Chapter 3 Personal Banking

3-1 Checking Accounts If you have a checking account, you can pay bills or expenses without carrying large amounts of cash. When you open a checking account you receive a checkbook, check register, deposit slips, and a check card (optional).

Skills Review Write the names of the money amounts  $47  $398  $2693 Say the money amounts correctly  $  $85.69  $1,007.89

Understanding a Checking Account When you make a deposit, the value of the cash/check is added to the balance or existing amount. When you write a check or make a withdrawl the amount is subtracted from your balance.  You are instructing your bank to transfer money from or to your account

How to Get a Checking Account Paying with promises pages 24-25

Parts of a Check

How to Write a Check Write the date Write the name of the person to whom the check is for Write the amount as a number Write the amount in words and cents as a part of 100 Write the purpose of the check Sign the check

Write the Following Check On Monday, Jan. 10, 2011you decide to buy a Central Cambria Sweatshirt from the CCHS Economic Club. The shirt cost $26.50 and you pay by means of a check.

Deposit Slips

Parts of a Deposit Slip

How to Complete a Deposit Slip Date the slip Fill in the amount of paper money (currency) Fill in the amount of coins (coins) Record Check number(s) Add the total amount Add the amount you want to keep Subtract the amount you want to keep Write the total amount to deposit Sign your name

Write the following Deposit Slip Deposit the following Checks:  Check for $  Check 225 for Deposit $50 Cash

Write the following Deposit SlipDeposit Slip Checks:  Check 102 for $56.10  Check for $ You decide to keep $40 for spending money

Keeping Track of Your Money A check register is sent to you with your checks to keep track of the checks you write, deposits you make, and the balance you have

Parts of a Check Register

How a Register Works Check Number  Write the number of the check you write Date Description of Transaction  Brief Description of the the check you write (name, company, ect) Payment/Debit  Any deductions Deposit/Credit  Any additions (deposits, interests, ect.) Balance  Any Additions or subtracts from the current balance to get a new balance

Text page 100 class exercise # 5-6

Putting It All Together Worksheet 1 Worksheet 2 Test

3-2 Reconciling a Bank Statement

If you have a checking account, once a month your bank will send you a statement showing all deposits, checks, charges, ect.. The statement also shows the beginning and ending balance of your account You need to reconcile you account or show (prove) that your accounting agrees with the bank’s

Continued Your bank statement includes a list of checks you have written, deposits you made, and charges to your account. On the back of you bank statement there is a form to use in reconciling you account.

To reconcile you account use the following steps Check off all returned checks in your register. Make a list of all outstanding checks Bank Statement Write the ending balance shown on the statement Add to it any deposits not shown on your statement Subtract the total of outstanding checks Check Register From the balance in the register, subtract all bank charges, and auto deductions  This adjusted balance should agree with the adjusted balance on the statement

Example: First National Bank Statement Reconcile Simon’s account and determine if the balances agree Check Register:  Simon’s balance  Bank Charges  Adjusted banance Bank Statement:  End Balance  Outstanding Deposits   Outstanding Checks  Name: Simon Beck Statement From 1019 to 11/19 Account No Beginning Balance: Ending Balance: Date Check No. Amount Withdrawal 11/08 11/ / Bank Charge 4.75 Amount Deposit Balance

Reconcile the following Accounts; Determine if the balances agreebalances Register Balance Bank Charge Adjusted Register Balance Statement Balance Outstand Deposits Outstand Checks Ending Balance ) ) ) ) ) )

Class Assignment Text page  Marie’s Check Register # 11

3-3 Saving Accounts A savings account help you to save money for later expenses (emergencies, ect..) If you have a saving account you will be given a register to record any transactions

Complete the Register TheStateSavingBank Acc NameBill Joni DateDepositInterestWithdrawalBalance 3/ / / /

13-1 Certificates of Deposits A Certificate of Deposit or CD is account that pays more interest than regular accounts but requires you to leave your money in the bank for a fixed period of time.  Usually CDs require a minimum of $500 or $1,000  Usually CDs must be deposited for a minimum of 6 months to 1-5 years

CD Rates TermMinimum DepositInterest 6 months$ % 1 year$5006.5% 2 year$1, % 3 year$1,0007.0% 4 year$1, % 5 year$1,0007.5%

Example 1: Nolan decides to take out a 3 year certificate deposit on $2,500 at 7% interest; how much interest will he earn at the end of his term? Use the interest formula: I = P x R x T  I = Interest earned  P = Principle or amount deposited  R = Rate or Percentage of interest  T = Time (years) I = 2,500 x 0.07 x 3 I = $525

Example 2: In Example 1 Nolan decides to roll over his money in a different CD, this one is a year in half CD earning 4.5%. At the end of his term how much money will he now have? Use the interest formula: I = P x R x T  I = $3,025 x 4.5% x 1.5  I = $3,025 x x 1.5  I = $  I =$ Add interest to principle  $3,025 + $ = $3,229.19

Penalty for early withdraw The penalty for withdrawing all or part of the original amount before the CD matures is often equal to 3 months simple interest. To calculate this penalty multiple the principle x rate x ¼

13-2 Savings Bonds When federal, state, or local governments or corporations need to borrow large amounts of money, the issue Bonds. Bond is a promise to repay a loan at a specified rate of interest set at the time of purchase – you may earn more interest, but never less.

Bonds The face value of the bond is t he value printed, it represents the value of the bond at maturity. The initial cost of a bond is ½ of the face value Savings bonds mature after 12 years, but they may be cased in before they mature. The value of a bond depends on how long it was held.

Redemption Value of Series EE Bond Face Value: $50Cost: $25 AfterValue 6 months$ year$ year 6 months$ years$ years 6 months$ Years$ years$ years$ years$ years$ years$ years$ years$ years$ years$50.82

Find the value of a series EE $200 bond after 2 ½ years. Face value / $50 x redemption value = Cash Value  $200 / $50 x $28.99 = $ Find the interest earned of the bond after 2 ½ years Cash value - purchase price = interest  $ $100 = $15.96

Find the cash value and interest of a $ 500 Series EE US Savings Bond after 10 years. Find Cash value Find interest

Maturity of Bonds Series EE Bonds continue to earn interest at a the guaranteed rate or higher for up to 40 years. The interest on the mature bonds in the table is 6% compounded semiannually.

Bond Maturatity Formula Cash value = Cash Value x (1 + Interest rate) nq (n years after maturity) (after 12 yrs) q Where n is the number of years after maturity Where q is the number of times per year that interest is compounded.  Annually = compounded once a year  Semiannually = compounded twice a year

How much would a $200 Series EE bond be worth after 15 years? Find cash value for 12 years  $200 / $50 x $50.82 = $ Find cash value of bond after 12 years  Cash value = $ x ( ) 3x2 2 The value of the bond after 15 years is $242.73

Find the value of the bond A series EE bond with a face value of $50 is held for 28 years, how much would at that time?  Find cash value for 12 years  Find cash value for after 12 years Use formula:cash value = 12 yr value x (1+ interest) nq q

3-4 Simple & Compound Interest A bank pays interest to an account holder in return for using the money that is deposited in the account. An account holder also pays interest to the bank in return for borrowing money from the bank Simple Interest is money paid only on the principal and not and any accumulated interest Compound Interest is money paid on the principal and the accumulated interest  Compound interest can be paid once a year, twice a year, four times a year, monthly, weekly, or daily

Example Simple Interest Gina deposited $3,500 in a saving account/CD for 3 years. How much simple interest did her money earn at 6%?  Interest = principal X rate X time  $3,500 x 0.06 x 3  $ PrincipalRateTimeInterest $2007%2 y1. $3506%1.5 y2. $8754.5%3 y3. $1,2008.5%0.5 y4.

Example Compound Interest Reginald deposited $1,000 in a savings/CD that compounds quarterly at the annual rate of 8%. Calculate the amount he will have in his account after 2 quarters. Compare this amount he would have made with simple interest for the same amount of time.  Find balance after the first quarter Principal x interest rate / 4 = interest Principal + interest = first quarter balance  Find balance after the second quarter New Principal x interest rate/ 4 = interest Principal + interest = Second quarter balance  Find balance for simple interest for 2 quarters Principal x Rate x Time = Simple Interest Simple interest + principal = New balance  Compare balances??

Compound Interest Compare to Simple Interest… Beginning Principal Annual RateFirst Quarter Interest Principal End of first quarter Second quarter Interest Principal End of second quarter $5008% $1,2006% $2,00010% $2, %

Factors of Interest Determine how Rate affects the interest PrincipalRateTimeDown Payment Interest $7,0005.5%3 years01. $7,0006.2%3 years02. $7,0005.5%3 years$1,5003. $ %5 years04.

Factors of Interest Determine how Time and Principal affects the interest PrincipalRateTimeDown Payment Interest $80007%3 y$1000 vs 01. $1470 or $ $1680 $80007%5 y$1000 vs 02. $80007%6 y$1000 vs 03. $80007%7 y$1000 vs 04.

What Option for a loan would you Take??? Determine how each factor affects the interest PrincipalRateTimeDown Payment Interest $180007%3 y$5001. $ %5 y$ $ %6 y$ $ %7 y$50004.

3-6 Borrowing Money When you borrow money, you pay interest to the lender for the use of the money. The amount of interest depends on the principal borrowed, the interest rate, and the time the money is borrowed.

Example: Borrowing Money Georgia wanted to buy some furniture for her living room. She borrowed $625 to be paid back in 12 monthly payments of $55.40 each. How much interest did she pay for the loan?  Find the total amount paid back Payment amt. x number of payments x 12 = $  Find the interest Total amt paid – amt borrowed = $39.80

Find the Interest Amount of Loan # of payments Amt. of payments Interest $6006$ $8259$ $281.35$4,566

3-7 Loan Repayment Plans When you borrow money, there are many different repayment plans available. In the single payment plan, your repay the loan in one payment at a specific date. In the add on play, simple interest is charged on the entire loan. The interest is added to the principal and the entire amount is repaid at a specified number of equal payments.

Example Loan Repayment Farley borrowed $600 from his bank at 7% interest to buy a new stereo system. He was to repay it in 18 monthly payments un the add-on plan. How much was each payment?  Compute the total principal and interest I = p x r x t 600 x 0.07 x 1.5 = $63.0 $ $600 = $  Divide by the number of payments 663 / 18 = $36.83

Determine the monthly payment Amount Borrowed Rate of InterestAmount of TimeMonthly Payment $9006%12 mo $10759%6 mo $1,50010%24 mo