Money and Banking Checking Accounts

The Federal Reserve Part of the federal government Congress set up in 1913 Has 12 Federal Reserve district banks 25 branch banks & 5000 member banks Run by the board of governors which is headed by a chairperson It supervises the Federal Reserve district banks and regulates activity of the member banks.

Functions of the Fed Clearing checks Acting as the federal government’s fiscal agent. Supervises member banks Regulates the money supply Setting reserve requirements Supplying paper currency

Basics of a Checking Account Banks offer savings and checking accounts Banks also offer: Credit cards Loans Financial planning services investments Federal Reserve Regulates many of these services.

Opening an Account Customer deposits money in an account and receives a book of checks. Checks can then be used to pay for purchases. Checking accounts often called: demand deposits.

Types of Accounts Regular checking Interest-bearing account Joint account

Regular Account Designed for customers who write a few checks each month & don’t keep a minimum amount of money in the bank. May require a minimum balance. If balance falls below the minimum, a service charge may be deducted.

Interest-Bearing Accounts Checking account that earns interest. Usually has a high minimum balance requirement: Could run from $1,000 to $10,000. Usually has unlimited number of checks allowed each month.

Joint Account An account shared by two people Used by: Both are equally responsible for the account Used by: Parents and college-age children Co-owners in a business Either person can right checks on the account.

Signature Card A record of your signature used by the bank to verify your identify. Bank can check your signature. This helps other people from cashing your checks. Signature used on the card is the same one you use when writing checks. Joint accounts: both owners must sign a card.

Fast Review What is an advantage and disadvantage of in interest-bearing checking account? What is the main purpose of a signature card?

Account Services Overdraft Protection Stop Payment Debit Cards Online checking

Overdraft Protection Overdrawing Most banks charge a fee: $20-$30 Writing checks for more money than you have in your account. Most banks charge a fee: $20-$30 Overdraft Protection A line of credit for overdrawn checks. If you write a check for more than you have in the account, the bank will cover the check up to a certain amount.

Stop Payment An order for a bank not to cash a check. Banks may charge a fee for this service.

Debit Cards Check cards or debit cards It is like a credit card but money is taken directly from your checking account Can be used almost everywhere a credit card is used. Don’t pay interest because it is used like a check. Also referred to as ATM cards.

Online Checking Allows you to check your account online. Transfer money from your checking to your savings account. Must have an ID and password. Can use for automatic bill pay

Fast Review What happens if a customer had insufficient funds in a checking account to pay a check? How is a debit card different from a credit card?

Check Register Checkbook log Where you keep track of all your checking transactions

Endorsement Signature of the payee on the back of the check. You must endorse when cashing or depositing a check.

Bank Statement The bank’s record of all the transactions in your checking account. Includes Withdrawals Deposits Interests Fees Canceled checks

Canceled checks Checks you have written that have been cashed. Proof that the money has been paid to payees.

Bank Reconciliation

Outstanding checks Checks written but haven’t been cashed.

Savings Money put aside for future use. You’re putting off spending money now to get something later This is called opportunity cost—or a trade off.

Simple Interest Interest earned only on the money you deposited into your savings account. Amount of interest you receive depends on: Amount of savings Interest rate Length of time it is in the account.

Compound Interest Earned on both the principal and interest earned. Interest on interest

Certificate of deposit Requires a minimum amount of money in an account for a certain time period. $500 Length of time might be 6 months, 18 months. Maturity date When money becomes available to you.

FDIC Government agency Insures bank accounts

Liquidity The ability to quickly turn an investment into cash. Car or business isn’t very liquid. Savings accounts are highly liquid. You can cash a CD before it matures—you won’t get its full value, and you will have to pay a penalty fee.

Inflation risk Inflation is the general increase in the cost of goods and services. Inflation risk The risk that the rate of inflation will increase more than the rate of interest on savings.

Costs of Savings Accounts Early penalty fee for taking money out early. If account balance falls below the minimum there is a charge. Can charge a fee for each deposit and withdrawal Interest earned on savings is considered income You have to pay taxes

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