1. Chapter 4 Savings and Payment Services McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Savings and Payment Services
Chapter Objectives
Identify commonly used financial services
Compare the types of financial institutions
Assess various types of savings plans
Evaluate different types of payment methods
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3. Objective 1 Identify Commonly Used Financial Services
Meeting Daily Money Needs
Common mistakes:
Overspending
Insufficient liquid assets
Using savings or borrowing to pay for current expenses
Failing to put unneeded funds in an interest bearing or investment account
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4. Objective 1 Identify Commonly Used Financial Services
Meeting Daily Money Needs
Sources of quick cash:
Liquidate savings
Savings account CD
Mutual fund
Borrow
Credit card advance
Personal loan
Both options reduce net worth
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5. Types of Financial Services
Savings
Time deposits
Savings and certificates of deposit
Payment services
Checking accounts = demand deposits
Automatic payments
Borrowing for the short- or long-term
Other financial services
Insurance, investment, real estate purchases, tax assistance, and financial planning
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6. Types of Financial Services
Asset management account
Also called a cash management account
Offered by investment companies and others provide a complete line of financial services program, which include:
Checking account and ATM card
Credit card
Online banking
Line of credit for quick cash loans
Access to a variety of investments
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7. Electronic and Online Banking Services
Traditional banks  online services
Web-only banks (E*Trade Bank)
Services provided:
Direct deposit
Paychecks and other regular income
Automatic payments transfer funds
Recurring payments such as for utilities
Remember to deduct them from your register
ATM access
Obtain cash, check account balances, and transfer funds
Check out the fees
Debit card
Deducts money directly and immediately out of your account
Lost card liability $50-$500
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8. Pros and Cons of Online Banking
Benefits
Concerns
Time & money savings
Potential privacy, security violations
Convenience for transactions, comparing rates
ATM fees can become costly
No paper trail for identity thieves
Difficulty depositing cash, checks
Transfer access for loans, investments
Overspending due to easy access
notices of due dates
Online scams, “phishing,” and scams
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9. Financial Services and Economic Conditions
For successful financial planning be aware of:
Prime rate = rate banks charge large corporations
Consumer Interest rates
Rising consumer prices
Information sources:
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10. Interest Rates & Financial Decisions
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11. Objective 2 Compare the Types of Financial Institutions
Basic questions to ask before choosing a financial institution
Where can I get the best return on my savings?
How can I minimize my costs for financial services?
Will I be able to borrow money if I need it?
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12. Objective 2 Comparing Financial Institutions
Determine the financial services you need before choosing a financial institution
Compare fees and convenience
Consider the safety and rates for deposits and loans at different institutions
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13. Comparing Financial Institutions
Deposit Institutions
Commercial banks
Organized as corporations
Offer a full range of services including checking, savings, lending and other services
Savings and loan associations
Checking accounts, specialized savings plans, loans and financial planning and investment services
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14. Comparing Financial Institutions
Deposit Institutions (con’t)
Mutual savings banks
Specialize in savings accounts and mortgage loans
Owned by their depositors, with profits going back to depositors by paying a higher rate on savings
Credit unions
User-owned, nonprofit and provide comprehensive financial services
Lower fees and lower loan rates
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15. Comparing Financial Institutions
Non-Deposit Institutions
Life insurance companies
Insurance plus savings and investments
Some offer financial planning and investing services
Investment companies
Mutual funds
Money market fund
Combination savings & investment plan
Not covered by FDIC
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16. Comparing Financial Institutions
Non-deposit Institutions
Brokerage firms
Act as agent for buyers and sellers of financial products
Credit card companies
Specialize in short term loans
Finance companies
Make short and medium term loans to consumers
Higher rates
Mortgage companies
Provide home mortgage loans
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17. Comparing Financial Institutions
Problematic Financial Businesses
Pawnshops
Loans on possessions
Higher fees; 3% per month common
Used for quick cash
Check-cashing outlets
Charge 1-20 % of check’s face value
1-3% is average
Currency exchanges
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18. Comparing Financial Institutions
Problematic Financial Businesses
Payday loan companies
Cash advances,
Check advance loans
Postdated check loans
Delayed deposit loans
High interest rates
Rent-to-Own Centers
Lease merchandise at high interest rates to low-income customers
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19. Objective 3 Assess Various Types of Savings Plans
Regular savings accounts
Passbook savings
Statement accounts
Low minimum balance
Easy withdrawal
Insured
Low rate of return
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20. Objective 3 Assess Various Types of Savings Plans
Certificates of deposit
Required minimum deposit
Required time on deposit
Penalties for early withdrawal
Take care when rolling over
Various CD types:
Rising-rate or bump
Stock-indexed
Callable
Promotional
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21. Objective 3 Assess Various Types of Savings Plans
Interest earning checking accounts
Checking accounts paying low interest
Money market accounts and funds
Floating interest rate
Allows limited check writing
Higher minimum balance
Money market accounts are covered by the FDIC, but money market funds are not
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22. Types of Savings Plans U.S. Savings Bonds Series EE “Patriot Bonds”
Sold at half of face value
Face values $50 - $5,000
Fixed-rate interest compounded semiannually
Penalty if redeemed within 5 years
Continues earning interest for 30 years
Potential tax advantages if used to pay tuition
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23. Types of Savings Plans U.S. Savings Bonds Series HH I bonds
Current income bonds
Pays interest every six months
Interest direct deposited and taxed as current income
I bonds
Earns a fixed rate plus an inflation rate
Twice-a-year inflation adjustment
See for rates
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24. Evaluating Savings Plans
Rate of return or yield
Percentage increase in value due to interest
Frequency of compounding increases return
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25. Evaluating Savings Plans
“Truth in Savings Act”
Requires disclosure of:
Fees on deposit account
Interest rate
Annual percentage yield (APY)
APY defined as the “total percent”
Total percent is based on annual interest and frequency of compounding
APY = Rate per period X # periods per year
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26. Evaluating Savings Plans
Inflation
Compare rate of return vs. inflation rate
Taxes
Reduces interest earned on savings
Liquidity
Quick availability of cash
Without significant loss in value
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27. Evaluating Savings Plans
Safety via FDIC and NCUA
FDIC insured up to $100,000 per person per financial institution
Up to $250,000 on certain retirement accounts
Restrictions and fees
Minimum balance
Fee for additional transactions
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28. Objective 4 Evaluate Different Types of Payment Methods
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29. Payment Methods Electronic Payments
Debit Card Transactions
Immediate account debit
Online Payments
PayPal, MyCheckFree
Stored-value Cards
Prepaid cards for telephone, transit, tolls, etc.
Smart Cards
“Electronic wallets”
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30. Payment Methods Checking Accounts
Regular Checking Accounts
Monthly service charge usual
Minimum balance
Activity Accounts
Fee charged for each check written, and sometimes for deposits
Interest-earning or share draft accounts (credit unions)
Require a minimum balance
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31. Payment Methods Evaluating checking accounts
Restrictions, such as a minimum balance
Fees, which are increasing, and charges
Interest rate and computation method
Special services
Overdraft protection
Beware of “package” deals that include unneeded services
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32. 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
Sign each check twice
Electronic traveler’s checks - prepaid travel card with ability to get local currency at an ATM
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33. Managing Your Checking Account
Opening a Checking Account
Individual vs. joint account
Making Deposits
3 types of endorsements
Blank endorsement
Signature only
Restrictive endorsement
“For deposit only”
Special endorsement
“Pay to the order of”
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34. Managing Your Checking Account
Writing Checks
Record the date
Write the name of the person/organization receiving the check
Record the amount of the check in figures
Write the amount of check in words
Sign the check
Note the reason for the payment
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35. Managing Your Checking Account
Bank Reconciliation
Compare written checks with those reported paid
Subtract the total of all checks written but not yet cleared
Determine deposits not on the statement;
Add the amount to the statement balance
Subtract fees or charges and ATM withdrawals from the checkbook balance
Add any interest to your checkbook balance
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