Banking Chapter 7 What types of financial services might help you to better manage your cash flows?

Banking Chapter 7 Understanding the services provided by financial institutions will help you choose the best options to manage your money wisely.

automated teller machine (ATM) debit card commercial bank Banking Chapter 7 direct deposit automated teller machine (ATM) debit card commercial bank savings and loan association (S&L) credit union certificate of deposit (CD) money market account rate of return compounding annual percentage yield (APY) overdraft protection stop-payment endorsement bank reconciliation

Banking Chapter 7

Identify types of financial services. Banking Chapter 7 Section 1 Financial Services and Institutions Identify types of financial services. Describe the various types of financial institutions. Describe problematic financial businesses.

How to Manage Your Cash 7 Banking Section 1 Chapter 7 Section 1 Financial Services and Institutions How to Manage Your Cash

Types of Financial Services Banking Chapter 7 Section 1 Financial Services and Institutions Types of Financial Services Payment Services Savings Categories of Financial Services Other Financial Institutions Borrowing

Electronic Banking Services Chapter 7 Section 1 Financial Services and Institutions Electronic Banking Services Direct Deposit Saves time, money, and effort Safe direct deposit an automatic deposit of net pay to an employee’s designated bank account

Electronic Banking Services Chapter 7 Section 1 Financial Services and Institutions Electronic Banking Services Automatic Payments With authorization, funds are withdrawn from your account Make sure there are sufficient funds in your account Check your bank statement to make sure the transfer is correct

Electronic Banking Services Chapter 7 Section 1 Financial Services and Institutions Electronic Banking Services Automated Teller Machines (ATMs) automated teller machine (ATM) computer terminal that allows a withdrawal of cash from an account ATMs are used with a debit card A debit card is used with a PIN debit card cash card that allows one to withdraw money or pay for purchases with a checking or savings account Financial institutions can charge fees for the convenience of using ATMs

Electronic Banking Services Chapter 7 Section 1 Financial Services and Institutions Electronic Banking Services Plastic Payments Electronic payments Online payments Stored-value cards Smart cards

Evaluating Financial Services Banking Chapter 7 Section 1 Financial Services and Institutions Evaluating Financial Services Questions to Ask Is it worth opening a checking account that has no fees—but does not earn interest, if you must keep a minimum balance? Would you trade the convenience of getting cash from the ATM near your office for lower ATM fees? Is a higher interest rate on a certificate of deposit worth giving up liquidity?

Types of Financial Institutions Banking Chapter 7 Section 1 Financial Services and Institutions Types of Financial Institutions commercial bank a for-profit institution that offers a full range of financial services, including checking, savings, and lending Deposit Institutions Commercial Banks savings and loan association (S&L) a financial institutional that traditionally specialized in savings accounts and mortgage loans, but now offers many of the same services as commercial banks Savings and Loan Associations (S&L) Mutual Savings Banks Credit Unions credit union a nonprofit financial institution that is owned by its members and organized for their benefit

Types of Financial Institutions Banking Chapter 7 Section 1 Financial Services and Institutions Types of Financial Institutions Non-Depository Institutions Life Insurance Companies Investment Companies Finance Companies

Problematic Financial Businesses Banking Chapter 7 Section 1 Financial Services and Institutions Problematic Financial Businesses Be Careful of These Financial Businesses Pawn Shops Payday Loans Check Cashing Outlets Rent-to- Own Centers

Comparing Financial Institutions Banking Chapter 7 Section 1 Financial Services and Institutions Comparing Financial Institutions Where can you get the highest rate of interest on your savings? Where can you obtain a checking account with low (or no) fees? Will you be able to borrow money from the institution—with a credit card or another type of loan—when you need it? Do you need an institution that offers free financial advice? Is the institution FDIC- or SAIF-insured? Does the institution have convenient locations? Does it have online banking services? Does it have any special banking services that you might need?

Comparing Financial Institutions Banking Chapter 7 Section 1 Financial Services and Institutions Comparing Financial Institutions

7 Banking Section 1 Financial Services and Institutions Chapter 7 Section 1 Financial Services and Institutions Analyze why it might be worth a person’s time to open a checking or savings account at a bank rather than using a check-cashing outlet. Answers may vary but the students should realize that many banks offer free checking or savings accounts meaning you can cash a check for free.

Compare the costs and benefits of different savings plans. Banking Chapter 7 Section 2 Savings Plans and Payment Methods Compare the costs and benefits of different savings plans. Explain features of different savings plans. Compare the costs and benefits of different types of checking accounts. Use a checking account effectively.

Types of Savings Plans 7 Banking Section 2 Chapter 7 Section 2 Savings Plans and Payment Methods Types of Savings Plans

Types of Savings Plans 7 Banking Section 2 Chapter 7 Section 2 Savings Plans and Payment Methods Types of Savings Plans Three Limitations of a Certificate of Deposit (CD) Your money must stay in the account for one month to five or more years. You must pay a penalty for withdrawing your money early. There is usually a minimum deposit amount. certificate of deposit (CD) savings alternative in which money is left on deposit for a stated period of time to earn a specific rate of return

The FDIC insures money market accounts up to $250,000. Banking Chapter 7 Section 2 Savings Plans and Payment Methods Types of Savings Plans The FDIC insures money market accounts up to $250,000. money market account a savings account that requires a minimum balance and earns interest that varies from month to month

You can purchase Series EE Savings Bonds from the federal government. Banking Chapter 7 Section 2 Savings Plans and Payment Methods Types of Savings Plans You can purchase Series EE Savings Bonds from the federal government.

Evaluating Savings Plans Banking Chapter 7 Section 2 Savings Plans and Payment Methods Evaluating Savings Plans rate of return percentage of increase in the value of savings from earned interest Factors affecting your selection of a savings plan Rate of Return – Compounding – Annual percentage rate (APR) Inflation Tax Considerations Liquidity Safety Restrictions and Fees compounding the process in which interest is earned on both the principal and on any previously earned interest Organizations annual percentage yield (APY) amount of interest that a $100 deposit would earn, after compounding, for one year

Types of Checking Accounts Banking Chapter 7 Section 2 Savings Plans and Payment Methods Types of Checking Accounts Checking Accounts Regular Checking Accounts Interest-Earning Accounts Activity Accounts

Evaluating Checking Accounts Banking Chapter 7 Section 2 Savings Plans and Payment Methods Evaluating Checking Accounts Fees and Charges Special Services Restrictions Interest Minimum balance Monthly fee Rates ATM Number of transactions Printing, overdraft, stop-payment fees Compounding Telephone banking Online banking Overdraft protection overdraft protection an automatic loan made to an account if the balance will not cover checks written

Using a Checking Account Banking Chapter 7 Section 2 Savings Plans and Payment Methods Using a Checking Account Check Register

Using a Checking Account Banking Chapter 7 Section 2 Savings Plans and Payment Methods Using a Checking Account

Using a Checking Account Banking Chapter 7 Section 2 Savings Plans and Payment Methods Using a Checking Account If a check is lost or stolen, you can ask the bank to issue a stop-payment order. stop-payment order request made to a bank or other financial institution to not cash a particular check

Using a Checking Account Banking Chapter 7 Section 2 Savings Plans and Payment Methods Using a Checking Account Types of Endorsements Blank endorsement signature of the payee Restrictive Special

Using a Checking Account Banking Chapter 7 Section 2 Savings Plans and Payment Methods Using a Checking Account Information on Your Bank Statement Deposits Checks You Have Written ATM Withdrawals Debit Withdrawals Interest Earned and Fees

Using a Checking Account Banking Chapter 7 Section 2 Savings Plans and Payment Methods Using a Checking Account Use a bank reconciliation form to determine your true balance. bank reconciliation report that accounts for the differences between a bank statement and a checkbook balance

Using a Checking Account Banking Chapter 7 Section 2 Savings Plans and Payment Methods Using a Checking Account Other Payment Methods Certified Check Cashier’s Check Money Order Travelers Check Prepaid Travelers Cards Organizations

Financial Institutions and Your Money Banking Chapter 7 Section 2 Savings Plans and Payment Methods Financial Institutions and Your Money Banks make money by making loans. The amount of money a bank can lend is affected by the reserve requirement set by the Federal Reserve.

7 Banking Section 2 Savings Plans and Payment Methods Chapter 7 Section 2 Savings Plans and Payment Methods Consider whether you would prefer to have a separate checking and savings account, or an interest-earning checking account. Explain your decision. Sample answer: separate accounts, to avoid a minimum balance or for higher interest rates.

The Federal Reserve System Banking Chapter 7 The Federal Reserve System The Fed has the responsibility of monitoring the economy.

Banking Chapter 7

Banking Chapter 7

H.O.T. pg. 220, Question 11, Interest Earned see pgs. 206/207 First Choice: 2.5%, Compounded QUARTERLY Starting principle ($1,300) x 2.5% (.025), divided by 4 (4 quarters) = interest earned…add to starting amount = principle + interest After Q1= [($1,300 x .025) /4] + $1,300 = $1,308.13 Q2= [($1,308.13 x .025) / 4] + $1,308.13 = $1,316.30 Q3= [($1,316.30 x .025) / 4] + $1,316.30 = $1,324.53 Q4= [($1,324.53 x .025) / 4] + $1,324.53 = $1,332.81 APY = ($1,332.81 - $1,300) / $1,300 = .0252384 (2.52%), compare to APR of .025 (2.50%) Annual Percentage Yield = rate of return, amount of interest that a $100 deposit would earn, after compounding for one year Second Choice: 2.75% Compounded BI-MONTHLY (every two months) Starting principle ($1,300) x 2.5% (.025), divided by 6 (bi-monthly) = interest earned…add to starting amount = principle + interest Period 1 = [$1,300 x .0275) / 6] + $1,300 = $1,305.96 2 = [$1,305.96 x .0275) / 6] + $1,300 = $1,311.94 3 = [$1,311.94 x .0275) / 6] + $1,300 = $1,317.96 4 = [$1,317.96 x .0275) / 6] + $1,300 = $1,324.00 5 = [$1,324 x .0275) / 6] + $1,300 = $1,330.07 6 = [$1,330.07 x .0275) / 6] + $1,300 = $1,336.16 APY = ($1336.16 - $1,300) / $1,300 = .0278153 (2.78%), compare to APR of .0275 (2.75%) The second account will earn more interest.($36.16 compared to $32.81….$3.35 more)

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