Banking Keep your money safe!

Banking You started your business, now what do you do with your money? Where do you get that loan to expand your business? Where do you save for college or retirement? Banks of Course!

Commercial Banks Def. Businesses which make money by charging interest on loans as well as other fees for services. They are for profit businesses. Ex. Citi Bank, Chase, Bank of America, Fleet Bank

Advantages of Commercial Banks Many well located branches Offer a full range of banking services Deposits insured by FDIC for up to $250,000. FDIC: Federal Deposit Insurance Corporation (If the bank goes bankrupt, the government will pay you all the money you lose up to $250,000).

Disadvantages of Commercial Banks Banking fees usually the highest Impersonal service- a multinational corporation doesn’t care about your personal problems!

Savings and Loans Banks (S&L) Banks that specialize in offering long term financing for homes and small businesses.

Advantages of S&L Lower fees than Commercial Banks More personal service Open longer hours and weekends

Disadvantages of S&L May require you to notify them before withdrawing from an account Only a few branches Using an ATM card may be difficult May not offer some banking services

Credit Unions Nonprofit banks owned by members, who are often from a single organization or trade union. Ex. Advantage Federal Credit Union (teachers) Eastman Savings and Loan (Kodak employees)

Advantages of Credit Unions Fees and loan rates are lower than commercial banks Not for profit, so any earnings are paid to member accounts.

Disadvantages of Credit Unions Most are not insured by FDIC Only a few branches ATM less convenient

Services offered by Banks Direct Deposit: money from paycheck or govt. check is put directly into your account. ATM Cards: allow you to access accounts at bank machines Debit Cards: bank card used like a credit card; money is debited from your account to pay for a sale.

Bank Services cont. Stored Value Cards: cards for specific dollar amounts for specific products or stores (gift cards, phone cards, etc.) Overdraft Privileges: bank pays amount of a check even if there is not enough money in the account Online Banking: ability to check accounts, transfer money and pay bills over internet Safe Deposit Box: in bank vault to for important papers and valuable items

Banking Fees ATM fees Debit Card fees (few still charge) Check printing fees Stop payment fees Bounced check fees Checking fees

Types of Accounts Checking Accounts Savings Accounts Certificate off Deposits (CDs) Money Market Accounts

Checking Accounts Bank holds on to your money for you to access by writing a check. Checks tell the bank it is okay to transfer that amount of money to another person. Stop Payment: if you contact your bank before the check is paid, they can stop the payment on the check and the person will not get the money.

Advantages/Disadvantages of Checking Accounts Easy access to money via. Check or ATM/Debit card Money is safe, no need to carry large sums of cash Dis. Most checking accounts do not earn interest. As inflation increases, the value of your money decreases.

Bounced Check If there is not enough money in your account, the bank can refuse to honor the check. Your bank will charge a fee and the person who you wrote the check to may charge a fee. Overdraft privileges with your bank prevents bouncing checks.

Special Checks Cashier’s check: guarantee that the check is good because it is drawn from a bank’s account Certified Check: personal check guaranteed by the bank Traveler’s Check: issued by travel companies and can be used where personal checks will not be accepted Money Order: pay teller amount and they create a check for you.

Savings or Deposit Accounts Bank account where money earns interest but less accessible than checking accounts.

Advantages/Disadvantages of Savings Accounts Deposited money earns interest (1-2%) Money is safe and relatively easy to access Dis. Interest earned is low, often lower than inflation. Cannot access with checks

Certificate of Deposit (CD) Person deposits money with a bank and promises they will not withdraw money for a set period of time (6 months, a year) Money withdrawn early is charged a fee.

Advantages/Disadvantages of CDs. Earns a higher interest rate than savings account or inflation No fees Money is safe form changes in the economy Dis. Money is locked into set interest rate. If other interest rates go up, still stuck with lower one. Cannot access money until set period of time. Penalty fees for taking money out early.

Why do banks pay interest? Interest is payment by the bank for use of your money. Banks take deposits made and use them a loans for homes, cars, etc. Money that is more likely to remain in the bank earns a higher rate of interest (CDs), while money that may be used receive little to no interest (Savings/Checking accounts)

Money Market Accounts Accounts where the bank invests the money in short-term investments. These investments pay out interest.

Advantages/Disadvantages of Money Market Accounts Pay out more interest than CDs or other accounts Dis. They require a high minimum deposit to open, usually between $1000 and $10,000 and must keep a high balance to avoid fees Subject to change in market/interest rates Strict limits on the number of checks that access these accounts.