Banking Services: Savings and Payment Services CHAPTER 4 Banking Services: Savings and Payment Services Overdraft fees now average $35 per transaction. That was $31.9 billion in 2013. -- The Wall Street Journal

Types of Financial Institutions Deposit type financial institutions Commercial banks – for profit – insured by FDIC Credit unions – nonprofit – insured by NCUA Non-deposit type financial institutions (uninsured) Money market mutual funds Post office, convenience stores – money orders Check-cashing outlets charge 1% to 3% or more A bank or credit union will cash your checks for free Pawnshops make loans on possessions (60%?!) Loan-Until-Payday companies (244%?! 400%!) Where do you see the most check-cashing outlets, pawnshops, loan-until-payday companies, etc.?

Types of Financial Accounts Savings accounts Savings accounts, share accounts, Certificates of Deposit (CDs) Payment accounts Checking accounts, share draft accounts Overdraft Protection? Careful! Compare costs. Must now “opt-in” Other accounts Money market Insured if at bank or credit union Uninsured if at a mutual fund company Trust account Asset management accounts Club accounts – “Vacation Club,” “Christmas Club” Tanda? Cundina? Paluwagon?

Types of Payment Methods Checking accounts Usually free if enroll in electronic statements Older forms of payments Certified check Cashier’s check Money order Travelers checks Newer forms of payments Debit cards, credit cards Gift cards, smart cards Paypal, Apple Pay, Android Pay

Automated Teller Machines A computer terminal that allows customers to conduct banking transactions Debit card or cash card activates transactions Linked to a bank account – Requires a PIN Liability if debit card is lost or stolen To reduce ATM fees you can... Compare ATM fees before opening an account Use your own bank’s ATM when possible Withdraw larger cash amounts as needed Use personal checks, traveler’s checks, credit cards, and pre-paid cash cards when traveling

Evaluating Savings Plans Rate of return or yield Percentage increase in value due to interest Compounding - interest on interest Annually, semiannually, quarterly, daily Annual Percentage Yield (APY) After-Tax Rate of Return (1 – Marginal-Tax-Rate) x Rate-of-Return (1 – 25%) x 4% = 0.75 x .04 = 0.03 = 3% So even if you are earning 4%, after you pay the taxes on the interest you earned, you are actually earning only 3%

Check Reconciliation More than half Americans do not reconcile their checkbook balances Check Register Keep it current! Write every transaction down – Immediately! Keep an electronic register and a written one Bank Statement Check reconciliation forms Check register spreadsheet Quicken, etc.

Check Reconciliation When you get the monthly bank statement… (continued) When you get the monthly bank statement… Record cleared checks Identify outstanding checks Record deposits confirmed Identify deposits in transit Look for transactions that were left out of the check register Reconcile! Let’s try an example…