1. Chapter 05 Financial Services: Savings Plans and Payment Accounts
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2. A Cash Management Strategy
Banks, saving and loan associations, credit unions, and other financial institutions provide a variety of financial services
Account services provide customers with online banking offering deposits, investments, credit cards, loans, mortgages, rewards programs and IRAs
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3. A Cash Management Strategy
MEETING DAILY MONEY NEEDS
Cash, check, credit card, and debit cards are the most common payment choices
Cash = Currency
No matter how carefully you manage your money, there may be times when you will need more cash than you currently have available. So you have two options:
Liquidate Savings
Borrow
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4. Watch Video on how an ATM works…
ATM (Automatic Teller Machines):
Uses a “debit card”
activates ATM transaction and is linked to a bank account
ATM convenience can be expensive…FEES!!!
Lost or stolen debit card:
Notify within 2 days liability is $50
After that it could be $500 up to 60 days
Beyond that is unlimited
But some card issuers may treat it like a credit card with a $50 maximum
Watch Video on how an ATM works…

5. A Cash Management Strategy (continued)
Common mistakes in managing cash include…
Overspending from impulse buying and using credit cards
Not having enough liquid assets (cash and checking account) to pay current bills
Using savings or borrowing to pay for current expenses
Failing to put unneeded funds in an interest- earning savings account or investment plan
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6. A Cash Management Strategy (continued)
TYPES OF FINANCIAL SERVICES:
Savings
Time deposits in savings, CD’s
Payment services
Checking accounts are called demand deposits
Automatic payments
Borrowing for the short- or long-term
Other financial services:
Insurance, investment, real estate purchases, tax assistance, and financial planning are additional services you may use
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7. A Cash Management Strategy (continued)
Other types of financial services (continued)
Trust
A legal agreement that provides for the management and control of assets by one party for the benefit of another
Asset management account
Also called a cash management account
Offered by brokers and financial institutions
Provides a complete financial service program for a single fee, benefits include:
Tracking money in one location
Consolidated statements
Lower fees due to higher balance aggregation
Ease for tax reporting
Ease for communicating financial issues to family
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8. A Cash Management Strategy (continued)
ONLINE BANKING
Benefits
Time and Money savings
Convenience for customer
No paper trail for identity thieves
Online transfer of funds from one account to another
notification regarding due dates
Concerns
Privacy and security
Costly ATM fees
Difficulty depositing checks and cash
Overspending potential
Online scams; phishing and scams
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9. A Cash Management Strategy (continued)
OPPORTUNITY COSTS OF FINANCIAL SERVICES
Higher rate of return may be obtained at the cost of lower liquidity
Convenience of a 24-hour ATM should be considered against service fees
The “no fee” checking account with a $500 non- interest-bearing minimum balance means lost interest of nearly $400 at 6 percent compounded over 10 years
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10. A Cash Management Strategy (continued)
FINANCIAL SERVICES AND ECONOMIC CONDITIONS
Changing interest rates, rising consumer prices and other economic factors also influence financial services
Be aware of current trends and future prospects for interest rates (Exhibit 5-3)
Read Wall Street Journal, business periodicals, such as BusinessWeek, and Forbes, and online resources.
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11. Financial Institutions
DEPOSIT INSTITUTIONS
Commercial banks
Offer a full range of services including checking, savings, lending and other services
Savings and loan associations
Offer specialized savings plans, loans including mortgages, and other financial planning services
Mutual savings banks
specialize in savings accounts and mortgage loans: they are owned by their depositors
Credit unions
are user-owned, nonprofit cooperative financial institutions
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12. Financial Institutions (continued)
OTHER FINANCIAL INSTITUTIONS
Life insurance companies
Offer insurance, plus savings and investment features; some offer financial planning and retirement services
Investment companies
Are also referred to as Mutual Funds
Offer a money market fund on which you can write a limited number of checks
Finance companies
Make short and medium term loans to consumers, but at higher rates
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13. Financial Institutions (continued)
OTHER FINANCIAL INSTITUTIONS
Mortgage companies
Provide loans to customers so they can purchase homes
Pawnshops
Make loans on possessions but charge higher fees than other financial institutions, used for quick cash
Check-cashing outlets
Charge 1-20% of the face value of a check: 2-3% is average
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14. Financial Institutions (continued)
Choosing a financial institution, by step: Step 1: Prepare a list of important features. Step 2: Rank the top 3 or 4 features, for you. Step 3: Prepare a list of financial institutions. Step 4: Conduct research for decision. Step 5: Make decision based upon above.
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15. FDIC: Federal Deposit Insurance Corporation
Insurance that banks purchase to protect deposits of customers against loss up to $250,000 per depositor -in effect through December 31, On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and other certain retirement accounts, which will remain at $250,000 per depositor.
FSLIC - Federal Savings and Loan Insurance Corporation.- Insures depositors of savings and loans up to $250, through 2013.
Look for sign in institution.

16. Savings Plans REGULAR SAVINGS ACCOUNTS CERTIFICATES OF DEPOSITS
Usually involve a low or no minimum balance
Credit unions call them share accounts
CERTIFICATES OF DEPOSITS
Require you to leave your money on deposit for a set time period, otherwise you incur penalties
Several types to chose from
Consider all the earnings and all the costs
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17. 5-17

18. Evaluating Savings Plans
RATE OF RETURN
Percentage or yield is the increase in value due to interest
Example: a $100 savings account that earned $5 has a yield of 5 percent
COMPOUNDING
More frequent compounding means earning more interest on interest previously earned
The annual percentage yield
Purpose: to provide consistency when comparing different savings options.
Formula:
APY = 100 (Interest/Principal)
NOTE: Formula is applicable when the number of days in the term is 365 or when the account does not have a stated maturity.
Example: Interest of $60 on principal of $1,200
=100 (60/1200) = 5% (APY)
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19. Evaluating Savings Plans (continued)
TRUTH IN SAVINGS
Requires Disclosure of...
Fees on deposit account
The interest rate
The annual percentage yield
Other terms and conditions
INFLATION
Compare your APY with inflation rate
TAX CONSIDERATIONS
Taxes reduce interest earned on savings
Taxes are not withheld from savings and investments; you may owe additional taxes at year-end as a result of earnings on saving
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20. Evaluating Savings Plans (continued)
LIQUIDITY
Allows you to withdraw money on short notice without penalty or fees
SAFETY
FDIC insures up to $250,000 per person per financial institution (see
RESTRICTIONS AND FEES
Several restrictions can affect the choice of a savings program
Delay in time between earned and posted, transactions fees from deposits and withdrawals, time money has to be left in a deposit account in order to receive a “free” gift, etc.
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21. After Tax Savings Rate of Return
Taxes reduce the actual rate of return
Example: 6% savings yield, 28% tax rate
Formula: (1 - tax rate) x yield on savings
= ( ) x .06
= .72 x .06
= 4.32%
Thus, an individual earning 6% on a savings account with a 28% marginal tax rate, would actually have an after tax rate of return of 4.32%.
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22. Payment Methods ELECTRONIC PAYMENTS Debit Cards
Online Payments –most credit cards now offer this service
Stored-value cards
Smart Cards
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23. Checking Account
A banking service where you deposit money into an account and checks (drafts) can be written to withdraw money from the account when needed.
Is known as a demand deposit, because you can demand portions of your deposited funds when you want.
Only the depositor (maker) can write checks on the account
Usually pay a fee for checking services unless you keep a minimum balance in your account.
A check is a negotiable instrument, because it promises to pay a sum on a certain date.

24. Checking Accounts TYPES OF CHECKING ACCOUNTS
Regular Checking Accounts– many have minimum balances
Activity Account -fees on checks & deposits
Interest-earning or NOW accounts, which usually require a minimum balance
Interest Earning Checking accounts are also known as Share draft accounts at credit unions
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25. Opening A Checking Account
When you open up new checking account, you will fill out a signature card.
A signature card provides the bank with important info and your official signature so they can verify checks you have written.

26. Checking Accounts EVALUATING CHECKING ACCOUNTS
Need to be evaluated based on :
Restrictions
Fees and charges
Interest rate and computation method
Special services, such as overdraft protection
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27. Checking Accounts Opening a Checking Account
MANAGING YOUR CHECKING ACCOUNT
Opening a Checking Account
Individual or joint account
Making Deposits
Deposit ticket
Endorsement
Blank endorsement
Just sign the check
Restrictive endorsement
For Deposit Only
Special endorsement
Pay to the order of
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28. Blank Endorsement John Smith
Should only be used when you are depositing or cashing a check, since a check can be cashed by anyone once it is signed

29. Restrictive Endorsement
For deposit only
John Smith
Restrictive Endorsement

30. Allows you to transfer a check to someone else
Pay to the order of
Wyatt Jones
John Smith
Special
Endorsement
Allows you to transfer a check to someone else

31. Bank Deposit Slip Example10

32. Checking Accounts Writing Checks Record the date Write the name
Record the amount
Write the amount in words
Sign the check
Note the reason for payment
Record the check in your checkbook register
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33. Sample Check

35. If the two amounts do not match, which one does the bank use?

36. Name The Type of Endorsement
__________________
__________________
__________________ 36

37. Checking Accounts Reconciling your checking account
Cancelled Checks – Checks that the bank has processed(cleared)
Can use them as a receipt of payment
Outstanding Checks – Checks that you have written that the bank has not processed yet.
Reconciling your checking account
Used to compare the bank’s balance and your checkbook balance.
Reasons for differences:
Interest earned
Checks that have not cleared
Deposits not yet received by bank
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38. Checking Accounts Overdraft
A check that cannot be covered by the funds in your account.
When an overdraft occurs and the check is returned, the check has “bounced” (rubber checks)
You also get charged a fee for each NSF(non-sufficient funds) check that is processed.
When checks bounce, the bank notifies you in writing.

39. Payment Methods (continued)
OTHER PAYMENT METHODS
Certified check
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
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