Chapter 10.1Comparing Financial Institutions
Objectives Describe the services offered by financial
institutions; Distinguish among various types of
financial institutions; and Explain guidelines for choosing a financial
institution.
2
3
How Banks Work
Bank – a financial institution where you may deposit money.
Money that you deposit is lent to borrowers who need cash for businesses or personal financial
needs.
4
Interest – a fee paid for the opportunity to use someone else’s money over a period of time.
Savings Account – bank pays you interest (low amount) for letting it use your money
Loans – borrowers pay the bank interest (high amount) for money needed, allowing bank to make a profit.
6
Financial Institutions
Types:
1. Commercial Banks – is owned by shareholders and operated for their profit.
2. Mutual Savings Banks – are state-chartered and are operated by trustees for the benefit of depositors.
3. Savings and Loans – were originally specialized in providing funds to home buyers, but now provide a variety of financial service.
4. Credit Unions – is nonprofit and owned by its members.
5. Internet-Only Banks – saves money because it is not maintaining a branch office or employees, therefore passing the savings to customers.
7
Financial Services Modernization Act (1999)
This allowed financial institutions to consolidate the financial services they offer, which transformed the banking industry.
8
Three Factors To Consider:
•Deposit Insurance – protects your account when a bank fails.
o Federal Deposit Insurance Corporation (FDIC) – federal agency that insures savings, checking, and other deposit accounts in most commercial banks, saving banks, and saving associations.
o National Credit Union Administration (NCUA) – deposit insurance for credit unions.
9
•Services and Convenient Access Offering:
Services You Need.Convenient Hours.A Location Near You.Phone / Internet Services.
•Rates and Fees Be Aware of:
Interest Rate FeesSpecial Account Requirements
10.2Banking Electronically
Objectives Explain various electronic banking methods; and Give consumer guidelines for using electronic
banking.
10
11
Electronic Banking Methods electronic funds transfer (EFT) – movement of funds by electronic means
12
ATM Transactions
Automated Teller Machine (ATM) – computer terminal that gives bank customers electronic access to their account at any time through the use of a specially coded card
Personal identification number (PIN) – secret code that
protects the security of your account
•Know where ATM card is all the time.•Memorize PIN•When entering pin, shield key pad or screen.•Be aware of surroundings•Count cash later.
13
Point-of-Sale Transaction
Point-of-sale transaction – paying for an item by making an electronic funds transfer at the place of purchase Debit card – allows the user to subtract money from a bank
account in order to obtain cash or make a purchase
•Online – must enter PIN into keypad
•Offline – sign a receipt like credit card
14
Automated Services
•Direct deposit•Automated transfers between your accounts•Automated loan payments•Automated payments to a third party
15
Telephone Banking
Telephone Banking – access your account by phone
•find out account balance•make transfers between accounts•hear list of previous transactions
16
Online Banking
login name and password Advantages
•complete bank transactions at home any time•pay and receive bills online
save timesave postage
17
Consumer Protection
Electronic Fund Transfer Act – 1978•protects consumers using some forms of electronic banking•Stolen Card liability
Chapter 10.3Managing a Checking Account
Objectives Identify reasons for having a checking
account; Describe factors to consider in selecting a
checking account; and Explain checking account procedures
and responsibilities.
18
19
How Checks Work Check – is a written order that instructs a bank to pay a specific amount of money to a particular person or business. Payee – the one to whom a check is made out to
Canceled Check – a check that is stamped and perforated to show that it’s been paid.
20
Overdraft (Bounce) – is a lack of sufficient funds to cover the full amount of a check, marked “NOT
SUFFICIENT FUNDS”•Both you and the payee will be charged a substantial fee •Overdrafts are used to penalize because they
cost time, money, and effort•Repeatedly writing bad checks is a criminal
behavior
21
Advantage of Checks
•More secure than cash.•Useable only by payee•Legal proof of payment
Deposit Slip – form that is used to put money into an account
•Usually takes one or more days to access those funds
22
Choosing a Checking Account
Minimum Balance Usually given a penalty when below minimum amount
FeesMonthly service chargeCheck feeATM and Debit card fees
23
Transaction LimitsLimited number of withdrawalsLimited number of teller-assisted transactions
Interest Accounts that collect interest my have more restrictions
Overdraft Protection Bank will transfer fund prior to overdraft
24
Using a Checking Account
•Must be 18 years old (as stated in the book)
•Signature Card – verifies your signature•Starter Checks
Making Deposits
•Mail•ATM•Drive-up Window•Teller Transaction
25
Endorsing a Check
You Can:•Deposit•Cash It•Transfer It To Another Payee
Endorsement – a signature that entitles the payee to either receives payment or transfers it to someone else.
26
Three Ways to Endorse a Check
1. Blank Endorsement – Only endorsers name
2. Special Endorsement – Limits payment to a particular payee
3. Restrictive Endorsement – write “For deposit only” above name and it can only be
deposited in your account.
27
Recording Transactions
Ways to Record Transactions• Pressure Sensitive Copies (Carbon Copies)• Check Stubs • Check Register
28
Writing a Check
• Use ink (Black or Blue)• If you make a mistake tear up check and write
“VOID” in check registry• Have picture identification• You can have a stop payment on check if stolen or
lost
29
Receiving Your Bank Statement
• Sent by bank once a month• Gives balance at beginning and end of month• Service charges
Reconciling Your Account Reconcile – to bring the bank statement and your own
record of transactions into agreement
30
Steps for Reconciling Your Account
1. Check to see if all transactions are listed in registry are same as statement
2. Place a check mark on those that match
3. Outstanding – ones that were received by the bank after the closing date of your statement
4. All transactions should add up with outstanding subtracted
Objectives Describe alternatives to cash, personal
checks, and credit cards; and Explain possible reasons for using each
form of payment.
31
Chapter 10.4Using Other Payment Methods
32
Guaranteed Checks
Types:•Certified Check – is from a personal checking account
that has been stamped by the bank to guarantee that there are sufficient funds in the account to cover it, by putting a hold on the money. (a fee is usually
charged)
•Cashier’s Check – is issued and guaranteed by a bank, by using a bank check that is addressed to the
payee. (a fee is usually charged)
33
Money Orders
– is a purchased certificate that is a safe and convenient way to pay a specified amount to a particular payee Postal Money Order – is issued and backed by the U.S. Postal ServiceTypes:
•Domestic – can be cashed at post offices and banks in the U.S. (a fixed fee is charged)
•International – Sent and cashed outside the U.S. (a higher fee is charged)
34
Traveler’s Checks
– are documents that function as cash but can be replaced if lost or stolen.
•Used on vacations and trips.•Amounts - $25, $50, or $100. •Service charge fee is a percentage of the face amount.•Must be signed 2 times: once in front of the selling
agent and again in front of the payee.•Return change will be given back in cash.•Must record the serial numbers in a separate location.•If they are lost or stolen then report the serial numbers.
35
Money Transfer Services
•Worldwide•Sent and delivered at designated locations.•Service fees are expensive.
Wire Transfer
– a financial transaction that electronically moves funds from one bank to another. (Service fees for sending, receiving or both)
36
Prepaid Cards (Stored-value cards)
– cards sold in specified dollar amounts that can be purchased for products or services.
Types:•Phone cards•Gift cards•Merchandise credits•Public transit cards