17 Banking and Financial Services C H A P T E R 17 Banking and Financial Services 17-1 Banks and Other Financial Institutions 17-2 Financial Services and Electronic Banking 17-3 Checks and Payment Methods

THE BANKING SYSTEM The Federal Reserve System (FED) – supervises and regulates member banks and helps bans serve the public efficiently (12 Federal Reserve Banks in the US)

Checkpoint  What is the main purpose of the Federal Reserve System? The Federal Reserve System was created by the federal government to supervise and regulate member banks and to help banks serve the public efficiently by holding reserves and clearing checks.

TYPES OF FINANCIAL INSTITUTIONS Deposit institutions – also called depository intermediaries, accept deposits from people and businesses and use them to finance their business Non-deposit financial institutions – also called non-depository intermediaries, do not take or hold deposits but earn their money by selling specific services or policies

DEPOSIT INSTITUTIONS Commercial banks – often called full-service banks because they offer a wide range of financial services (checking accounts, savings accounts, loans) Savings and loan associations – specialize in savings accounts and making loans for home mortgages among other services offered Mutual savings banks – savings bank that is owned by and operated for the benefit of its depositors Credit unions – user-owned, not-for-profit, cooperative financial institution

NON-DEPOSIT FINANCIAL INSTITUTIONS Life insurance companies – offer financial security to families of customers as well as investment services Investment companies – offer investment opportunities for long-term growth of clients’ money (mutual funds) Consumer finance companies – a business that specializes in making loans for long-lasting or durable goods (cars and refrigerators) and for financial emergencies

NON-DEPOSIT FINANCIAL INSTITUTIONS CONTINUED Mortgage companies – provide loans for buying a home or other real estate Check-cashing outlets – offer a wide range of services such as cashing paychecks, electronic tax filing, money orders, private postal boxes, utility bill payment, and the sale of bus and subway tokens Pawnshops – make loans based on the value of some tangible object, such as jewelry or other valuable items

SELECTING A FINANCIAL INSTITUTION Services offered Savings accounts Checking and payment accounts Loans and other credit plans Other services, such as safe-deposit boxes Safety – be sure the institution where you keep your money is insured Federal Deposit Insurance Corporation (FDIC) – federal agency that helps to regulate banks and other financial institutions Convenience – could include online banking, branch offices located near your home or work, etc. Fees and charges – possible fees for ATM use, checking accounts, or savings accounts Restrictions – some banks have restrictions or conditions to use their services

TYPES OF FINANCIAL SERVICES Savings service Payment services Lending services Electronic banking Storage of valuables Safe-deposit box – offered by banks for storage of valuables Investment advice Management of trusts

TYPES OF CHECKING ACCOUNTS Regular checking accounts – checking account that has no service charge as long as you maintain a certain minimum balance Service Charge – a fee a bank charges for handling a checking account Interest-earning – offer accounts that earn monthly interest, may require a higher monthly balance than regular checking accounts Special checking accounts – also called an activity account, banks charge customers about 10 to 20 cents for each check written

COMPARING CHECKING ACCOUNTS Minimum balance Interest rate earned, if any Monthly service charge Fees for other services, such as printing checks and stop payment orders Other restrictions

ELECTRONIC BANKING E-banking services Automatic teller machines (ATMs) – allows many banking services such as withdrawing cash, getting a cash advance, check account balances, make deposits, or transfer funds Debit Card – also called cash card, used for ATM transactions Payments at the point-of-sale – merchant accepts a debit card to pay for purchases Direct deposit – funds are deposited electronically and available automatically for your use Automatic bill payments – bank deducts the payments from your account and transfers them to the appropriate companies

EXAMPLES OF ELECTRONIC BANKING ACTIVITIES ATM PRE-AUTHORIZED ONLINE POINT-OF-SALE Check account balances  Withdraw cash Made deposits Transfer funds View account history Pay bills Apply for loans Manage investments Accept direct deposits Pay bills automatically Make debit card purchases

ELECTRONIC PAYMENT OPTIONS Debit card transactions – most stores, restaurants, and other businesses accept debit cards; when processed the amount of the purchase is deducted from your checking account Online payments – service offered by various web companies and banks Stored-value cards – gift cards, prepaid phone cards, transit fares, highway tolls, school lunches, etc. Smart cards – similar to ATM cards, embedded microchip stores prepaid amounts as well as account balances, transaction records, insurance information, and medical history

TYPES OF ENDORSEMENTS Before depositing a check, it must be endorsed: Blank endorsement – only consists of the endorser’s name; makes a check payable to anyone who has the check Full endorsement – allows you to transfer a check to another person (“Pay to the order of…”) Restrictive endorsement – limits the use of the check to the purpose given in the endorsement (“For deposit only”)

SAMPLE ENDORSEMENTS

USING A CHECKING ACCOUNT Steps to writing a check Page 442 in textbook Stopping payment Stop payment order – a written notice that tells the bank not to pay a certain check

PARTS OF A CHECK

THE RECONCILIATION PROCESS Bank statement information Determine checks paid Find differences Calculate adjusted balance

OTHER TYPES OF PAYMENTS Certified checks Cashier’s checks Traveler’s checks Money orders

CERTIFIED CHECKS Personal check for which a bank has guaranteed payment Certification stamped on face Signed or initialed by a bank officer

CASHIER’S CHECKS Check that a bank draws on its own funds Costs the amount of the check plus a service fee More acceptable than the personal checks

TRAVELER’S CHECKS Special forms designed for making payments when away from home Require your signature in two places Cash a check or pay for a purchase Commonly accepted throughout the world

MONEY ORDERS Form of payment that orders the issuing agency to pay the amount printed on the form to another party A bank money order A postal money order An express money order A telegraphic money order