.00, keep $25.00 cash.
23 Parts of a CheckCheckbook Register: A record of deposits to and withdrawals from a checking account.
24 Parts of a CheckReconciliation: The monthly process of matching the bank statement with the checking account balance.Bank Statement: A monthly statement from the bank that lists all changes in a checking account.
25 Essential Question 3 Banking Services What are the different types of checking accounts available?
26 Types of Checking Accounts There are four types of checking accounts.Special Accounts:Offered to customers who write a small number of checks each month.Normally only charged a service fee and check charge if the customer exceeds their check limit during that month.
27 Types of Checking Accounts There are four types of checking accounts.Standard Accounts:Usually has a monthly service fee but no per-check fee.Service fees can be avoided by maintaining an average minimum balance.May also include other benefits:Free Traveler’s ChecksFree Safe-Deposit BoxReduced interest on Credit Card Balance
28 Types of Checking Accounts There are four types of checking accounts.Interest-Bearing Accounts:Interest is paid daily on the account if an average minimum daily balance is maintained.If the account falls below the minimum daily balance then fees and check charges would apply.Share Draft Accounts:Offered by most Credit Unions.These accounts have no minimums, user fees, or check charges.
29 Essential Question 4 Banking Services What are the various banking services available?
30 Baking Services (FDIC) Federal Deposit Insurance Corporation Insures each depositors’ accounts up to $100,000 per account holder.Special Checking ServicesTraveler’s ChecksInsured against loss or theftGuaranteed paymentSafer than cashWill not bounce
31 Baking Services Special Checking Services Certified Checks Your own check guaranteed by the bankMoney is taken out of your account to pay for the checkWill not bounceCashier’s ChecksA check drawn on the banks own fundsMoney is taken out of your account to pay for the check or you must pay cash for it
32 Baking Services Special Checking Services Debit Cards Money OrdersCan be purchased at banks, post offices, and other businessesMust pay cash – checks will not be acceptedWill not bounceDebit CardsDiscount Brokerage ServicesTrusts
33 Baking ServicesStop Payment Orders: A request that the bank not cash or process a specific check.Saving AccountsBank Credit CardsSafe-Deposit BoxesLoansAutomatic Tellers
34 Essential Question 5 Banking Services Why should you save?
35 SavingThe purpose of saving is to postpone spending until someday in the future.Reasons for saving:Expected and unexpected needsFinancial SecurityProvides peace of mind that short term needs can be met without financial difficulty.Disposable Income: Income available after mandatory and optional deductions are made from gross pay. Also known as net pay.Discretionary Income: Income available after the bills have been paid. This money is what is available for saving.
36 Saving Reasons for saving: Meet short-term goals Emergencies – Unemployment, sickness, accident, death in family, etc.Vacations and Leisure – Short weekend trips, family vacations, ball games, concerts, etc.Social Events – Weddings, proms, family reunions, retirement and graduation parties, etc.Major Purchases – Car, remodeling, large appliances, etc.
37 Saving Reasons for saving: Meet long-term goals Home Ownership – The larger the down payment the lower the mortgage payment.EducationThe cost of postsecondary education (college, technical school, apprenticeships, advanced and skill training, etc.) is continually increasing.Start a savings plan for children now.Retirement – Social Security will not be sufficient to support you when you are older.InvestmentsProvides a hedge against inflation.Done in addition to saving NOT in lieu of saving.
38 Essential Question 6 Banking Services How does money grow?
39 Interest Interest: Cost of money. Simple Interest: Interest computed on the amount borrowed or saved only.Computed using the formula I = PRT.I - InterestP - PrincipalR - RateT - Time
40 InterestPrincipal: The amount saved, borrowed or the original amount of debt.Rate: The interest rate expressed as a percentage.Time: The length of time the borrower has to repay the loan expressed in years or as a fraction of a year.%
41 InterestExamples:Find the interest earned in 5 months on $500 deposited in a savings account the earns 4% simple interest per year.What is the simple interest earned on a money market account with $1800 that yields 6% interest over 4 years?You earned a $1.75 on $400 in 3 months. What is the interest rate?
42 InterestCompound Interest: Interest calculated by periodically adding earned interest to an account.By adding the interest to the principal a new principal results.Compounded interest will grow savings faster than simple interest.The Annual Percentage Rate (APR) is divided by the number of compounding periods in a year to determine the interest rate per period.
43 InterestFind the interest earned in one year on $500 deposited in a savings account that yields 4% interest per year compounded quarterly.What is the interest earned on a money market account with $1500 that yields 6% APR compounded semiannually over 5 years?
44 Essential Question 7 Banking Services What decisions need to be made when selecting a savings plan?
45 Saving Where You Can Save Commercial Banks Savings Banks Savings and Loan AssociationsBrokerage FirmsCredit Unions
46 Saving Savings Accounts Savings should grow to provide for future needs by:Taking advantage of compound interestSetting aside money at regular intervalsTypical savings plans include:Certificates of Deposit (CDs): Represents a sum of money deposited for set length of time.Maturity Date: The day the account comes due. If the CD is not withdrawn in specified period of time, it will automatically rollover.Early Withdrawal Penalty: A charge for withdrawing money before maturity.
47 Saving Savings Accounts Money Market Funds: A combination of savings and investing where the money deposited is used to purchase low risk securities.The best savings option has all of these features:Liquidity: Refers to how easily assets can be converted to cash without penalty.
48 Essential Question 8 Banking Services What are the advantages to saving regularly?
49 Saving Savings Accounts Safety: You cannot lose your money because it is insured.Convenience: There is a bank branch located close to your home and your work.High Return: Your money earns a competitive rate of interest.No Early Withdrawal Penalties: You can access your account anytime without penalties.
50 Saving Regular savings will greatly increase your earnings. Creates a habit in the culture of savingCompound interest helps regular investments grow faster.