Financial Institutions and Services

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8Financial

Institutions and Services

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Chapter Objectives

• Identify different types of financial institutions.

• Select the financial services that will best meet your needs.

• Use ATM and debit cards responsibly.• Manage a personal checking account.• Write and endorse checks correctly.• Calculate a checkbook balance.

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Types of Financial Institutions

• Economic system cannot function without financial institutions

• They are financial go-betweens that keep money flowing throughout the economy among consumers, businesses, and government

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Commercial Banks

• Commercial banks offer a wide variety of services

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Commercial Banks

• Federal Deposit Insurance Corporation (FDIC) maintains confidence in the banking system by– insuring bank customers’ deposits– examining and supervising financial

institution policies and operations

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Savings and Loan Associations

• Savings and loan associations (S&L) offer many of the same services of commercial banks

• Two S&L types:– Mutual savings and loan associations– Stock savings and loan associations

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Credit Unions

• Credit union memberships available through employers, unions, religious organizations, community organizations, or other groups

• Lower operating costs (no federal income taxes required) allow them to pay higher interest rates on savings and charge lower rates on loans

continued

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Credit Unions

• Either federally or state chartered• National Credit Union

Administration (NCUA) – grants federal charters – supervises credit unions across the

country– insures deposits

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In Your Opinion

• Would you prefer to use a credit union if you had access to one? Why or why not?

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Mutual Savings Banks

• Mutual savings banks exist in only 17 states

• Earnings divided among depositors as dividends

• Offer a wide variety of services– Receive and pay dividends on

deposits– Make home mortgage and

improvement loans

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Choosing a Financial Institution

• What services does the institution provide?

• What fees are charged?

• Is the staff helpful?

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Safety

• Look for signs that say– “Insured by the FDIC”– “Insured by the NCUA”

• This means the institution is regularly checked and passes ongoing examinations

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Services of Financial Institutions

• Electronic funds transfer (EFT) makes transactions quickly and conveniently

• Automated teller machine (ATM) lets you access your account to withdraw cash, make deposits, perform other services

• To use an ATM you need – an ATM card– a personal identification number (PIN)

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Direct Deposits or Withdrawals

• Checks and payments are deposited directly into an account

• Bills can be paid without writing and mailing checks

• Money can be automatically transferred from checking to savings

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Point-of-Sale Transfers (POS)

• Moves money from your account to pay for a purchase without using checks, cash, or credit

• A merchant scans a debit card and purchase amount immediately transfers from customer’s to merchant’s bank account

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Online Banking Services

• Online access to accounts using identification number and security code

• You can– check account balance– review account history– schedule electronic bill payment– confirm deposits, withdrawals, and

transfers

• Personal financial software often available

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Overdraft Protection

• Overdraft—the act of withdrawing money or writing a check for an amount greater than an account balance

• Financial institutions offer overdraft protection

• Banks charge fees for each overdraft

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Stop Payment

• A financial institution will refuse to honor a check written by a customer

• A fee is usually charged• Customers must request this

service

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Drive-Up and Mail-In Services

• Customers make deposits and withdrawals by– mail– drive-up windows

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Safe-Deposit Boxes

• Customers’ important documents and valuables are stored in a secure vault

• An annual fee is usually charged

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Other Special Programs

• Trust preparation department• Tax reporting assistance• Financial planning• Money market funds• Mortgage loans

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Personal Checking Accounts

• Advantages of checking accounts:– Safe place to keep money– Easy way to buy goods and services– Easy way to pay bills– Provides record of deposits and

receipts– Aids in money management– Helps build sound credit rating

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Accounts and Services

• Look for financial institutions that offer the accounts and services you want in a checking account

• Ask about availability of different features and their fees, if any

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Restrictions and Penalties

• Minimum balance requirements

• Withdrawal limitations

• Overdraft penalties

• Late payment on credit penalties

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Fees and Charges

• Maintenance fees• Charges for ATM use• Low-balance penalties• Check-writing fees• Check-printing costs

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Interest Rates

• Interest rates– paid on interest-bearing checking

accounts– charged to borrow money– charged to use a bank credit card

• Look for high yields on savings and low rates for using credit

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Convenience

• Convenient hours• ATMs in various and convenient

locations• Online banking availability• Credit cards offered

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Checking Account Types

• Basic checking accounts are good for people who write many checks and can keep the minimum balance

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Checking Account Types

• Interest-bearing account:– Combination savings and checking

account– Also called share drafts or NOW

accounts

• Lifeline account:– An option for low-income customers

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Opening a Checking Account

• Sign a signature card• Those under 18 usually need a

joint account with a parent; spouses often share joint accounts

• Record all starter checks and personalized checks that you use

• Keep track of transactions with a register

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Managing the Cards Linked to Your Account

• Advantages of ATM and debit cards:– Eliminate need to carry lots of cash– Access to your money at any time– Access to your money almost

anywhere – Access to goods and services of

businesses that do not accept checks

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Managing the Cards Linked to Your Account

• Keep all receipts • Record transactions and fees in

checkbook register• Safeguard your card and PIN• Know your balance and don’t

overdraw your account

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ATM Cards

• Use ATMs affiliated with your bank’s network– Usually no fee charged – Other ATMs charge fees, which can

add up

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Debit Cards

• Used at ATMs and businesses that accept credit cards

• Similar to writing a check; the purchase amount comes directly from your checking account

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Making Deposits

• Deposits can be made– in person– by mail– at an ATM

• Fill out a deposit slip• Save receipts and record deposits

in your register

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Endorsing Checks

• Before you cash or deposit a check made out in your name, you must endorse it

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Endorsing Checks

• Three ways to endorse a check:– Blank endorsement–just the payee

signs– Restrictive endorsement–the specific

use is noted, such as “for deposit only”

– Special endorsement–the payee writes “pay to the order of…” and signs, and the other party also signs

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Writing Checks

• Use dark ink• In case of error, destroy check and

write a new one• Fill in the

– date– payee name – check amount in numbers and words– your signature

continued

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Writing Checks

• Filling out checkbook register– Record check number, date, payee,

and amount– Subtract check amount from balance– Record deposit dates and amount– Add deposit amount to balance– For destroyed checks, write number

and “void”

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Balancing Your Checkbook

• Bank statements are sent out monthly

• Always check the statements against your records

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Balancing Your Checkbook

• Bank statement contents include– beginning and ending balances– total amount of checks and payments– total amount of deposits and credits– details of checks paid (dates, numbers,

amounts) and canceled checks or check photocopies

– other items paid (withdrawals, fees, bills)

– deposits and credits (dates, descriptions, amounts)

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Balancing Your Checkbook

1. Compare canceled checks with those recorded in checkbook register

2. Compare deposits in register with those on statement and your receipts

3. Check ATM transactions and fees in register against those on statement

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Balancing Your Checkbook

4. Subtract service charges on statement from register balance

5. Account for checks, ATM transactions, and deposits not yet on statement

6. If numbers from Step 5 and bank statement balance are not equal, check math or contact the bank for help

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In Your Opinion

• Why might you want to balance your checkbook more often if you make debit purchases or bank online?

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Special-Use Checks

• Most financial institutions offer these, usually for a fee– cashier’s checks– certified checks– money orders– traveler’s checks

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Central Ideas of the Chapter

• Financial institutions are vital to the economy because they make financial transactions possible.

• A checking account is a basic tool to help you manage your financial resources.

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Glossary of Key Terms

• ATM card. A card that allows customers to withdraw cash from and make deposits to their accounts using an ATM.

• automated teller machine (ATM). A computer terminal used to transact business with a financial institution.

• bank statement. A record of checks, deposits, and charges on a checking account.

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Glossary of Key Terms

• cashier’s check. A check drawn by a bank on its own funds and signed by an authorized officer of the bank.

• certified check. A personal check with a bank’s guarantee the check will be paid.

• commercial bank. A bank owned by stockholders and organized to receive, transfer, and lend money to individuals, businesses, and governments.

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Glossary of Key Terms

• credit union. A nonprofit financial cooperative owned by and operated for the benefit of its members. It accepts deposits, makes loans, and provides other services.

• electronic funds transfer (EFT). The movement of money electronically from one financial institution to another.

• endorse. To sign one’s name on the back of a check in order to cash or deposit the check.

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Glossary of Key Terms

• Federal Deposit Insurance Corporation (FDIC). A U.S. government agency that protects bank customers by insuring deposits as well as examining and supervising financial institutions.

• money order. An order for a specific amount of money payable to a specific payee.

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Glossary of Key Terms

• mutual savings bank. A saving depository owned by the depositors that divides the profits among depositors in the form of dividends.

• National Credit Union Administration (NCUA). An agency that grants federal charters to qualified groups, supervises credit unions, and insures accounts in all federally chartered and many state chartered credit unions.

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Glossary of Key Terms

• savings and loan association (S&L). A for-profit financial institution that receives and pays dividends on depositors’ savings, makes mortgage loans, and offers most of the services commercial banks offer.

• traveler’s checks. Checks that can be cashed in most places around the world. They are often used by people who travel and do not want to carry large amounts of cash.

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