1. Copyright 2007 Thomson South-Western Chapter 5 Banking Procedures

2. Slide 2 Introduction to Checking Accounts A check is a written order to pay a stated amount to a person or business Checking account –Is a demand deposit in a bank or other financial institution –Provides a safe place to keep money –Provides easy access to the money The FDIC insures accounts for up to $100,000 per depositor per bank 5-1 Checking Accounts

3. Slide 3 Opening an Account To open an account, you will need to –Provide personal data and identification –Deposit money –Each person on the account that writes checks must fill out a signature card for security purposes 5-1 Checking Accounts

4. Slide 4 Bank Fees Some banks charge monthly fees for holding an account with them Checking accounts sometimes pay interest but may have a minimum deposit in order to avoid any fees Some banks charge for every check written

5. Slide 5 Keeping a Checkbook Register Checks and a checkbook register are received when you open an account A checkbook register –Can be used to track checking account transactions –Can provide a record of payments made for bills or purchases –Shows how much money is in the account –Tracks checks, withdrawals, deposits, and fees 5-1 Checking Accounts

6. Slide 6 Sample Checkbook Register 5-1 Checking Accounts

7. Slide 7 Writing Checks Use ink to write the data on checks –The current date –The name of the payee –The amount in numbers and words –Your signature –A note on the Memo line If you make a mistake –Write VOID on the check and in the register –Begin a new check 5-1 Checking Accounts

8. Slide 8 Parts of a Check Payee – the person or entity receiving the check (Pay to the order of…) Memo – a note to indicate what the money is used for (lawn care, hair cut, etc.) Other – date, amount, written out amount, signature

9. Slide 9 Sample Check 5-1 Checking Accounts

10. Slide 10 Using Debit and ATM Cards Debit card –Allows the account holder to withdraw cash at an ATM –Can be used to make purchases –The withdrawal is made electronically ATM card –Allows the account holder to withdraw cash or make deposits at an ATM 5-1 Checking Accounts

11. Slide 11 PIN Number Both Debit and ATM cards require a personal identification number or PIN number in order to access the account. The PIN number is required for both deposits and withdrawals at an ATM machine AND inside a bank The PIN number you choose should be difficult for someone to guess (don’t use your birth date, phone or social security number but choose something you can remember

12. Slide 12 Protecting Account Data Crimes can be committed using account and personal data –Check fraud and forgery –Identity theft To help prevent crime –Keep cards and account information in a safe place –Protect your PIN or password when using cards 5-1 Checking Accounts

13. Slide 13 Making Deposits Endorse checks to be deposited 3 types of endorsements 5-1 Checking Accounts

14. Slide 14 Making Deposits Complete a deposit slip, including –Current date –Amount of cash (bills and coins) –Check numbers and amounts –Total amount of cash and checks –Cash amount received, if any, and your signature –Net deposit amount Record the deposit in the check register 5-1 Checking Accounts

15. Slide 15 Reconciling a Bank Statement Bank statements –Come in paper or electronic form –Show the checks, other withdrawals, and deposits made to an account Purpose of a bank reconciliation –To review the bank statement –To update the checkbook register –To bring the statement and register balances into agreement 5-1 Checking Accounts

16. Slide 16 Focus on... Check Cashing Services Are businesses that charge a fee to cash a check Charge fees that vary by state and by the type of check being cashed May also make payday loans 5-1 Checking Accounts

17. Slide 17 The Purpose of Savings Saving means accumulating money to use for future needs A savings account –Is a demand deposit in a bank or other financial institution –Is a safe way to set aside money –Typically pays interest –May have some restrictions on how quickly or easily the money can be withdrawn 5-2 Savings Accounts

18. Slide 18 Principal The sum of money set aside on which interest is paid

19. Slide 19 Computing Interest Money deposited in a savings account typically earns a set rate of interest –Simple interest 5-2 Savings Accounts SIMPLE INTEREST Interest (I) = Principal (P) x Rate (R) x Time (T) Interest = $1,000 x 6% annual rate x 6 months $30 = $1,000 x 0.06 x 0.5

20. Slide 20 Computing Interest –Compound interest 5-2 Savings Accounts $119.57$1.77$1.74$1.72$1.690.015$112.653 $1.66$1.64$1.62$1.590.015$106.142 $1.57$1.55$1.52$1.500.015$100.001 Ending Balance4321Rate Beginning BalanceYear Quarterly Interest QUARTERLY COMPOUNDING Annual Interest Rate 6%

21. Slide 21 Savings Options Certificates of deposit (CDs) Money market accounts Individual retirement arrangements (IRAs) U.S. savings bonds 5-2 Savings Accounts The TreasuryDirect Web site provides information on savings bonds and may be purchased there as well. Source: TreasuryDirect, http://www.treasurydirect.gov (accessed April 27, 2006).

22. Slide 22 Meeting Financial Goals When choosing a savings option, consider –The amount to save –The length of time you will save –The interest you can earn Use the Rule of 72 to estimate how long it will take the money to double at a certain compound interest rate –72/rate per annum=number of years to double 5-2 Savings Accounts

23. Slide 23 Rule of 72 Example If you invest $100 with a compounding interest rate of 9% per annum, the rule of 72 gives 72/9=8.0432 Therefore it will take approximately 8 years for your $100 investment to become $200 This is for compound interest, not simple interest Therefore if the annual interest is 9% it doesn’t matter if you invest $1 or 1 million dollars, the amount of time for it to double is the SAME!

24. Slide 24 Bank Services Safe deposit box Overdraft protection Cashier’s checks and money orders Stop payment Bank cards Bank loans 5-2 Savings Accounts Banks offer home mortgages and other types of loans.

25. Slide 25 Success Skills Negotiating Means working to reach an agreement that benefits you –Understand your position (what you want) –Understand the other party’s position –Create a proposed solution –Be willing to compromise when appropriate 5-2 Savings Accounts

26. Slide 26 Ethics Writing Bad Checks A bad check is one you write but do not have money in the account to pay Monitor your account carefully to avoid writing a bad check by mistake Show ethical behavior by not writing a bad check intentionally 5-2 Savings Accounts

27. Slide 27 Technology Corner Internet Banking Involves banking using phone or Internet access to bank accounts Offers various services –Electronic payment of bills –Transfer of money between accounts –Checking that deposits are posted –Seeing which checks have been processed –Seeing interest or fees that have been posted 5-2 Savings Accounts

28. Slide 28 Federal Reserve System Is the central bank of the United States Seeks to provide the nation with safe, flexible, and stable monetary and financial systems 5-3 The Federal Reserve System Source: The Federal Reserve Board, http://www.federalreserve.gov/consumers.htm (accessed October 20, 2006).

29. Slide 29 Monetary Policy Key interest rates are controlled by the Fed –Discount rate –Federal funds rate –Prime rate The Fed sells and buys U.S. government securities in open-market transactions –Government bills (Treasury bills) –Treasury notes –Treasury bonds 5-3 The Federal Reserve System

30. Slide 30 Monetary Policy The Fed plays a major role in operating the country’s payment systems –Reserve banks act as a clearinghouse for checks –Checks may be deducted from your account in a single business day The Fed regulates the banking industry –All interstate banks must be Fed members –Intrastate banks are also subject to Fed rules 5-3 The Federal Reserve System

31. Slide 31 Building Communications Skills Reading Comprehension Is the ability to understand what is read Can be improved with practice –Read slowly and think about the material –Note the paragraph structure and topic sentences –Underline key points –Read the material a second time, focusing on vocabulary and details 5-3 The Federal Reserve System