Banking Chapter 5

Banks? Why do we need banks? Payment Savings Loans Payment Services

What is a bank? An establishment authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in financial transactions, and provide other financial services to its customers.

When Did banks start in America? 1791 Soon after America declared independence congress established the nation’s first central bank with eight branches. Today we have over 11,ooo banks, 12,000 credit Unions, 2,000 savings and loan institutions

Your choice of financial services will depend on your daily cash needs and your savings goals

Daily Cash Needs How do you Pay? Buying lunch Going to the movies Filling the car with gas Paying for activities shopping How do you Pay? Cash Security Credit Card interest Debit Card Some banks charge fee Go to ATM May Charge fee

Sources of Quick Cash You need money now Savings Borrow Money

Financial Services Savings—Liquidity??? Payment Services—most common is a checking account Borrowing—Loans, credit, mortgages Other—stock and bonds, insurance protection, income tax assistance, financial planning services

Electronic Banking Direct Deposit Automatic Payments Automated Teller Machines Plastic Payments Debit Cards Stored Value Cards

FDIC Federal Deposit Insurance Corporation (FDIC) Great Depression Protects up to 100,000 per account

Types of financial Institutions Deposit Institutions Commercial Banks Savings and Loan Associations Mutual Savings Banks Credit Unions Non-Deposit Institutions Life Insurance Companies Investment Companies Finance Companies Mortgage Companies

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 when you need it? Do you need an institution that offers 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?