1. Banking
Chapter 5

2. Section 5.1 Objectives Identify types of financial services
Describe the various types of financial institutions

3. How to Manage Your Cash Daily cash needs Sources of quick cash
Lunch and dinner
Gas
Movies
Routine activities
Sources of quick cash
ATM, debit card, check
Credit card or borrow
What about intermediate or long-term needs?

4. Types of Financial Services
Three main categories
Savings
Essential for financial plan
CD’s are time deposits left for a pre-determined time
Payment Services
Checking account – demand deposit
Borrowing
Credit card or loan
Other Financial Services
Insurance protection, investments, tax assistance, and financial planning assistance

5. Financial Services for Short-Term Needs
Daily Purchases
Living Expenses
Emergency Fund
Daily Cash Needs
Check cashing
ATM
Prepaid cards
Savings
Regular saving
acct.
Money market
Checking
Regular checking
Online payments
Automatic payments
Pay by phone
Cashier’s check
Money orders
Credit Cards
Major purchases
Long-term financial security
CD’s
US Savings Bond
Credit Services
Cash loans for cars
and education
Home loans
Investment Services
Mutual funds
Financial advice
Other Services
Tax preparation
Insurance
Budgeting

6. Electronic Banking Services
Online banking
Direct deposit
Automatic payments
Automated Teller Machines (ATMs)
Plastic Payments
Point-of-Sale Transactions – debit cards
Stored-Value Cards – gift cards, smart cards
E Money
PayPal, Bitcoin, Apple Pay, Venmo

7. Types of Financial Institutions
Federal Deposit Insurance Corporation
Insures up to $100,000 per account
Savings and Association Insurance Fund
Insures up to $100,000 per amount
For savings and loans

8. Deposit Institutions
Commercial Banks – for-profit institution, offer wide range of services, granted by federal or state govt.
Savings and Loans Associations – traditionally specialized in savings accts. and mortgage loans
Mutual Savings Banks – specialize in savings and loans – interest rates better than commercial banks
Credit Unions – nonprofit, owned and organized for members, interest better than commercial banks

9. Non-Deposit Institutions
Life Insurance Companies
Provide savings and investment options
May offer retirement planning services
Investment Companies
Stocks, bonds, mutual funds
Finance Companies
Make high interest loans to those with bad credit
Mortgage Companies

10. Comparing Financial Institutions
What should you know to choose a financial institution?
Where can you get the highest rate of interest on your savings?
Where can you obtain a checking account with low (or no) fees?
Will you be able to borrow money from the institution—with a credit card or another type of loan—when you need it?
Do you need an institution that offers free financial advice?
Is the institution FDIC or SAIF insured?
Does the institution have convenient locations?
Does it have online banking services?
Does it have special banking services that you might need?

11. Section 5.2 Objectives
Compare the costs and benefits of different savings plans
Explain features of different savings plans
Compare the costs and benefits of different types of checking accounts
Explain how to use a checking account effectively

12. Types of Savings Plans Regular Savings Accounts
Certificates of Deposit
Money Market Accounts
US Savings Bonds

13. Savings Accounts Ideal for making frequent deposits and withdrawals
Require little or no minimum balance
Withdraw money on demand
Low risk, low interest potential

14. Certificates of Deposit
Money left on deposit for a stated period of time (term) at a specific rate of return
Maturity date is the date money can be withdrawn at end of term
Low risk with high interest rates
Three limitations
Must leave for minimum of six months to five years generally
Pay a penalty if you take out early, usually 6 months worth of interest

15. CD Investment Strategies
Find out where you can get the best rate
Never let the bank “roll over” CD if you forget to take your money at maturity, it will be placed in new CD at possibly lower rates
Consider when you need the money
Consider laddering, instead of tying up $5000 in one CD, get five $1000 CDs that mature at different times

16. Money Market Accounts Has minimum balance, typically $1000
Interest varies from month to month as market rates change
May pay penalty if your balance goes below minimum
FDIC insured

17. US Savings Bonds Series EE Savings Bonds Most common
$25 to $5,000 in cost, at maturity the bond is worth double the cost
Have to wait 10 to 20 years for maturity
Earn interest up to 30 years if not cashed
Subject to federal income tax

18. Regular Savings Accounts
Low minimum
balance
Ease of
withdrawal
Insured
Low rate of
return
CDs
Guaranteed
rate of return for
time of CD
Possible penalty for
early withdrawal
Minimum deposit
Money Markets Accounts
Good rate of
Some check
writing
Minimum balance
No interest and
possible service
charge if below a
certain balance
US Savings Bonds
deposit
Lower rate of return
when cashed in before
bond reaches maturity
date

19. Evaluating Savings Plans
Rate of return – know how the interest is calculated, the more its compounded the more you will earn
Inflation – bad if you are locked in a low rate for a long time
Tax Considerations – look for tax-exempt or tax deferred savings plans
Liquidity – if the savings plan allows you to withdraw your money easily you will have a low interest rate, so for long-term savings a high interest rate is important
Restrictions and Fees – be aware of fees for deposits and withdrawals and service charges for balance drops or lack of account usage

20. Type of Account
Advantages
Disadvantages
Regular Checking Account
Most have no
minimum balance
$10 service charge
for each month you
go below – can add up
Activity Checking Accounts
No minimum
balance required
May charge fee for checks and deposits
Can only write a few checks per month
Interest-Earning Checking Accounts
Pay interest if you
have a minimum
balance
If go below balance,
you may not earn
interest and may
have a service
charge

21. Evaluating Checking Accounts
Restrictions – most common is keeping a minimum balance, number of transactions allowed, number of checks you may write in a month
Fees and Charges – monthly service charge, checking printing, overdrafts, stop-payment orders
Interest – rates, frequency of compounding, way interest is calculated
Special Services – ATM, telephone, online banking, overdraft protection

22. Using a Checking Account
Opening a checking account
Individual or joint
Writing checks
Know proper way
Making deposits
Check clearing
Money deposited is on hold for no more than 2 days from local banks, 5 days for non-local
Keeping track of a checking account
Other payment methods
Certified check, cashiers check, travelers

23. Financial Institutions and Your Money
Make money by making loans
Amount of money banks lend is affected by reserve requirement set by Federal Reserve
Reserve requirement is 3% to 10% of bank’s total deposits
When bank gets $100 deposit, they could lend out $90 (with a 10% reserve)
That $90 goes out into the economy and if it gets deposited in another bank $81 of the $90 (10% reserve) can be lent out and so on