Chapter 5 The Banking System

Choosing a Bank Research local bank websites. Select a bank with the most ATMs in your proximity. Look for banks that can make it even easier for you to bank. –Online Banking –Online Bill Pay – /Text Alerts (threshold) –Mobile Banking –Free Checking –Savings Account –Lowest or Free Transaction Fees Ask parents and friends.

Slide 3 What Is the Purpose of a Checking Account? 5-1 Checking Accounts A checking account is a demand deposit account on which checks are drawn. A check is a written order to a bank to pay a person or business.

Slide 4 Checkbook Register 5-1 Checking Accounts

Checking Account Info Canceled check FDIC limit Stale check Outstanding check Outstanding deposit Writing checks – page 152 Checkbook register – page 151 Slide 5

Slide 6 Making Withdrawals and Deposits 5-1 Checking Accounts A withdrawal involves taking money from your account. o Writing checks o Using debit and ATM cards o Check fraud/forgery A deposit of money can be made to your account. o Endorsing checks – blank/restricted/special – page 155 o Direct deposit o Deposit slip – page 154

Debit Card Advantages Keep your debit card safe and secure. Make sure you have enough money in your account to cover purchases made with your debit card. Keep track of all your debit card transactions. Memorize your debit card PIN; don’t write it on your card or keep it in your purse or wallet.

Understanding Debit Cards Debit cards work like cash or a personal check. Debit cards offer a quick way to pay for groceries, gas, etc. With debit cards, you pay now. With credit cards, you pay later.

Slide 9 How Do You Reconcile a Bank Statement? 5-1 Checking Accounts Bank reconciliation is the process of adjusting the checkbook register and bank statement so they agree. The bank statement lists checks, withdrawals, deposits, service charges, interest, and fees. Consider deposits in transit, outstanding checks, and transposition errors. Page 157

Slide 10 What Is the Purpose of Savings? A savings account is a demand deposit account for the accumulation of money. It is a safe place to hold money to meet future needs and wants. It pays interest at a low rate. 5-2 Savings Accounts

Slide 11 How Can You Grow Your Savings? 5-2 Savings Accounts Principal is the money set aside on which interest is paid. Simple interest is computed once during a time period. Compound interest is earned on both principal and interest earned previously.

Slide 12 Computing Simple Interest 5-2 Savings Accounts P = amount of money set aside R = interest rate T = time that money will be set aside Simple Interest Interest (I) = Principal (P) × Rate (R) × Time (T) = $1,000 × 6% annual rate × 6 months = $1,000 × 0.06 × 6/12 = $30

Slide 13 Computing Compound Interest 5-2 Savings Accounts Quarterly Compounding Annual Interest Rate 6% Beginning Rate Ending YearBalance 6% QuarterBalance $ $1.50$1.52$1.55$1.57$ $ $1.59$1.62$1.64$1.66$ $ $1.69$1.72$1.74$1.77$119.57

Slide 14 What Are Your Savings Options? 5-2 Savings Accounts Money market accounts earn the market rate of interest. Certificates of deposit (CDs) pay a fixed interest rate for a time period. U.S. savings bonds pay a guaranteed minimum interest rate. Individual retirement accounts (IRAs) help you save for retirement.

Slide 15 Focus On... The FDIC Protects depositors of insured U.S. banks against loss if the bank fails Covers all types of deposits Covers principal and accrued interest Does not insure some items o Examples: stocks, bonds, valuables Insures deposits in different banks separately 5-2 Savings Accounts

Slide 16 What Banking Services Are Available to Consumers? Safe deposit boxes Overdraft protection ATMs Cashier’s checks Financial advising Loans Internet banking Bank cards 5-3 Banking Services and Fees

Slide 17 What Are the Costs of Banking? 5-3 Banking Services and Fees Monthly account fees Nonsufficient fund fees Special service fees o Examples: stop payment, cashier’s check, money order ATM fees Inactive account fees

Slide 18 What Are Consumer Responsibilities? 5-3 Banking Services and Fees Maintain your balance. o Avoid writing bad checks. Monitor your account. o Reconcile your bank account. Know your rights. o Be aware of consumer protection laws.