1. Banking Services: Savings and Payment Services
CHAPTER 4
Banking Services: Savings and Payment Services
Overdraft fees now average $34 per transaction.
That is $17.5 billion annually in the United States.
-- Center for Responsible Lending

2. Types of Financial Institutions
Deposit type financial institutions
Commercial banks are corporations that offer a full range of services including checking, savings, and lending
Insured by FDIC
Credit unions are user-owned and nonprofit
Hence their fees are usually lower than banks and the rates they pay are usually higher than banks
Insured by NCUA/NCUSIF
Discussion: Are there any significant differences between banks and credit unions? Is your money safe?

3. Types of Financial Institutions
(continued)
Non-deposit type financial institutions
Investment companies offer money market mutual funds. You can write checks on your account
(More about money markets when we get to investments)
Post office, convenience stores offer money orders
Check-cashing outlets charge 1% to 3% or more to cash a check
A bank or credit union will cash your checks for free
Pawnshops make loans on possessions (60%?!)
Loan-Until-Payday companies (244%?!)
Where do you see the most check-cashing outlets, pawnshops, loan-until-payday companies, etc.?

4. Which type of financial institution do you use?
Commercial bank
Credit union
Other (check cashing, post office, etc.)
I do not have any money so I do not need one!
Discussion: Why and how do people choose one financial institution over another?

5. On-line banking
Banking through the telephone, personal computer, and other on-line services
Access 24 hours a day, 7 days a week
ATM is your teller if you need cash or want to deposit money
Privacy and security are concerns
Do you allow your browser to store your password?
Why are financial institutions pushing these services?
Some banks (example: HSBC) are attracting Internet-only customers with very high yields on their savings accounts. What is their motivation to do this?

6. Types of Financial Accounts
Savings accounts
Savings accounts (banks, a.k.a. passbook saving accounts)
Share accounts (credit unions, a.k.a. savings accounts)
Certificates of Deposit (CDs) – Shop around!
Payment accounts
Checking accounts (banks)
Share draft accounts (credit unions, a.k.a. checking)
NOW accounts (Negotiable Order of Withdrawal)
Checking account that earns interest (negligible)
Overdraft Protection?
For checks? Yes, get it. Link it to your savings account
For debit cards? No way! Must now “opt-in”
Careful – compare costs. How much is it?

7. Types of Financial Accounts
(continued)
Money market
Money market account (bank or credit union)
Insured!
Money market mutual fund (mutual fund company)
Not Insured! (but still very, very safe)
Trust accounts – FBO (usually for minors or the aged)
Asset Management Accounts – Through brokerages
Very high class! Usually around $100+ per year
Club accounts
“Christmas Club”
“Vacation Club”
Tanda? – Cundina? – Paluwagan?

8. Selecting Payment Methods
The number of electronic payments now far exceeds the number of paper check payments
Many Millenials don’t even have (or want) a checkbook
Types of checking accounts
Regular
Usually have a monthly service charge
Activity account
Charge a fee for each check written
Some have both types of fees!
No-fee checking accounts have been the norm but that is currently changing
Banks need to make up for the fees they are losing because of the recent changes in the banking laws

9. Other Payment Methods Certified check Cashier’s check Money order
Personal check with guaranteed payment
Cashier’s check
Check of a financial institution you get by paying the face amount plus a fee
Money order
Purchase at financial institution, post office, store
Traveler’s check
Each check must be signed twice
Electronic traveler’s checks – prepaid travel card with ability to get local currency at an ATM
Much less popular than they once were

10. Other Payment Methods Electronic cash Credit cards
(continued)
Electronic cash
ATM Point-of-sale transactions
Stored-value cards
For long distance, tolls, library fees
Smart cards – not linked to your bank account
Gift cards
Internet payments – PayPal, Yahoo!, etc.
Credit cards

11. Automated Teller Machines
A computer terminal that allows customers to conduct banking transactions
Debit card or cash card activates transactions
Linked to a bank account – Requires a PIN
Liability if debit card is lost or stolen
To reduce ATM fees you can...
Compare ATM fees before opening an account
Use your own bank’s ATM when possible
Withdraw larger cash amounts as needed
Use personal checks, traveler’s checks, credit cards, and pre-paid cash cards when traveling

12. Evaluating Savings Plans
Rate of return or yield
Percentage increase in value due to interest
Compounding - interest on interest
Annually, semiannually, quarterly, daily
Annual Percentage Yield (APY)
After-Tax Rate of Return
(1 – Marginal-Tax-Rate) x Rate-of-Return
(1 – 25%) x 4% = 0.75 x .04 = 0.03 = 3%
So even if you are earning 4%, after you pay the taxes on the interest you earned, you are actually earning only 3%

13. What is “Truth in Savings?”
Requires disclosure of...
Fees on deposit accounts
The interest rate (a.k.a. the nominal rate)
The Annual Percentage Yield (APY)
Establishes rules for advertising accounts
Sets formulas for computing the APY
Interest must be compounded on the full principal amount in the account each day
The bank can put a hold on your money but it still must pay you any interest you deserve

14. Check Reconciliation
More than half Americans do not reconcile their checkbook balances
Check Register
Keep it current!
Write every transaction down – Immediately!
Keep an electronic register and a written one
Bank Statement
Check reconciliation forms
Check register spreadsheet
Quicken, etc.

15. Okay, ‘fess up! Do you reconcile your checking account balance?
I balance it to the penny
I have a pretty good idea of the accuracy
Nope – I never reconcile it
As long as there are more checks in my checkbook, what do I have to worry about?

16. Check Reconciliation When you get the monthly bank statement…
(continued)
When you get the monthly bank statement…
Record cleared checks
Identify outstanding checks
Record deposits confirmed
Identify deposits in transit
Look for transactions that were left out of the check register
Reconcile!
Let’s try an example…