1. 4 DEPOSITS IN BANKS 4.1 Deposit Accounts 4.2 Interest-Bearing Accounts
Banking
5/24/2018
DEPOSITS IN BANKS 4
4.1 Deposit Accounts
4.2 Interest-Bearing Accounts
4.3 Flow of Deposits
4.4 Deposit Regulations
Chapter 1

2. Banking
5/24/2018
4.1 DEPOSIT ACCOUNTS
GOALS
Define transaction accounts and identify major types of checking accounts.
Define time deposits and identify major types of savings accounts.
Chapter 1

3. TERMS Transaction account Demand deposit Check 21 Time deposit
Statement savings account
Money market deposit account (MMDA)
Certificate of deposit (CD)

4. Most banks offer similar accounts.
MAKING YOUR DEPOSIT
Most banks offer similar accounts.
Account names may vary
Features are essentially the same

5. Demand deposit accounts
TRANSACTION ACCOUNTS
Transaction account
An account that allows transactions to occur without restrictions on the frequency or the volume of transactions
Demand deposit accounts
Are payable on demand whenever the depositor chooses
The most common form of a transaction account is a checking account.

6. CHECKING ACCOUNT Individual account Joint account Owned by one person
Two or more owners
Tenants in common
Joint tenancy
A joint tenancy account provides the right of survivorship.

7. Check 21
Federal legislation that became effective in October 2004 that allows banks to electronically process check information by using a substitute check

8. Basic
“Free”
“No Service Charge”
Interest-bearing
Express
Lifeline

9. “No-Frills”
Asset management
Online banking
Mobile banking
ATM fees

10. OTHER DEMAND DEPOSIT TRANSACTIONS
Traveler’s checks
Money orders
ATS (automatic transfer service) transactions
EFT (electronic funds transfer)

11. checkpoint
What is a transaction account and why is it a demand deposit?

12. TIME DEPOSITS Time deposits
Deposits that are held for or mature at a specified time

13. Passbook savings accounts
Provided a ledger of activity that the teller updated when the customer made deposits or withdrawals
Statement savings accounts
Provide a monthly or quarterly computerized statement detailing all account activity including interest credited and fees charged

14. MONEY MARKET DEPOSIT ACCOUNTS
Money market deposit accounts (MMDAs)
Offer a higher rate of interest than savings accounts, but they usually require a higher initial deposit to open an account
Deposits are invested in a variety of savings instruments
Money market mutual fund accounts
Invest the money in mutual funds

15. CERTIFICATES OF DEPOSIT
Certificates of deposit (CDs)
Are certificates issued by banks that guarantee the payment of a fixed interest rate until the maturity date
Bump-ups
The opportunity to increase the interest rate on the CD when interest rates rise
Callable CD
One that can be called in at the discretion of the issuing institution

16. CREDIT UNION PRODUCTS Share-draft account Share account
Like a checking account
Share account
Like a savings account
Share certificate
Equivalent to a CD

17. checkpoint
List three types of time deposits. Which of these are exempt from reserve requirements?

18. 4.2 INTEREST-BEARING ACCOUNTS
Banking
5/24/2018
4.2 INTEREST-BEARING ACCOUNTS
GOALS
Explain how interest is calculated.
Discuss why compound interest is such a powerful savings tool.
Describe how interest rate variations can impact consumer behavior.
Chapter 1

19. TERMS Interest Compound interest Annual percentage rate (APR)
Annual percentage yield (APY)

20. IN YOUR INTEREST Interest The price paid for the use of money
Usually expressed as a rate or percentage of the total amount of money in use
It is calculated over time

21. CALCULATING INTEREST Simple interest Principal (P) Rate (R) Time (T)
The beginning amount of money used
Rate (R)
Expressed as a percentage
Time (T)
Interest (I)

22. INTEREST IN THE REAL WORLD
Banks calculate the interest they pay on some fixed interval.
Annually
Semi-annually
Quarterly
Compound interest
Adding interest to the principal and paying interest on the new total

23. checkpoint
What do the terms in the formula P × R × T = I stand for?

24. THE POWER OF COMPOUNDING
Compound interest “starts over” with a new principal every time interest is paid, adding the paid interest to create a higher principal on which interest is paid in the next interval.

26. Compound interest F  P(1  R)n Future value (F) Principal (P)
Rate (R)
The number of intervals (n)

27. Annual percentage rate (APR)
APR AND APY
Annual percentage rate (APR)
The nominal rate on which interest is calculated per year
Annual percentage yield (APY)
Represents the effect of compounding
Varies according to the APR and the frequency of compounding
Is mandated as the required quotation by the Truth in Savings Act

28. checkpoint
Why is compound interest such a powerful savings tool?

29. INTEREST RATES IMPACT CONSUMER BEHAVIOR
Some consumers seek to perpetually make money by continually shifting their funds to accounts that offer the highest available interest.
Some consumers will borrow money on a credit card to earn interest by placing the borrowed funds in a high-yield account.
Rate chasers

30. checkpoint
Why do financial institutions try to thwart the efforts of rate chasers?

31. Banking
5/24/2018
4.3 FLOW OF DEPOSITS
GOALS
Explain the complexity of forces that influence the flow of deposits.
Identify limitations of the Federal Reserve’s influence on the flow of deposits.
Chapter 1

32. TERMS
Interbank transactions

33. The money supply is sometimes adjusted by the actions of the Fed.
A COMPLEX PATTERN
The money supply is sometimes adjusted by the actions of the Fed.
The flow of deposits includes the money already circulating in the daily business of economic life.
Money includes
Currency
Checks
Ledger transfers
Credit

34. Interbank transactions
THE ECONOMIC ENGINE
Interbank transactions
The transactions that occur when banks make or receive deposits from each other or from the Fed
The economy at large plays a far greater role in determining how money is moving than does the government.
Disintermediation of funds
When depositors take their money out of bank accounts and invest those funds directly into capital markets

35. checkpoint
What is the greatest factor in the flow of deposits? Why do economists track and analyze so much data?

36. DEPOSITS AND THE FED
Reserve requirements do not change that often and are not as much a factor in bank lending as general economic conditions.
Reserve requirements only apply to the M1 money supply.
The Fed does not control other forms of commerce.

37. ADJUSTING THE MONEY SUPPLY
The Federal Reserve can put more money in the economy.
Buy U.S. government securities
The Federal Reserve can effectively take money out of the economy.
Sell treasury securities
The Fed can adjust the discount rate.

38. Deposit flow is determined by
THE BANKING BUSINESS
Governmental measures influence but do not entirely control the flow of deposits.
Deposit flow is determined by
The needs of all businesses moving money around in the banking system.

39. checkpoint
How does the Federal Reserve influence the flow of deposits?

40. GOALS Describe several deposit account documents.
Banking
4.4 DEPOSIT REGULATIONS
5/24/2018
GOALS
Describe several deposit account documents.
Identify basic deposit account rules and what they cover.
Chapter 1

41. TERMS
Governing documents
Stale check
Post-dated check

42. DEPOSIT ACCOUNT DOCUMENTS
Account rules
Deposit rate schedules
Fee schedules
Check hold policies
Disclosure statements
Opting out options

43. Governing documents
The name sometimes collectively given to deposit account documents

44. checkpoint
Why are governing documents necessary?

45. Reference to governing documents Signature policies
ACCOUNT RULES
Reference to governing documents
Signature policies
Opening and closing accounts
Resolution form
Grants authority for specified individuals to manage account transactions on behalf of the business

46. Deposit collection Overdraft policies Overdrawn Overdraft
When an account has insufficient funds to meet its obligations
Overdraft
When withdrawals are greater than deposits

47. Minimum balance/service charges Withdrawal policies Check policies
Stale check
Dated six months or more before it is presented for payment or deposit
Post-dated check
Dated later than when it was written

48. Account statement policies
Other policies
Waivers

49. FEDERAL RESERVE REGULATIONS
Regulation DD
Interest rate disclosure
Fees charged on deposit accounts
Overdraft protection details
Regulation D
Requires banks to maintain adequate reserves for the funds they have on deposit
Sets limits on the number of transactions allowed per account

50. Regulation CC (The Availability of Funds and Collection of Checks regulation)
Sets the schedules under which banks must make funds deposited into transaction accounts available for customer withdrawal
Regulation E
EFTs are regulated under Regulation E.

51. checkpoint
How do governing documents and account rules differ?