1. Consumer Education Chapter 7
Unit 4: Banking
Consumer Education
Chapter 7

2. How Banks Work Banks are a business; they work to earn a profit
Most profit comes from interest charged on money they lend to customers
Money lent out to customers comes from the deposits of other customers

3. COMMERCIAL BANKS CREDIT UNIONS
For-Profit Business – the income from the business goes to the owner, owners, or shareholders
Customers – any consumer
Federal Depositors Insurance Corporation (FDIC)
Non-Profit Business – the income from the business goes back towards the benefit of members and continued operation of the business
“Members” – people who share a common characteristic or qualification
National Credit Union Association (NCUA)

4. How Banks Work – Why use banks?
Protect you money’s purchasing power
Inflation – interest earned offsets inflation
Banks are regulated
Owners must invest, money is on reserve
Most deposits are insured
Federal Deposit Insurance Corporation (FDIC)
Up to $250,000 (increased in 2008)
Banks make borrowing easier (reduce risk)
Money flow – savers to borrowers

5. Money and Financial Transactions
Bartering – trading goods and services without using money
Money allows an equal comparison of goods and services
Currency – paper money and coins used for financial transactions
Check – an order to a bank to pay a specified sum to a business or person (payee)
Statement – a monthly record of all transactions of an account provided to a customer by a bank

6. Electronic Banking Electronic Funds Transfer
Moving money from one account to another by use of a computer
Automated Teller Machine (ATM)
A computer terminal that you can use to make deposits, withdraw cash, transfer money, check your balance, and pay certain bills
Personal Identification Number (PIN)
A secret number that identifies you to the ATM as the owner of the card and the account

7. Electronic Banking Direct Deposit Debit Cards Pay by Phone
Paychecks that are electronically deposited into a checking or savings account
Debit Cards
Pay by Phone
Setting up an electronic funds transfer from your account over the phone (routing number and account number are used)
Automatic Withdrawal
Bills that are paid automatically from your checking or savings account and electronically transferred

8. Other Banking Services
Certified Checks
A personal check on which a bank has written its guarantee that payment will be made
Cashier’s Check (or Teller’s Check)
A bank check issued and signed
from the banks own account
Money Order
A check that draws on the money of the bank or other financial business that issues it
Postal Money Orders – issued and backed by U.S. Postal service
Traveler’s Checks – checks that you pay for in advance, and that can be replaced if lost or stolen

9. Traveler’s Checks:

10. Other Payment Methods cont.
Wire Transfers
a financial transaction that electronically moves funds from one bank to another
Safe Deposit Boxes
Boxes with individual locks that can be rented from the bank
What’s the difference?
Online Bill-Pay / Automatic Payments / Online Payments