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Chapter
© 2010 South-Western, Cengage Learning
Checking AccountsSavings Accounts and Banking Services
9.19.1 Checking Accounts
9.29.2 Banking Services and Fees
10.110.1Growing Money: Why, Where, and How
10.210.2Savings Options, Features, and Plans
9 &10
© 2010 South-Western, Cengage Learning SLIDE 2
Chapter 9
Checking Account Basics Checks follow a process through the banking
system. The payee cashes your check. The bank that cashed the check returns it to your
bank. Your bank withdraws the money from your account
and sends it to the other bank. Your bank then stamps the back of your check,
indicating that it has cleared.
© 2010 South-Western, Cengage Learning SLIDE 3
Chapter 9
Checking Account Basics You must also maintain enough money in your
account to cover all the checks you write. A check written for more money than your
account contains is called an overdraft. A bank that does not honor a check usually stamps the
check with the words “not sufficient funds” (NSF) and returns the check to the payee’s bank.
When this occurs, the check has bounced.
Your bank can charge you a fee for each NSF check processed.
(continued)
© 2010 South-Western, Cengage Learning SLIDE 4
Chapter 9
Checking Account Basics
Floating a check is writing a check and hoping to deposit money to cover it before the check clears.
Floating a check is very risky because today’s electronic systems allow checks to process very quickly and is illegal in most states.
(continued)
© 2010 South-Western, Cengage Learning SLIDE 5
Chapter 9
Types of Checking Accounts
Joint accountsSpecial accountsStandard accountsInterest-bearing accountsShare accounts
© 2010 South-Western, Cengage Learning
Opening a Checking Account
Signature authorization form
Initial deposit
SLIDE 6
Chapter 9
© 2010 South-Western, Cengage Learning SLIDE 7
Chapter 9
Using Your Checking Account
Writing checksPaying bills onlineMaking depositsUsing a checkbook register
A checkbook register is a booklet used to record checking account transactions.
© 2010 South-Western, Cengage Learning
Making a Deposit
teens – lesson 6 - slide 6-D
© 2010 South-Western, Cengage Learning
Check Details
11 22 33 44 55 99887766 1010
This is the Routing Number for your bank (used for electronic This is the Routing Number for your bank (used for electronic transfers of funds from your account to the payee’s account)transfers of funds from your account to the payee’s account)This is your Account Number. (Note that sometimes these two This is your Account Number. (Note that sometimes these two numbers are the reverse of what is shown here.)numbers are the reverse of what is shown here.)This is just your check number again (see above right).This is just your check number again (see above right).Here is where you write the name of the party you are writing your Here is where you write the name of the party you are writing your check to (the payee). Be sure to write or print legibly!check to (the payee). Be sure to write or print legibly!On the lower line, write out the amount like this.On the lower line, write out the amount like this.Legibly print the amount of money this check is for. Legibly print the amount of money this check is for. Enter the date you write each check.Enter the date you write each check.Place to add any information you want to related to this check.Place to add any information you want to related to this check.Put your personal signature here.Put your personal signature here.Make sure your personal information on the check is correct.Make sure your personal information on the check is correct.Here is the number of this Check.Here is the number of this Check.
1111
Click the numbers
John M. Smith
© 2010 South-Western, Cengage Learning
EN
DO
RS
E H
ER
E:
DO
NO
T W
RIT
E B
EL
OW
TH
IS L
INE
Endorsed checkJo
hn M
. Smith
© 2010 South-Western, Cengage Learning SLIDE 11
Chapter 9
Bank Reconciliation
The process of matching your checkbook register with the bank statement is known as bank reconciliation.
© 2010 South-Western, Cengage Learning SLIDE 12
Chapter 9
Endorsing Checks
A check generally cannot be cashed until it is endorsed.
To endorse a check, the payee signs the top part of the back of the check in ink.
There are three major types of endorsements. Blank endorsement Special endorsement Restrictive endorsement
© 2010 South-Western, Cengage Learning SLIDE 13
Chapter 9
Blank Endorsement
A blank endorsement is the signature of the payee written exactly as his or her name appears on the front of the check.
© 2010 South-Western, Cengage Learning SLIDE 14
Chapter 9
Special Endorsement
A special endorsement, or an endorsement in full, is an endorsement that transfers the right to cash the check to someone else.
© 2010 South-Western, Cengage Learning SLIDE 15
Chapter 9
Restrictive Endorsement
A restrictive endorsement restricts or limits the use of a check.
© 2010 South-Western, Cengage Learning
Let’s Practice
SLIDE 16
Chapter 10
© 2010 South-Western, Cengage Learning SLIDE 17
Chapter 10
Why You Should Save
The best reason to save money is to provide for future needs, both expected and unexpected.
Saving regularly will help you meet your short-term and long-term needs.
© 2010 South-Western, Cengage Learning SLIDE 18
Chapter 10
Short-term Needs
Short-term needs are expenses beyond your regular monthly items.
Usually you will have to pay for these things out of savings.
Examples of short-term needs include the following: Emergencies Vacations Social events Repairs Major purchases
© 2010 South-Western, Cengage Learning SLIDE 19
Chapter 10
Long-term Needs
Long-term needs are expenses that are costly and require years of planning and saving.
Examples:Home ownershipEducationRetirementInvesting
© 2010 South-Western, Cengage Learning SLIDE 20
Chapter 10
Financial Security
Peace of mind comes from knowing that when needs arise, you will have adequate money to pay for them.
The amount of money you save depends on: The amount of your discretionary or disposable
income The importance you attach to savings Your anticipated needs and wants Your willpower
© 2010 South-Western, Cengage Learning SLIDE 21
Chapter 10
How Money Grows
The amount of money you deposit into a savings account is called the principal.
For the use of your money, the financial institution pays you money called interest.
Interest represents earnings on principal. As principal and interest grow, more interest
accumulates. This is known as compound interest, or interest paid
on the original principal plus accumulated interest.
© 2010 South-Western, Cengage Learning SLIDE 22
Chapter 10
Annual Percentage Yield (APY)
Annual percentage yield (APY) is the actual interest rate an account pays, stated on a yearly basis with the compounding included.
© 2010 South-Western, Cengage Learning SLIDE 23
Chapter 10
YearBeginning Balance
InterestEarned (6%)
EndingBalance
1 $100.00 $6.00 $106.00
2 $106.00 $6.36 $112.36
3 $112.36 $6.74 $119.10
Compounding Interest Annually
The Year 1 ending balance is the Year 2 beginning balance.
The Year 2 ending balance is the Year 3 beginning balance.
The 6% interest rate stays the same, but the interest earned increases each year.
© 2010 South-Western, Cengage Learning SLIDE 24
Chapter 10
$205.00 + 10.25 = $215.25
$205.00 × 0.05 = $10.25
$105.00 + $100.00 = $205.00
Compounding with Additional Deposits
YearBeginning Balance Deposit
InterestEarned (5%)
EndingBalance
1 $0.00 $100.00 $5.00 $105.00
2 $105.00 $100.00 $10.25 $215.25
3 $215.25 $100.00 $15.76 $331.01
4 $331.01 $100.00 $21.55 $452.56
© 2010 South-Western, Cengage Learning
Where to put your money so it can grow??
SLIDE 25
Chapter 10
© 2010 South-Western, Cengage Learning
Regular Saving Account Basics
SLIDE 26
Chapter 9
A savings account (at a bank) or share account (at a credit union) is a place to deposit money you don’t plan to spend right away.
You can add or take out money at any time, without penalty.
A savings account a good place for short- to medium-term financial goals.
Many banks and credit unions make saving easy by allowing you to set up an automatic savings plan, where money is transferred automatically from your checking to your savings account every month.
© 2010 South-Western, Cengage Learning
Regular Saving Account Basics
SLIDE 27
Chapter 9
The savings institution is allowed to use your money to invest and earn a profit.
You are paid a small amount of interest for depositing your money.
Your money is insured against loss. Deposits in banks, no matter what type, are almost always safer than other investments because of the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA).
© 2010 South-Western, Cengage Learning
Savings Deposit
Today’s date goes herePrint Your Name HerePrint Your Address Here
Sign Your Name Here33 3 3 3 3 3
x
1 2 5 0 9
3 75 2 5
7 5 0 0
4 2 5 3 4
11
22
33
44
55
77
66
5 00 3 4
Click the numbers
© 2010 South-Western, Cengage Learning SLIDE 29
Chapter 9
Checking Account Advantages
ConvenienceSafetyBuilt-in record keeping systemAccess to bank services
© 2010 South-Western, Cengage Learning SLIDE 30
Chapter 10
Regular Savings Account Advantages A savings account has a major advantage—
high liquidity. Liquidity is a measure of how quickly you can
get your cash without loss of value.
ConvenienceSafetyBuilt-in record keeping systemAccess to bank services
© 2010 South-Western, Cengage Learning SLIDE 31
Chapter 10
Liquidity
Liquidity is how quickly you can turn savings into cash when you want it.
The need for liquidity will vary, based on your age, health, family situation, and overall wealth.
© 2010 South-Western, Cengage Learning SLIDE 32
Chapter 10
Safety
Safety of principal means that you are guaranteed not to lose your savings deposit, even if the bank or other financial institution fails and goes out of business.
(FDIC)
(NCUA).
© 2010 South-Western, Cengage Learning SLIDE 33
Chapter 10
Convenience
LocationsServices offered
© 2010 South-Western, Cengage Learning SLIDE 34
Chapter 10
Interest-Earning Potential (Yield)
You want to earn as much interest as you can on your deposit, while maintaining the degree of liquidity, safety, and convenience you want.
Shop around for the best Annual percentage yield (APY) in your area for the type of account you want.
© 2010 South-Western, Cengage Learning SLIDE 35
Chapter 10
Selecting a Savings Plan
LiquiditySafetyConvenience
Interest-earning potential (yield)Fees and restrictions
Generally are advantages if you do your homework
© 2010 South-Western, Cengage Learning
Additional Savings Options
SLIDE 36
Chapter 10
© 2010 South-Western, Cengage Learning SLIDE 37
Chapter 10
Certificate of Deposit
A certificate of deposit (CD), or time deposit, is a deposit that earns a fixed interest rate for a specified length of time.
A CD requires a minimum deposit. You must leave the money in the CD for the full
time period. If you take out any part of your money early, you will
pay an early withdrawal penalty. A CD has a set maturity date, which is the date on
which an investment becomes due for payment.
© 2010 South-Western, Cengage Learning
Early CD Withdrawal Penalizes Principal
SLIDE 38
Chapter 9
© 2010 South-Western, Cengage Learning SLIDE 39
Chapter 10
Money Market Account
A money market account is a type of savings account that offers a more competitive interest rate than a regular savings account.
There are two different kinds of money market accounts: Money market deposit account Money market fund
On average, money market funds will pay a higher interest rate than money market deposit accounts.
© 2010 South-Western, Cengage Learning
All banks and Credit Unions Offer
Checking Accounts
Savings Accounts
Money market Accounts
Certificate of Deposits
SLIDE 40
Chapter 9
© 2010 South-Western, Cengage Learning SLIDE 41
Chapter 10
Where to Save
Commercial banksSavings banksSavings and loan associationsCredit unionsBrokerage firmsOnline accounts
Chapter
© 2010 South-Western, Cengage Learning
Credit Unions and Banks
Managed by a paid board of directors elected by the bank’s shareholders
Managed by a member and volunteer board of directors, who are elected by other members
Offer their services to everyone; anyone can become a customer
Offer their services to special groups of people and may be employer-, church-, community-, or alumni-sponsored (among others); customers must qualify for credit union membership through their membership with these special groups of people
For-profit companies owned by shareholders
Not-for-profit institutions owned and controlled by their own customers, who are known as members
Banks Credit Unions
321
Chapter
© 2010 South-Western, Cengage Learning
Profits benefit a small group of stockholders
Profits are returned to members in the form of lower fees and loan rates and higher interest on deposits
Accounts are federally insured up to $100,000 by the Federal Deposit Insurance Corp (FDIC)
Accounts are federally insured up to $100,000 by the National Credit Union Administration (NCUA)
Owned by shareholders; customers do not have ownership or voting privileges unless they also own stock in the bank
Owned by each credit union member, who has equal ownership and one vote, regardless of how much money a member has on deposit
Banks Credit Unions
321
Credit Unions and Banks
© 2010 South-Western, Cengage Learning SLIDE 44
Chapter 9
Online & Telephone Banking
Most banks also allow and encourage electronic transfers of money. An electronic funds transfer (EFT) uses a
computer-based system that enables you to move money from one account to another without writing a check or exchanging cash.
(continued)
© 2010 South-Western, Cengage Learning SLIDE 45
Chapter 9
© 2010 South-Western, Cengage Learning SLIDE 46
Chapter 10
Direct Deposit
With direct deposit, your net pay is deposited electronically into your bank account.
You receive a nonnegotiable copy of your check and stub, notifying you of the amount deposited directly into your account
You can have your automatic deposit split between accounts, with some going into savings and some going into checking to cover your bills.
© 2010 South-Western, Cengage Learning SLIDE 47
Chapter 10
Automatic Deductions
Automatic deductions represent money you have authorized your bank or other organization to move from one account to another at regular intervals.
With a payroll savings plan, you authorize your employer to make automatic deductions from your paycheck each pay period.
© 2010 South-Western, Cengage Learning SLIDE 48
Chapter 9
Debit Cards
A debit card is a card that deducts money from a checking account almost immediately to pay for purchases.
When a debit card is used, the amount of the purchase is quickly deducted from the customer’s checking account and paid to the merchant.
© 2010 South-Western, Cengage Learning
How to Use a Debit CardSwipe the debit card in the card
reader
Choose the “Debit” option.
Enter your PIN number*
Enter the amount of cash back, if desired.
Money is taken directly out of your checking account, so enter the amount spent into your checking ledger and/or keep track of it through your online banking account.
© 2010 South-Western, Cengage Learning
About Your PIN
PIN stands for personal identification number. This number gives you access to your account, so keeping it secret is important.
Memorize your PIN number. Do not write it down and keep it somewhere in your wallet (where someone could find and use it).
© 2010 South-Western, Cengage Learning SLIDE 51
Chapter 9
Automated Teller Machines
An Automated Teller Machine is often called an ATM.
To use ATMs, you must Have a card that is electronically coded (usually
your debit card) Know your personal identification number (PIN)
© 2010 South-Western, Cengage Learning
How to Use a Credit Card
Swipe the credit card in the card reader or give it to the clerk to swipe.
Choose the “Credit” option.
Sign the receipt.
Keep and save your copy of the receipt to record later so you can keep track of what you have spent.
© 2010 South-Western, Cengage Learning SLIDE 53
Chapter 9
Money Orders
Banks sell money orders to people who do not wish to use cash, or do not have a checking account. Also, money order can be requested by businesses.
A money order is like a check, except that it can never bounce.
There is a charge for purchasing a money order.
© 2010 South-Western, Cengage Learning SLIDE 54
Chapter 9
Stop Payment Orders
A stop-payment order is a request that the bank not honor a specific check.
The usual reason for stopping payment is that the check has been lost or stolen.
Most banks charge a fee for stopping payment on a check.
© 2010 South-Western, Cengage Learning SLIDE 55
Chapter 9
Safety Deposit Boxes
Financial institutions offer customers a safe deposit box to store valuable items or documents.
They charge a yearly fee based on the size of the box.
Keeping important documents and other items in a safe deposit box ensures that the items won’t be stolen, lost, or destroyed.
© 2010 South-Western, Cengage Learning SLIDE 56
Chapter 9
Safety Deposit Boxes
Examples of items commonly kept in a safe deposit box includeBirth, marriage, and death certificatesDeeds and mortgage papersStocks and bondsJewelryCoin collections
(continued)
© 2010 South-Western, Cengage Learning SLIDE 57
Chapter 9
Loans and Trusts
Financial institutions also make loans to finance the purchase of cars, homes, home improvements, vacations, and other items.
Banks can also provide advice for estate planning and trusts.
Banks can act as trustees of estates for minors and others. A trustee is a person or an institution that manages
property for the benefit of someone else under a special agreement.
© 2010 South-Western, Cengage Learning SLIDE 58
Chapter 9
Notary Public
A notary public verifies a person’s identity, witnesses the person’s signature on a legal document, and then “notarizes” the signature as valid.
Financial institutions typically have a person on their staff who is a notary public. This person provides notary services for account
holders, usually without charge. For noncustomers, however, there is typically a
small fee.
© 2010 South-Western, Cengage Learning SLIDE 59
Chapter 9
Bank Fees
Banks charge fees to their customers to help cover their operating costs.
The best way to avoid fees is to choose the right kind of account. Shop around and find the account that is
right for you. Be aware of the rules of your account, so
that you don’t violate them and be required to pay high fees.
© 2010 South-Western, Cengage Learning SLIDE 60
Chapter 10
Fees and Restrictions
Different accounts and institutions have different rules.
Before you open an account, be sure to understand the withdrawal restrictions, minimum balances, service charges, fees, and any other requirements.
© 2010 South-Western, Cengage Learning SLIDE 61
Chapter 9
Examples of Bank Fees
Loan fees Trustee fees Check cashing fees Per-check fees Monthly service fees Overdraft fees NSF check charges ATM transaction fees
Safe deposit box fees Teller service fees Minimum balance fees Fees for guaranteed-
payment checks Notary service fees Online bill payment fees Fees to return canceled
checks
© 2010 South-Western, Cengage Learning
All Financial ServicesAll of these services can be found in most banks or credit unions
Online Banking, Online Brokerage, Checking Accounts, Savings Accounts, Certificates of Deposit (CDs),
Individual Retirement Accounts (IRAs), Savings Bonds, Credit Cards, Check Cards, Gift Cards, Payroll Cards,
Commercial Prepaid Cards, Auto Loans, Boat Loans, RV Loans, Student Loans, Other Loans, Home Mortgages,
Mortgage Refinance Loans, Home Equity Loans, Military Bank, Student Centers, Accessible Banking,
Small-business Banking Services, Merchant Services , Home Buying, Investment Services, IRAs, Mutual Funds,
529 College Savings Plans, Life Insurance (various types), Long-term Care Insurance, Homeowners Insurance,
Renters Insurance, Condo Insurance, Auto Insurance, Supplemental Income Insurance, Foreign Currency Exchange, Travelers Checks,
International Wire Transfers