1. Chapter 7
Banking

2. Essential Questions How does a bank benefit you now?
How do you think you will use a bank in the future?
If banks didn’t exist, how do you think your life would be different?

3. The Role Banks Play Banks are profit driven private businesses
They work to earn a profit by selling financial services
Loans – make profit on interest
Deposits – invest in open market
Investment services

4. How Do Banks Make $$$$?
Most income that banks earn comes from the interest they charge when they lend money
Example: Suppose you deposit $100 in your bank account. The bank pays you 2% interest to use your money. The bank lends your $100 to a business and charges 6% interest. The banks income is the 4% difference.

5. Banks Provide Security
Purchasing power – interest received from savings offset inflation
Bank Regulation – Banks are subject to a very high level of government regulation
(must maintain certain level of cash)
Deposits are Insured – Federal Deposit Insurance Corporation (FDIC) a federal government agency that insures deposits up to $250,000)

6. Banks Simplify Borrowing
Banks help people pay for their most important possessions.
House / Cars / Education.
Businesses borrow for equipment / expansion & start-up costs.

7. Homework
Chapter 10 Review Questions (1-17) 7

8. Types of Banks Commercial Banks Mutual Savings Banks (State Chartered)
Provide many services (FDIC)
Mutual Savings Banks (State Chartered)
Focus on savings accounts and loans on property (Home Equity Loan)
Savings and Loan Associations
Primarily set up to lend money for home mortgages but do offer other services – checking / credit cards / etc.
Credit Unions
Not-for-Profit for union members – owned by members
Higher interest rates on deposits & lower on loans
Internet Banks
Exclusively operated over the internet

9. Checking Accounts
Checking accounts allow depositors to write checks to make payments
A check is a written order to pay a specific payee
Checking accounts may also be called a demand deposit account (DDA)
Once you write a check and the payee cashes it is “cleared”
Until it is cashed it is considered “outstanding”

10. Checking Account Types:
Interest-Bearing Checking Accounts – usually large minimums for balance. You can collect interest on your checking account.
Noninterest-Bearing Checking – most checking accounts that you do not have to keep a large balance. 10

11. Why Use A Checking Account?
Safety – greatest advantage only the person who the check is made out to can cash it
Convenience –large payments – no need to carry around large sums of cash – access to ATM’s
Budgeting – Records of your transaction – checks & statements automatically serve as records
Credit rating – the first way to establish credit
Establish banking relationship – easier to obtain loans, and other services

12. Checking Account Responsibilities
Maintain sufficient funds – no overdrafts
Keep careful / accurate records (register)
Reconcile your account each month
Never “postdate” or “float” checks
Purposely writing a bad check is a felony

13. Famous Felons

14. TERMINOLOGY
Account Balance – the total amount in the account at a specific date
Overdrawing – writing a check for more than you have in your account. (NSF Fee)
Third Party Check – when you receive a check made out to you, you sign it over to someone else 14

15. Opening a Checking Account
Very Easy – must be 18 years old
2 forms of identification needed
Signature Authorization (signature card)
Sign your check the same way that you sign signature card
Checks can be purchased at bank

16. Check Writing / Parts of a Check
Always use Ink
Write Legibly
Sign exactly as signature card
If you make a mistake – “Void” the check & keep it for your records
Make sure there is $$ in the account

17. Deposits A Deposit Form must be completed
(forms in checkbook or at bank)
Endorse checks before depositing them
Record the deposit promptly in register
Money may not be available until it “clears the bank”

18. Endorsing Checks Blank Endorsement – just signature
Signing the back of a check acknowledging you have received the money
Checks must be endorsed to be cashed / deposited or transferred
Blank Endorsement – just signature
Endorsement in Full or Special Endorsement – “Pay to the Order of ___”
Restrictive Endorsement – “For Deposit Only”

19. Check Register
Booklet provided by your bank for recording all checking account transactions
Record all transactions promptly:
Deposits
Interest
Checks (record check numbers)
Debits
Withdrawals
Bank Fees
Keep a running account balance at all times

20. Reconciling (Balancing) A Checking Account
Bank Statement – at the end of the month the bank will send a statement showing all transactions for the month
Balancing (reconciling) a checking account – comparing a check register with the bank statement 20

21. Statements & Checkbooks
Statement Column
Balance from statement
List deposits not on statement
Total statement balance and deposits
List checks not on statement
Statement balance
Checkbook Column
Balance from checkbook
List deposits not in checkbook
Total checkbook balance and deposits
List fees not in checkbook
Enter interest payment
Total fees and interest
Checkbook balance 21

22. Errors & Cancelled checks
Any error should be verified with bank & corrected as necessary
Cancelled checks – The actual check written and deposited may be returned with statement
Most banks keep these now (Truncated) 22

23. CHECKING ACCOUNT FEES
Monthly maintenance fee – flat fee no matter how many checks you write.
Service Charge – a special charge for each check you write or other special services
ATM Fees

24. Electronic Banking Electronic Funds Transfer (EFT) TYPES:
When money is moved electronically
Reduces costs for banks – lower overhead
TYPES:
ATM Transactions
Point-of-Sale Transactions (POS)
Automated Services
Telephone Banking
Online Banking 24

25. Electronic Banking Automated Teller Machines (ATM) make deposits
withdraw cash
transfer money between accounts
check your balance
pay some bills
Personal Identification Number (PIN) – Secret number that identifies you to the ATM as the owner of the card
Choose a bank with locations you will use to avoid service fees 25

26. Electronic Banking Point of Sale Transactions
Paying for something through EFT
Debit Cards – cards are used like credit cards but money spent is automatically deducted from checking account (check cards / deposit access cards)
Online
Requires to enter PIN into a keypad - $$ deducted automatically from your account
Offline
Debit Card but a receipt is signed - $$ taken out later (1-3 days)

27. Electronic Banking Automated Services: Direct Deposit
Paychecks deposited directly into the checking account
Transfers between accounts (savings/checking)
Automatic Loan Payment
Bank removes money from the account at a specified time and sends it to a company to pay bill
(Example: mortgage or insurance payments)
Automatic Payments to “third party”
Utility companies like this technique

28. Electronic Banking Telephone Banking Online Banking
Access to accounts electronically over telephone
Keypad – PIN – etc.
Online Banking
Internet Banking – manage account online
Complete various transactions
Access to many different accounts
Username & Password required
Simplifies banking – Improves security(?)

29. Consumer Protection
Banks are subject to a high level of regulation to protect consumers
Lost & stolen ATM & Debit Cards
$50 if reported within 2 days
$500 if longer period occurs
Electronic Fund Transfer Act – (EFTA)
requires banks to inform the customers of fees and supply receipts for electronic transactions 29

30. Guaranteed Payment Checks
Certified Checks – Personal check stamped and signed by a bank officer - stamp guarantees that account has the funds to cover the check
Cashier’s Check – Bank’s own personal check signed by bank cashier - $25 fee
Money Order – Check that draws on the money of the bank or other financial company that issue it - Buy one from a bank , post office, currency exchange 30

31. Traveler’s Check
Check that you pay for in advance, and if they are stolen or lost, the company you bought them from replaces them
Purchase at banks, travel agency, etc
There is usually a small fee. 31

32. Safe Deposit Boxes
Boxes with individual locks that you may rent from a bank
Located in the vault
Cost of a small box is usually $30 – 40 a year
Important papers - birth certificates
Small valuable items - Jewelry 32

33. Wire Transfers
Electronic communication moving money from one account to another
Usually $20-$40 fee through banks
Other financial organizations may also provide this service 33

34. Homework 34