Banking Chapter 5 – Selecting Financial Services & Institutions

Chapter Objectives:  To indentify available financial services  To distinguish among various types of financial institutions  Understand how to compare the costs and benefits of different checking and savings accounts  To evaluate different savings plans  To understand the role of the Federal Reserve System  To indentify available financial services  To distinguish among various types of financial institutions  Understand how to compare the costs and benefits of different checking and savings accounts  To evaluate different savings plans  To understand the role of the Federal Reserve System

Types of Financial Services  Banks:  Lend money  Savings plans  Payment services (checking account, etc)  Direct Deposit  Automatic Payments  ATM’s  Debit Cards  Banks:  Lend money  Savings plans  Payment services (checking account, etc)  Direct Deposit  Automatic Payments  ATM’s  Debit Cards

Types of Financial Institutions *Commercial Banks: for profit; offers a variety of services: checking, investing, savings & mortgages (and other loans) *Credit Union: nonprofit bank owned by members (labor union, employment union)  Federal Deposit Insurance Corporation:  FDIC: 1933 Government created to protect deposits in banks up to $100,000 per account. (Stay tuned, more to come next class) *Commercial Banks: for profit; offers a variety of services: checking, investing, savings & mortgages (and other loans) *Credit Union: nonprofit bank owned by members (labor union, employment union)  Federal Deposit Insurance Corporation:  FDIC: 1933 Government created to protect deposits in banks up to $100,000 per account. (Stay tuned, more to come next class)

Types of Financial Institutions Continued…..  Savings and Loans (S&L): same as a commercial bank, however they specialize in savings accounts & loans. Life Insurance Companies Investment Companies Mortgage Companies  Savings and Loans (S&L): same as a commercial bank, however they specialize in savings accounts & loans. Life Insurance Companies Investment Companies Mortgage Companies

Types of Savings Plans  Savings Account – frequent deposits & withdrawals (research the highest rate)  Certificate of Deposit (CD)  Leave $ in account to gain more interest  Must leave $ in account for a specific period of time  Money Market: interest rate varies from month to month. Higher interest than a regular savings acct.  U.S. Savings Bond: pay 1/2 of value of bond, interest goes up over time.  Savings Account – frequent deposits & withdrawals (research the highest rate)  Certificate of Deposit (CD)  Leave $ in account to gain more interest  Must leave $ in account for a specific period of time  Money Market: interest rate varies from month to month. Higher interest than a regular savings acct.  U.S. Savings Bond: pay 1/2 of value of bond, interest goes up over time.

So, why save? Rate of Return!  The % of increase in the value of your savings from interest earned:  Ex: Maggie earned $50.00 baby-sitting and put in an account earning $1.50 ~ Her rate of return was 3%. How did I get this?  Divide the total interest earned by the amount deposited ($1.50 divided by $50.00= 3%)  Please look at page 139 for more great examples!  The % of increase in the value of your savings from interest earned:  Ex: Maggie earned $50.00 baby-sitting and put in an account earning $1.50 ~ Her rate of return was 3%. How did I get this?  Divide the total interest earned by the amount deposited ($1.50 divided by $50.00= 3%)  Please look at page 139 for more great examples!

Compounding Interest  Process where interest is earned on both the principal (the amount you deposit) and the interest earned.  Page 138 has a great example! Compounding interest is GOOD! :)  Process where interest is earned on both the principal (the amount you deposit) and the interest earned.  Page 138 has a great example! Compounding interest is GOOD! :)

Checking Accounts  What to look for:  Low fees (ATM, check fee’s etc)  Location of Bank: convenience  Overdraft Protection: automatic loan in case you don’t have enough $ in your account.  Interest rates: high rates so you can earn $  What to look for:  Low fees (ATM, check fee’s etc)  Location of Bank: convenience  Overdraft Protection: automatic loan in case you don’t have enough $ in your account.  Interest rates: high rates so you can earn $