Financial Services and Institutions Name____________________ 1

How to Manage Your Cash What are your cash needs?  Banking began in 1791 – 1 central bank with 8 branches  Today –  11,000 _________  2,000 _____________________  12,000 ____________________  Types of Financial Services  Savings – safe storage of funds  Time Deposit – money left in the bank for months/yrs  ____________________  Certificates of Deposit (CD’s)  Payment Services – transferring money from a personal account to businesses or individuals for payment is a basic function of day-to- day financial activity at a bank.  Checking account – ___________________– withdraw money at any time or on demand 2

Types of Financial Services (cont)  Borrowing – need to borrow money  Short term – credit cards, personal loan  _____________–  mortgage – for a house  Auto loan – for a car  Other Financial Services  _____________________  Stocks, bonds, mutual funds, income tax assistance, financial planning 3

Electronic Banking Services How can you use electronic banking services?  Direct Deposit – automatic deposit of net pay to an employee’s designated bank account  Save time money and effort  ______________________  Automatic Payments – Utility companies, lenders and other businesses allow customers to use an automatic payment system  ____________________________  Automated Teller Machines (ATMs) – cash machine, computer terminal that allows a withdrawal of cash from an account…make deposits…transfer money from one acct. to another  Debit card…allows you to use ATM or pay for purchases from checking/savings  PIN – _________________– needed to access and use your debit card 4

Plastic Payment  ATM Fees – convenience fee for using the card  Lost – must notify bank ___________…most card issuers will not hold you responsible  Point-of-Sale Transactions – purchase by a debit card of a good/service at a retail store, restaurant. _______________ ________________________________  Stored-Value Cards – Prepaid cards that you can use for bus, school lunches, long-distance phone calls  ________________________  Electronic Cash – plan is to create electronic versions of all existing payment systems, will no longer handle currency 5

Types of Financial Institutions  Federal Deposit Insurance Corporation  Great Depression of the 1930’s  People lost their deposits  _______________________  Protect deposits - $100,000 (Federally Chartered Banks)  Currently at ________________(Due to expire Dec 2013)  Deposit Institutions – deposit type institutions  Commercial Banks ______________institution that offers a full range of financial services…checking…savings…lending  Individuals and businesses 6

Types of Financial Institutions  Savings and Loan Associations (S&L) – traditionally specializes in savings accounts and mortgage loans  The Savings and Loans Crisis created the greatest banking collapse since the Great Depression of By 1989, over half the Savings and Loans had failedSavings and Loans  Mutual Savings Banks  Credit Unions – non-profit financial institution that is owned by its members and organized for their benefit  ______________________  College Alumni Assoc  Non-Deposit Institutions  ______________________  Investment Companies  ______________________  Mortgage Companies 7

Problematic Financial Businesses 8  Be careful of these financial businesses  ________________________  Check Cashing Outlet  ________________________  Rent-to-Own Centers

Comparing Financial Institutions  Where can you get the highest interest rate for your savings  ________________________________  Offer of credit cards or loans  Do they offer free financial advice  ____________________________  Convenient branch locations 9

Savings Plans and Payment Methods 10  Regular Savings Accounts  Passbook or monthly or quarterly statements  Frequent deposits and withdrawals  ______________________________  Lower interest rates  Certificates of Deposit (CD) savings alternative in which money is left on deposit for a stated period of time to earn a specific rate of return  Low risk  _____________________________  Trade-off: 1 month to 5 yrs, pay penalty for early withdrawal, minimum deposit  Maturity date – _________________________________

Savings Plans and Payment Methods 11  Money Market Accounts – savings account that requires a minimum balance and earns interest that varies from month to month  Minimum balance of _____, penalty for below minimum  Write a limited amount of checks  _________________________  U.S. Savings Bonds - bonds require that you leave the money in the account for a longer period of time. You purchase the bond at one half its face value. If you cash in the bond before that time, you will not receive the whole value of the bond.  ____________________________

Evaluating Savings Plans 12  Rate of Return (yield) – percentage of increase in the value of your _____________________________  Example – Initial deposit $75, $3 interest earned…the rate of return is 4%  Total interest/initial deposit (3 divided 75 =.04 (4%)  Compounding – is the process in which interest is earned on both the principal, the original deposit, and any previously earned interest  Truth in Savings – have to inform you of the following:  ___________________________  Interest Rate  Annual percentage yield (APY)  Term and conditions of the savings plan

Evaluating Savings Plans 13  Annual Percentage yield (APY) – the amount of interest that a deposit would earn, after compounding, for one year.  _____________________________________  The APY helps your determine the amount you can expect to earn on your money  Liquidity – Check the savings plans you are considering to determine whether they charge a penalty or pay a lower rate if interest if you withdraw your funds early.

Types of Checking Accounts 14  Regular Checking Accounts – usually do not require a __________________________  Activity Accounts – write few checks, will be charged per check and deposit  Interest-Earning Checking Account – combination checking/savings…pay interest if minimum balance is kept

Evaluating Checking Accounts 15  Restrictions – is there a _________ balance requirement  Fees and Charges – monthly service charge, fees for check printing, overdrafts, stop payment orders  Interest – Interest rates, frequency of compounding  Special Services –  ATM  Electronic banking  Overdraft protection – automatic loan made to an account if the balance will not cover checks written

Using a Checking Account How do you open and use a checking account? 16  Individual – ____________________  Joint – two or more owners  Signature Card – ________________________  Writing Checks  Check Register – small booklet that you use to record your activity  Record in check register – date, number of check, name of party who will receive payment, exact amount of check  Record all checks, deposits, ATM activity

Making a Deposit 17  To add money to your checking account, fill out a deposit slip

Endorsements 18  Signature of payee, the party to whom the check has been written.  Blank Endorsement – payee signature on back of check  Sign your name  Restrictive Endorsement – check holder’s signature and a restriction on how the paper may be used by the bank  Write “For Deposit Only” and then you sign your name  Special Endorsement – allows you to transfer a check to an organization or another person  Write the words “pay to the order of” followed by the name of the organization or person, and then you sign your name

Endorsements 19  1.  2.  3.

Endorsing a check: 20  Do not endorse a check until you are ready to ____________________________  Write your signature on the back of the check at the top ______________________  Sign your name exactly as it appears on the front of the check  Use a _______ so that the signature cannot be erased  If depositing, write, “For Deposit Only” above your signature  Check Clearing – system that ensures that the money you deposited in the acct is available for withdrawal (2-5 days)

Keeping Track of a Checking Account 21  Each month your bank will send you a statement that shows your checking account activity for the month  __________________  Checks you have written (charged against your account)  ____________________  Debit card charges (identified by the business to whom you made the payment)  ___________________  Fees

Reconciliation 22  Balance reported on the bank statement may be different from the balance in your check register  Written checks that have not yet ____________________  Deposit money into your account after the bank prepared your statement  ________________________  Interest paid  Bank Reconciliation – report that accounts for the differences between the bank statement and a checkbook balance  Balancing your check book: Bank statement = checkbook

Balancing your Checkbook Compare checks written in checkbook to bank statement (ck#-101,102,103-stmt-101,102)  Outstanding checks – checks you have written that haven’t cleared the bank (103)  Subtract total amount of outstanding cks from bank statement balance 2. Determine whether any recent deposits are not on the bank statement  Add amounts of those deposits to the bank statement 3. Subtract fees and charges listed on the statement from your checkbook balance 4. Add interest earned to your checkbook balance Checkbook=Bank Statement

Other Payment Methods 24  Certified check – personal check with a guaranteed payment – deducts amount out of your account immediately – fee charged  Cashiers Check – ___________________________  Money Order – pay the amount of the check + fee (also can be purchased at ___________for a smaller fee)  Travelers Check – used for traveling, can be replaced if stolen (amount + fee)

How Do Banks Make Money? 25  Banks make money by making loans  Federal Reserve sets a reserve requirement 3%-10% for each deposit the rest can be loaned out  You deposit $100, the bank can loan out $90 (if reserve is 10%)