2 What to Expect:In this chapter, there are three sections on banking and other financial institutions, financial services and electronic banking, and checks and payment methods.
3 Banks and Other Financial Institutions: Section one In real life, the bank is both the customer and the business you turn to. A bank has many employees who sell you service like checking accounts, savings accounts, loans and even investments. Banks are much more strictly watched over than most business though because if the bank is having troubles- so is everyone of their customers.
4 What Should I Learn From This Section? Key termsThe purpose of the Federal Reserve SystemTypes of financial institutions
5 Terms In This Section: Federal Reserve System (Fed) Commercial Bank Credit UnionFederal Deposit Insurance Corporation (FDIC)
6 THE FEDERAL RESERVE SYSTEM: The Federal Reserve system- One bank that doesn’t allow you to make deposits.Set up to supervise and to regulate member banks and serve the public efficiently.Reserved only for banks “The bank of banks.”The U.S. is split into 12 Fed. districts with a central bank in each district.
8 FEDERAL RESERVE ACTIVITIES: The Fed has reserves that hold money for additional customer demand.Its also clears checks from different cities in different districts.
9 Banking and the Economy: Banking ServicesBuilding homesStarting new businessesPlanting cropsFinancing educationsBuying goodsPaving streetsRetirement investingBuilding hospitalsBuying new business equipment
10 But don’t worry…you will get all your money back. When depositing money in the bank, a portion of it goes towards helping grow your communities’ economy.But don’t worry…you will get all your money back.
11 Deposit Institutions: (depository intermediaries): Commercial BanksCommercial Bank-The most common way for a bank to be organized.Offer a wide range of services- checking accounts, savings accounts, and loans.Savings and Loan AssociationsSavings and loans for homes.Mutual Savings BanksOwned and operated by its contributors, saving and loans.Credit UnionsCredit Unions- User owned (non-profit)When depositing you have partial ownership of the Union
12 Non-Deposit Financial Institutions: *They earn money by selling servicesLife Insurance CompaniesProvides financial security for families when deceasedInvestment CompaniesThese help companies start up and stay investedConsumer Finance CompaniesLoans for long-lasting goodsDon’t accept savings depositsMortgage CompaniesProvides loans for buying homes and real-estateCheck-Cashing OutletsServices such as electronic tax filing, money orders, postal boxes, utility bill payment and bus/subway tokensPawn ShopsLoans based on value of tangible objects
13 Selecting a Financial Institution: Services offeredSavings accounts, checking/payment accounts, loans and other credit plans, and other services such as safety deposit boxes, trusts and investment adviceSafetyFederal Deposit Insurance Corporation (FDIC)The FDIC, Federal Deposit Insurance corporation- Protects depositors money in case of failure of the bankInsures all accounts up to $100,000ConvenienceOnline banking, 24 hour banking services such as ATMsFees/ChargesATMs have charges unless you are a member of that bankRestrictionsIf you money is in a free checking account, you may not be gaining interest.If you are not satisfied, shop around for a new bank
14 Financial Services and Electronic banking: Section two
15 FINANCIAL SERVICES AND ELECTRONIC BANKING: SECTION TWO With any of your financial needs a financial institution can provide services for various personal and business activities.
16 What Should I Learn From this Section? Identify the financial services used by consumersExplain types of checking accountsDescribe electronic banking activities
17 Key Terms in This Section: Safe-Deposit BoxDebit CardService Charge
18 Types Of Financial Services: Savings servicesFinancial institutions will accept money for safe keepingPayment servicesChecking accounts, debit cards, online payments and automatic with drawls.Lending servicesBanks provide loans to get the money back and interest.Auto loans, business loans, mortgages, and even credit cards.Electronic bankingElectronic funds transfer (EFT)- refers to the use of technology for banking.Automatic teller machines (ATM), point of sale transactions, direct deposit, and automatic bill payment.
19 Types Of Financial Services: (cont’d) Storage of valuablesSafe-deposit boxes- for storage of valuables like jewelry, coins, certifications, birth records, and other valuable documents.Unless ordered by a court only you and who you allow are allowed to open the box, not even the bank can open the safety-deposit box.Investment adviceAdvisors will help you on how to manage your money through savings like bonds, stocks, and mutual funds.Management of trustsMany banks manage investments for customers- money or property is then turned over to the bank and is now called a trust. Trusts are used for people of all age but they are generally used more for the elderly who are ill and want to make sure their money is managed the right way.
20 Types of checking accounts: Regular checking accountsA service charge is a fee a bank charges for handleing a checking account.With most banks there is no service charge as long as you maintain the minimum balance or above.Interest-earning checking accountsThese may require a higher monthly balance and if the balance of your account falls below the minimum you are not paid interest and you might have to pay a service charge.Special checking accountsAlso called activity accounts, these are for customers that write 20 or less checks a month.
22 Types of checking accounts: (cont’d) Comparing checking accountsWhen finding a checking account, compare:Minimum balancesInterest rateService chargesFeesRestrictions
23 Electronic Banking: E-banking services Automatic teller machines Obtain cashView history and balancesTransfer fundsDirect depositPaying bills onlineAutomatic teller machines(ATM’s) allow debit cards or cash cards to be used in atm transactions.A debit card is different from a credit card because you are using your money- not the credit card companies.Some banks charge atm fees so shop around and look for the best deal first.
24 ELECTRONIC BANKING: (CONT’D) Payments at the point-of-saleA merchant accepts a debit card to pay for purchases. Most all gas stations, stores and restaurants accept debit cards.Direct depositFunds are deposited electronically for you to use instantly.Automatic bill paymentsThis works for car, home, and sometimes utility payments.A bank pre-authorizes you to have money deposited every month to an appropriate company.
25 ELECTRONIC BANKING: (CONT’D) Electronic Payment OptionsDebit card transactionsDebit cards work in two waysSigning a receiptOr providing a Personal Identification Number (PIN)Online paymentsThis works for online sellers and buyers using a credit or debit card numberStored-value cardsThese are pre-paid cards that you re-load with money when neededSmart cardsSimilar to atm cards, smart cards have a microchip that will show balance, transaction records, and sometimes a medical and insurance history.
26 BANKING IN THE FUTURE:Banking in the future will continue to change. Electronic transactions will be easier and quicker with more information on financial activities, health, education and career, travel and even recreation.
28 WHAT SHOULD I LEARN FROM THIS SECTION? Describing the three main types of endorsementsCheck writing proceduresBank reconciliation processOther payment methods
29 KEY TERMS FOR THIS SECTION: EndorsementCheck registerStop payment orderBank statementBank reconciliationOutstanding checks
30 OPENING A CHECKING ACCOUNT: Convenience and ease of making paymentsSafety to make payments with less risk than using cashProof of paymentRecord of finances for managing moneyThe First DepositOpening a checking account starts with signing a signature card. This is to verify your signature. Sometimes two or more people open an account. This is called a Joint Account.When you deposit money into a checking account, you fill out a deposit slip. This shows your name, account number, date and items deposited.Types of EndorsementsAn endorsement is written evidence that you’ve received payment or you’ve transferred your right to receiving payment to someone else.As an endorser you are making this promise that if a check is not paid you will be responsible to pay it.Your endorsement is made in the ½ inch space on the left side on the back of the check.
31 OPENING A CHECKING ACCOUNT (cont’d): Blank EndorsementIf the name on the check is different than your signature, you will need to endorse the check twice by first using your name and then your account number.Full EndorsementThis is also called a special endorsement. It allows transfer from one person to another. You write “paid to the order of” followed by the name of the person or business to which the check is transferred.This is then followed by your signature.Restrictive EndorsementThis limits the use of the check to the purpose given in an endorsement (i.e.; “for deposit only”).
33 USING A CHECKING ACCOUNT: Check Writing ProceduresElements of a CheckThe drawer is the owner of the check who signs the check.The payee is the person to whom the check is written.The drawee is the bank or other financial institution that pays the check.The Check RegisterA check register is a separate book usually the same size as the check book.A duplicate copy of the check may also be automatically created when you write a check.Writing a CheckWrite checks in order by number.Write the date in proper space.Write the payees name on the line following “pay to the order of”.Write amount of check in figures after the printed dollar sign ($).Write amount of check in words in line below payees name.Write cents in figures as a fraction behind amount written in words followed by a line.Write purpose of payment in “memo” line.Sign your checks the same signature you wrote on the signature card.
35 USING A CHECKING ACCOUNT (cont’d): Proper Check WritingWrite checks only on the forms provided by your bank.Write checks in ink only.Only write checks if money is available in the account.Use the current date.Avoid making checks payable to cash or bearer. These checks can be cashed by anyone.Always fill in the amount.Void checks on which you make errors.Record every payment.Stopping PaymentTo stop a check you have written, you have to fill out a stop payment order at your bank. A written notice that tells the bank not to pay a certain check.Banks charge a high fee for stopping checks.Before writing a new check, you should stop payment on a check that was lost or stolen.
36 THE RECONCILIATION PROCESS: Bank Statement InformationThe bank will send you a report on your account known as the bank statement.This includesThe balance at the beginning of the month;The deposits made during the month;The checks paid by the bank;ATM transactions;EFT transfers;Special charges for the month;Interest on the account; andFinal balance.
37 THE RECONCILIATION PROCESS (cont’d): Finding DifferencesThe document created to show how two balances were brought into agreement is call bank reconciliation.Outstanding checks are checks that haven’t been deducted from the balance on the statement.The service charge may appear on the bank statement.Interest may have been added.You may have recorded the amount of a check incorrectly in the check register.Calculated Adjusted BalanceDetermine your true balance in your account, take the following steps.Subtract total of outstanding checks, add deposits in transit, subtract services and fees, subtract automatic payments from your balance, and add interest to your balance.If the balances do not agree, either you or your bank has made an error. If you did not make the mistake, contact your bank.
38 OTHER TYPES OF PAYMENTS: Certified ChecksPersonal check for which a check has guaranteed payment.Cashier’s ChecksThis is a check that a bank draws on its own funds.Traveler’s ChecksSpecial forms designed for making payments when traveling away from home. A fee may be charged.Money OrdersA form of payment that orders the issuing agency to pay the amount printed on the form to another party.A bank money order is sold by a bank stating money is to be paid to a specific business or person.A postal money order is purchased at a post office sent through the mail.An express money order is issued by organizations like traveler’s check companies, super markets, pharmacies and convenience stores.A telegraphic money order is used to pay a sum of money through a telegraph office.