© Goodheart-Willcox Co., Inc.

8 Financial Institutions and Services

© Goodheart-Willcox Co., Inc. Chapter Objectives Identify different types of financial institutions. Select the financial services that will best meet your needs. Use ATM and debit cards responsibly. Manage a personal checking account. Write and endorse checks correctly. Calculate a checkbook balance.

© Goodheart-Willcox Co., Inc. Types of Financial Institutions Economic systems cannot function without financial institutions They are financial go-betweens that keep money flowing throughout the economy among consumers, businesses, and government

© Goodheart-Willcox Co., Inc.

Commercial Banks Commercial banks offer a wide variety of services continued

© Goodheart-Willcox Co., Inc. Commercial Banks Federal Deposit Insurance Corporation (FDIC) maintains confidence in the banking system by –i–insuring bank customers’ deposits –e–examining and supervising financial institution policies and operations

© Goodheart-Willcox Co., Inc. Savings and Loan Associations Savings and loan associations (S&L) offer many of the same services of commercial banks Two S&L types: –M–Mutual savings and loan associations –S–Stock savings and loan associations

© Goodheart-Willcox Co., Inc. Credit Unions Credit union memberships available through employers, unions, religious organizations, community organizations, or other groups Lower operating costs (no federal income taxes required) allow them to pay higher interest rates on savings and charge lower rates on loans continued

© Goodheart-Willcox Co., Inc. Credit Unions Either federally or state chartered National Credit Union Administration (NCUA) –g–grants federal charters –s–supervises credit unions across the country –i–insures deposits

© Goodheart-Willcox Co., Inc. In Your Opinion Would you prefer to use a credit union if you had access to one? Why or why not?

© Goodheart-Willcox Co., Inc. Mutual Savings Banks Mutual savings banks exist in only 17 states Earnings divided among depositors as dividends Offer a wide variety of services –R–Receive and pay dividends on deposits –M–Make home mortgage and improvement loans

© Goodheart-Willcox Co., Inc. Choosing a Financial Institution What services does the institution provide? What fees are charged? Is the staff helpful?

© Goodheart-Willcox Co., Inc. Safety Look for signs that say –“–“Insured by the FDIC” –“–“Insured by the NCUA” This means the institution is regularly checked and passes ongoing examinations

© Goodheart-Willcox Co., Inc. Services of Financial Institutions Electronic funds transfer (EFT) makes transactions quickly and conveniently Automated teller machine (ATM) lets you access your account to withdraw cash, make deposits, perform other services To use an ATM you need –a–an ATM card –a–a personal identification number (PIN)

© Goodheart-Willcox Co., Inc. Direct Deposits or Withdrawals Checks and payments are deposited directly into an account Bills can be paid without writing and mailing checks Money can be automatically transferred from checking to savings

© Goodheart-Willcox Co., Inc. Point-of-Sale Transfers (POS) Moves money from your account to pay for a purchase without using checks, cash, or credit A merchant scans a debit card and purchase amount immediately transfers from customer’s to merchant’s bank account

© Goodheart-Willcox Co., Inc. Online Banking Services Online access to accounts using identification number and security code You can –c–check account balance –r–review account history –s–schedule electronic bill payment –c–confirm deposits, withdrawals, and transfers Personal financial software often available

© Goodheart-Willcox Co., Inc. Overdraft Protection Overdraft—the act of withdrawing money or writing a check for an amount greater than an account balance Financial institutions offer overdraft protection Banks charge fees for each overdraft

© Goodheart-Willcox Co., Inc. Stop Payment A financial institution will refuse to honor a check written by a customer A fee is usually charged Customers must request this service

© Goodheart-Willcox Co., Inc. Drive-Up and Mail-In Services Customers make deposits and withdrawals by –m–mail –d–drive-up windows

© Goodheart-Willcox Co., Inc. Safe-Deposit Boxes Customers’ important documents and valuables are stored in a secure vault An annual fee is usually charged

© Goodheart-Willcox Co., Inc. Other Special Programs Trust preparation department Tax reporting assistance Financial planning Money market funds Mortgage loans

© Goodheart-Willcox Co., Inc. Personal Checking Accounts Advantages of checking accounts: –S–Safe place to keep money –E–Easy way to buy goods and services –E–Easy way to pay bills –P–Provides record of deposits and receipts –A–Aids in money management –H–Helps build sound credit rating

© Goodheart-Willcox Co., Inc. Accounts and Services Look for financial institutions that offer the accounts and services you want in a checking account Ask about availability of different features and their fees, if any

© Goodheart-Willcox Co., Inc. Restrictions and Penalties Minimum balance requirements Withdrawal limitations Overdraft penalties Late payment on credit penalties

© Goodheart-Willcox Co., Inc. Fees and Charges Maintenance fees Charges for ATM use Low-balance penalties Check-writing fees Check-printing costs

© Goodheart-Willcox Co., Inc. Interest Rates Interest rates –p–paid on interest-bearing checking accounts – charged to borrow money –c–charged to use a bank credit card Look for high yields on savings and low rates for using credit

© Goodheart-Willcox Co., Inc. Convenience Convenient hours ATMs in various and convenient locations Online banking availability Credit cards offered

© Goodheart-Willcox Co., Inc. Checking Account Types Basic checking accounts are good for people who write many checks and can keep the minimum balance continued

© Goodheart-Willcox Co., Inc. Checking Account Types Interest-bearing account: –C–Combination savings and checking account –A–Also called share drafts or NOW accounts Lifeline account: –A–An option for low-income customers

© Goodheart-Willcox Co., Inc. Opening a Checking Account Sign a signature card Those under 18 usually need a joint account with a parent; spouses often share joint accounts Record all starter checks and personalized checks that you use Keep track of transactions with a register

© Goodheart-Willcox Co., Inc. Managing the Cards Linked to Your Account Advantages of ATM and debit cards: –E–Eliminate need to carry lots of cash –A–Access to your money at any time –A–Access to your money almost anywhere –A–Access to goods and services of businesses that do not accept checks continued

© Goodheart-Willcox Co., Inc. Managing the Cards Linked to Your Account Keep all receipts Record transactions and fees in checkbook register Safeguard your card and PIN Know your balance and don’t overdraw your account

© Goodheart-Willcox Co., Inc. ATM Cards Use ATMs affiliated with your bank’s network –U–Usually no fee charged –O–Other ATMs charge fees, which can add up

© Goodheart-Willcox Co., Inc. Debit Cards Used at ATMs and businesses that accept credit cards Similar to writing a check; the purchase amount comes directly from your checking account

© Goodheart-Willcox Co., Inc. Making Deposits Deposits can be made –i–in person –b–by mail –a–at an ATM Fill out a deposit slip Save receipts and record deposits in your register

© Goodheart-Willcox Co., Inc. Endorsing Checks Before you cash or deposit a check made out in your name, you must endorse it continued

© Goodheart-Willcox Co., Inc. Endorsing Checks Three ways to endorse a check: –B–Blank endorsement–just the payee signs –R–Restrictive endorsement–the specific use is noted, such as “for deposit only” –S–Special endorsement–the payee writes “pay to the order of…” and signs, and the other party also signs

© Goodheart-Willcox Co., Inc. Writing Checks Use dark ink In case of error, destroy check and write a new one Fill in the –d–date –p–payee name –c–check amount in numbers and words –y–your signature continued

© Goodheart-Willcox Co., Inc. Writing Checks Filling out checkbook register –R–Record check number, date, payee, and amount –S–Subtract check amount from balance –R–Record deposit dates and amount –A–Add deposit amount to balance –F–For destroyed checks, write number and “void”

© Goodheart-Willcox Co., Inc. Balancing Your Checkbook Bank statements are sent out monthly Always check the statements against your records continued

© Goodheart-Willcox Co., Inc. Balancing Your Checkbook Bank statement contents include –b–beginning and ending balances –t–total amount of checks and payments –t–total amount of deposits and credits –d–details of checks paid (dates, numbers, amounts) and canceled checks or check photocopies –o–other items paid (withdrawals, fees, bills) –d–deposits and credits (dates, descriptions, amounts) continued

© Goodheart-Willcox Co., Inc. Balancing Your Checkbook 1. Compare canceled checks with those recorded in checkbook register 2. Compare deposits in register with those on statement and your receipts 3. Check ATM transactions and fees in register against those on statement continued

© Goodheart-Willcox Co., Inc. Balancing Your Checkbook 4. Subtract service charges on statement from register balance 5. Account for checks, ATM transactions, and deposits not yet on statement 6. If numbers from Step 5 and bank statement balance are not equal, check math or contact the bank for help

© Goodheart-Willcox Co., Inc. In Your Opinion Why might you want to balance your checkbook more often if you make debit purchases or bank online?

© Goodheart-Willcox Co., Inc. Special-Use Checks Most financial institutions offer these, usually for a fee –c–cashier’s checks –c–certified checks –m–money orders –t–traveler’s checks

© Goodheart-Willcox Co., Inc. Central Ideas of the Chapter Financial institutions are vital to the economy because they make financial transactions possible. A checking account is a basic tool to help you manage your financial resources.

© Goodheart-Willcox Co., Inc. Glossary of Key Terms ATM card. A card that allows customers to withdraw cash from and make deposits to their accounts using an ATM. automated teller machine (ATM). A computer terminal used to transact business with a financial institution. bank statement. A record of checks, deposits, and charges on a checking account. Back

© Goodheart-Willcox Co., Inc. Glossary of Key Terms cashier’s check. A check drawn by a bank on its own funds and signed by an authorized officer of the bank. certified check. A personal check with a bank’s guarantee the check will be paid. commercial bank. A bank owned by stockholders and organized to receive, transfer, and lend money to individuals, businesses, and governments. Back

© Goodheart-Willcox Co., Inc. Glossary of Key Terms credit union. A nonprofit financial cooperative owned by and operated for the benefit of its members. It accepts deposits, makes loans, and provides other services. electronic funds transfer (EFT). The movement of money electronically from one financial institution to another. endorse. To sign one’s name on the back of a check in order to cash or deposit the check. Back

© Goodheart-Willcox Co., Inc. Glossary of Key Terms Federal Deposit Insurance Corporation (FDIC). A U.S. government agency that protects bank customers by insuring deposits as well as examining and supervising financial institutions. money order. An order for a specific amount of money payable to a specific payee. Back

© Goodheart-Willcox Co., Inc. Glossary of Key Terms mutual savings bank. A saving depository owned by the depositors that divides the profits among depositors in the form of dividends. National Credit Union Administration (NCUA). An agency that grants federal charters to qualified groups, supervises credit unions, and insures accounts in all federally chartered and many state chartered credit unions. Back

© Goodheart-Willcox Co., Inc. Glossary of Key Terms savings and loan association (S&L). A for- profit financial institution that receives and pays dividends on depositors’ savings, makes mortgage loans, and offers most of the services commercial banks offer. traveler’s checks. Checks that can be cashed in most places around the world. They are often used by people who travel and do not want to carry large amounts of cash. Back