1. Chapter 5 - Banking Section 1 – Financial Services & Institutions

2. What’s Your Financial ID? Please turn to page 150 in your textbook Take this short quiz and record your answers in your notebook

3. 4 Types of Financial Services Savings  Savings Accounts  CD’s (Certificates of Deposit)  Time Deposit – money left in an account for months or years Payment Services  transferring money from your account to individuals or business  Checking Account (a.k.a. Demand Deposit) can withdraw your money any time or on demand

4. 4 Types of Financial Services (cont.) Borrowing – (a.k.a. Credit)  short-term credit cards or personal loans  Long-term – mortgage or auto loan Other Financial Services  Insurance Protection  Stocks and Bonds  Mutual Funds  Tax Help  Financial Planning Services

5. Electronic Banking Direct Deposit  paycheck deposited directly into bank account  no trip to the bank Automatic Payments  with permission, your bank will withdraw the amount of your monthly payment or bill from your account  have to make sure money is always in your account  check statements from bank to make sure payments where correctly

6. Electronic Banking (cont.) Automatic Teller Machines (ATM)  computer terminals that let you withdraw cash, make deposits and transfer money in your account(s) Debit Cards: allows you to withdraw money or pay for purchases from you checking or savings Allows you to only spend the money you have in your account Personal Identification Number (PIN): access account and get money ATM Fees – use own bank machines to avoid additional charges Lost Debit Cards – if lost or stolen let bank know immediately within 2 days only responsible for $50 of unauthorized use if wait loner (up to 60 days) responsible for $500 after 60 days – unlimited liability

7. Electronic Banking (cont.) Plastic Payments  Point-of-Sale Transactions use a debit card to make purchase Online (debit) – use PIN deducted instantly Offline (credit) – funds cover payment and deduction within one to two days, have to sign slip  Stores Value Cards prepaid gift cards  Electronic Cash electronic versions of cash, coins, credit cards and check Someday Currency May Be A Thing Of The Past

8. Types of Financial Institutions Federal Deposit Insurance Corporation (FDIC)  Established after the great Depression in the 1930’s when banks failed  People and businesses lost all money deposited  FDIC insures each account up to $250,000 Used to be $100,000 Changed in February 2006 Savings Associations Insurance Fund (SAIF) National Credit Union Association (NCUA)

9. Something to think about… What is the difference between commercial banks, savings and loans, and credit unions?

10. 4 Deposit Type Institutions Commercial Banks  for-profit institution  checking, savings, lending, serves individuals and businesses Credit Unions  nonprofit owned by members and organized for their benefit  all services offered  fees and interest on loans lower than commercial banks

11. 4 Deposit Type Institutions (cont.) Mutual Savings Bank  savings accounts, mortgages loans, personal, auto loans  Interest lower than commercial on loans  Pay higher interest than commercial on savings  do not offer additional services Savings and Loan Association  specialized in savings accounts and mortgages loans  offer checking, business loans and investment services

12. Something to think about… Under what circumstances might you be better off with each of these institutions:  Commercial bank  Savings and loan association  Mutual savings bank  Credit Union Possible Answers  Commercial – wide range of services  Savings and loan – same services but may have better rates/policies  Mutual savings – lower interest on loans, higher on savings  Credit Unions – full range of services, may have lower rates/fees

13. 4 Non Deposit - Type Institutions Life Insurance Companies  savings, investment, retirement Investment Companies  combined money with other investors, stocks and bonds  they manage it for you  mutual funds

14. 4 Non deposit - Type Institutions Finance Companies  loan money to people who can not borrow because of low income or few assets  other services offered too  Charge high interest Mortgage Companies  loans on purchase of homes

15. Comparing Financial Institutions Highest rate of interest on savings? Checking with low or no fees? Will I be able to borrow money? In what form? Loans, Credit Cards, etc. Is free financial advising offered? FDIC? NCUA? SAIF? Convenient locations? Online Banking? Special banking Services?

16. Chapter 5 - Banking Section 2 – Savings Plans and Payment Methods

17. Types of Savings Plans Regular Savings Accounting – (Passbook Accounts)  Ideal for frequent deposits and withdrawal  Little or no minimum balance, withdraw quickly  Lower interest due to withdrawal convenience

18. Types of Savings Plans Certificates of Deposit (CD) A time deposit that requires you to leave money in financial institute for set time (term) Money available to you on “maturity date” Low risk Higher interest rates because  must leave money deposited for certain time  pay penalty if take money early  minimum amount to deposit set by institution

19. Types of Savings Plans Tips to Choosing CD’s Where can you get best rate Do not have to use local Internet used to check nationally Consider economy – buy cd’s if interest is high – if interest rates drop your money still gains the high interest “locked in” Never let institute “roll over” cd, reinvest once mature – until you check interest rates Consider when you need money – buy cd with terms that allow you to have money when needed

20. Types of Savings Plans Money Market Accounts: savings accounts where interest rate varies month to month as market rates change  Higher minimum deposit US Savings Bonds – buy at $25, at maturity date, earns enough interest to be worth $50, wait longer-even higher  Government limits purchases to $15,000 per person per year (maturity date value $30,000)  Maturity date (when bond reaches face value) depends on issue date and interest bond is earning  Federal taxes paid when bond is cashed

21. Evaluating Savings Plans (1 of 6) Rate of Return – (yield) percentage of increase in the value of your savings from earned interest  Ex. $50 1 yr Interest $1.50  total earned interest / interest earned = rate of return  $1.50/50=3% Turn to page 137 – Go Figure

22. Evaluating Savings Plans (2 of 6) Compounding – interest is earned on principle and previously earned interest  remember chapter one - Future Value : add interest to principle then calculate new interest for new year  more frequently the balance is compounded the more money you make (monthly vs. yearly) Turn to page 136 – Go Figure

23. Evaluating Savings Plans (3 of 6) Annual Percentage Yield (APY)  tells you how much interest a financial institute would pay  ex. $100 4% APY  100 x 4 = $4

24. Evaluating Savings Plans (4 of 6)  Truth in Savings Accounts – all financial institutions must inform you of terms and conditions of all savings accounts, including fees, interest rates and APY  Inflation – compare rate of return to rate of inflation If savings account is 5% and inflation is 10%, lose buying power on money Usually interest rates increase if rate of inflation increase If “locked in” rate doesn’t change with inflation

25. Evaluating Savings Plans (5 of 6) Tax Considerations – taxes reduce interest earned on savings  Must pay taxes at tax return time (April 15) on interest earned Liquidity – check to see if there is a penalty or if they pay a lower rate of interest if withdraw funds early  If need money use a more liquid account

26. Evaluating Savings Plans (6 of 6) Restrictions and Fees – delay between the time when interest is earned and when it is actually paid  Charges for deposits and withdrawals Service charges when balance drops below the minimum

27. Checking Accounts Types of Checking Accounts  Regular – no minimum balance, if min. drops below – service change  Activity Accounts – write very few check, no min., bank charges per check/deposit and monthly service fee  Interest-Earning Checking – earn interest (very low rate) with min. balance

28. $avvy Saver Turn to page 142 in your textbook

29. Checking Accounts Evaluating Checking Accounts  Restrictions: min. balance, # of transactions/month, # of checks/month  Fees and Charges: monthly, ATM, high feel for check printing Overdraft Protection: automatic loan made to you if you write a check for more money than you have in your account, will be charged interest Stop-Payment Interest: rates and frequency of compounding Special Services: ATM, online/phone banking, do not return canceled checks (copy only, bank stores on microfilm, can get copy for a fee)

30. Other Payment Methods Certified Check – personal check with guarantee for payment Bank deducts money immediately when it certifies Cashiers check (fee) Money Order (fee) Travelers Check – pay for purchases, obtain cash worldwide

31. What’s Your Financial ID? Please turn to page 150 in your textbook Retake this short quiz and record your answers in your notebook Did you do better than you did the first time around?