Using Bank Services Chapter 33

Checking Accounts A customer deposits money in an account and receives a book of checks. May deposit or withdraw money from the account.

Types of Checking Accounts Chart on page 557 Each checking account has different features and requirements May have service fees NOW Accounts interest bearing checking account with a minimum balance requirement but unlimited check writing Adv- balance always earning interest

Account Features Overdrawing your account- writing a check with insufficient funds Check returned to business of person who tried to cash it Fee charged by bank and business Overdraft Protection- prearranged line of credit for overdrawn accounts Write insufficient check, funds will be drawn from a line of credit, or loan from the bank Overdraft protection fee and interest on loan

Account Features Stop Payment Order- request for an institution not to cash a particular check Misplaced a check, incorrect amount, sent to incorrect address Fees vary from institution to institution Credit or debit cards Debit cards withdraw funds directly from your account

Opening an Account 1 st : signature card- card that verifies your identity name, address, phone, employer, and sign your name Banks will not cash checks if signatures do not match (prevents fraud) Joint Account- account shared by two people Both signatures are required

Opening an Account 2 nd : Initial deposit deposit ticket- lists the cash, amount of each check, and total deposit Check register- section of the checkbook where you keep track of all your transactions

Writing a Check Three parties named on a check Payee- party who gets the money and to whom the check is written Drawer- party who writes and signs the check; owner of the account Drawee- the financial institution that holds the drawer’s account Before you write a check, record it in the check register Memo/For line

Endorsing a Check Endorsement- signing the back of the check by the payee Rules for endorsing a check Always use pen Use lines on the back Sign name exactly how it is written on the front

Using Bank Statements Bank Statement- period statement that lists all activities in the account Review for accuracy Canceled checks- indicate payment was made by the bank and that the amount of each check was deducted from the account balance of the drawer Online Statements

Checking Account Variations Minimum deposits Service charge Overdraft protection Charges for debit and credit cards

Savings Accounts Time deposits that pay interest and restrict withdrawals to a specific time Way to earn income and save money at the same time Banks use the money you deposit and pay you interest in return The interest paid depends on the type of account and the financial institution Usually a minimum deposit and minimum balance May have service fees Generally, larger balances earn higher interest rates Length of time in savings also affects interest rate

Methods of Calculating Interest DD/DW Method- money earns interest every day it is in the bank Compound Interest- multi-step process for computing interest Interest on balance is computed and added to the balance The new, larger balance is used to compute interest Steps may take place every quarter, month, or day Competing banks may compound interest at different time periods

Money Market Account Time deposit in which the interest rate generally varies from month to month Interest rate is usually higher than traditional savings accounts Often require a relatively high minimum amount to open and maintain Withdrawals by writing a check against the balance in the account May have a fee for excessive drawings

Certificate of Deposit Require minimum deposits Remain in the financial institution for a specified time (months to years) Money may not be added or withdrawn w/o a penalty Low-risk Interest rates vary according to amount and time period

Other Banking Services Electronic Banking Electronic Funds Transfer (EFT)- The fastest and most efficient way of transferring money ATM’s, transfer funds from one account to another in the same bank, debit cards, home banking from computer (paying bills) Bank Cards Credit card from your bank

Other Banking Services Loans Majority of loans from banks are mortgages- loans for buying real estate Loans also for automobiles, education expenses, credit card consolidation, home renovations, ect. Secured Loan- loans backed by something valuable (property, car, ect)

Other Banking Services Financial/Investment Planning Services to help you plan your investment goals

Special Banking Services Certified Checks- personal check that a bank has stamped with a guarantee indicating that there is enough money in the depositor’s account to cover it The bank deducts the amount of the check from the depositor’s account at the time the check is certified

Special Banking Services Cashier’s Check- written on the bank’s own accounts Bank Draft- request for funds from an account in another commercial bank or Federal Reserve Bank in the district Cashier’s checks and bank drafts are made payable to the party indicated by the purchaser of the check Used when large amounts of money are transferred and a personal check will not be accepted

Special Banking Services Traveler’s Checks- use when you do not want to carry large amounts of money when traveling and personal checks may not be accepted Purchase these checks and signs them at the time of purchase Checks are signed again when they are used

Special Banking Services Money Order- like a check, purchased for an exact amount at banks and other locations like post offices, travel agencies, department and grocery stores The purchase price of the money order will be the amount of the money order plus a service fee

Reconciling a Checking Account How to reconcile a checking account 1. Match the check numbers and amounts in your checkbook with those on the statement. Mark the checks in your checkbook that the bank has processed. 2. Do the same with deposits 3. Deduct service charges from the balance in your checkbook. Add interest if applicable 4. Add the bank statement balance deposits that the bank has not yet processed. 5. Subtract from the bank statement balance any checks that have not cleared.