Consumer Education Chapter 7 Unit 4: Banking Consumer Education Chapter 7

How Banks Work Banks are a business; they work to earn a profit Most profit comes from interest charged on money they lend to customers Money lent out to customers comes from the deposits of other customers

COMMERCIAL BANKS CREDIT UNIONS For-Profit Business – the income from the business goes to the owner, owners, or shareholders Customers – any consumer Federal Depositors Insurance Corporation (FDIC) Non-Profit Business – the income from the business goes back towards the benefit of members and continued operation of the business “Members” – people who share a common characteristic or qualification National Credit Union Association (NCUA)

How Banks Work – Why use banks? Protect you money’s purchasing power Inflation – interest earned offsets inflation Banks are regulated Owners must invest, money is on reserve Most deposits are insured Federal Deposit Insurance Corporation (FDIC) Up to $250,000 (increased in 2008) Banks make borrowing easier (reduce risk) Money flow – savers to borrowers

Money and Financial Transactions Bartering – trading goods and services without using money Money allows an equal comparison of goods and services Currency – paper money and coins used for financial transactions Check – an order to a bank to pay a specified sum to a business or person (payee) Statement – a monthly record of all transactions of an account provided to a customer by a bank

Electronic Banking Electronic Funds Transfer Moving money from one account to another by use of a computer Automated Teller Machine (ATM) A computer terminal that you can use to make deposits, withdraw cash, transfer money, check your balance, and pay certain bills Personal Identification Number (PIN) A secret number that identifies you to the ATM as the owner of the card and the account

Electronic Banking Direct Deposit Debit Cards Pay by Phone Paychecks that are electronically deposited into a checking or savings account Debit Cards Pay by Phone Setting up an electronic funds transfer from your account over the phone (routing number and account number are used) Automatic Withdrawal Bills that are paid automatically from your checking or savings account and electronically transferred

Other Banking Services Certified Checks A personal check on which a bank has written its guarantee that payment will be made Cashier’s Check (or Teller’s Check) A bank check issued and signed from the banks own account Money Order A check that draws on the money of the bank or other financial business that issues it Postal Money Orders – issued and backed by U.S. Postal service Traveler’s Checks – checks that you pay for in advance, and that can be replaced if lost or stolen

Traveler’s Checks:

Other Payment Methods cont. Wire Transfers a financial transaction that electronically moves funds from one bank to another Safe Deposit Boxes Boxes with individual locks that can be rented from the bank What’s the difference? Online Bill-Pay / Automatic Payments / Online Payments