Chapter 5 The Banking System

Financial Institutions Deposit Institutions Commercial Banks Credit Unions Savings and Loan Administrations Non-Deposit Institutions Life Insurance Companies Investment Firms Finance Companies Slide 2

Deposit Institutions Commercial Banks Credit Unions For profit Offer full range of services Individuals Businesses Credit Unions Non-profit Owned by members Services similar to commercial banks Slide 3

Deposit Institutions Savings and Loan Administrations (S&L) Specialize Lower interest rates on loans Higher interest rates on savings accounts Slide 4

What Is the Purpose of a Checking Account? A checking account is a demand deposit account on which checks are drawn. A check is a written order to a bank to pay a person or business. 5-1 Checking Accounts Slide 5

Making Withdrawals and Deposits A withdrawal involves taking money from your account. Writing checks Using debit and ATM cards A deposit of money can be made to your account. Endorsing checks Direct deposit 5-1 Checking Accounts Slide 6

Writing Checks Postdated check – check written with a date in the future Slide 7

Endorsements Signature of the payee is on the back - Least secure Transfers the right to cash the check to someone else Limits the use of the check Slide 8

Checkbook Register 5-1 Checking Accounts Slide 9

Checking Account What do you do if a check is lost or stolen? Stop payment order Not the same as a cancelled check! What do you do if you write a check you no longer want to issue? VOID Slide 10

Making Deposits Slide 11

How Do You Reconcile a Bank Statement? Bank reconciliation is the process of adjusting the checkbook register and bank statement so they agree. The bank statement lists checks, withdrawals, deposits, service charges, interest, and fees. Consider deposits in transit, outstanding checks, and transposition errors. 5-1 Checking Accounts Slide 12

How Do You Reconcile a Bank Statement? Slide 13

What Is the Purpose of Savings? A savings account is a demand deposit account for the accumulation of money. It is a safe place to hold money to meet future needs and wants. It pays interest at a low rate. 5-2 Savings Accounts Slide 14

How Can You Grow Your Savings? Principal is the money set aside on which interest is paid. Simple interest is computed once during a time period. Compound interest is earned on both principal and interest earned previously. 5-2 Savings Accounts Slide 15

What Are Your Savings Options? Money market Variable interest rate with market Minimum balance Higher interest Certificates of deposit (CDs) Fixed interest rate Set period of time 5-2 Savings Accounts Slide 16

What Are Your Savings Options? U.S. savings bonds Guaranteed minimum interest rate Tax advantages Individual retirement accounts (IRAs) Help you save for retirement 5-2 Savings Accounts Slide 17

The FDIC “Federal Deposit Insurance Corporation” Protects depositors of insured U.S. banks against loss if the bank fails Covers all types of deposits Covers principal and accrued interest Does not insure some items Examples: stocks, bonds, valuables Insures deposits in different banks separately 5-2 Savings Accounts Slide 18

What Banking Services Are Available to Consumers? Safe deposit boxes Overdraft protection ATMs Cashier’s checks Financial advising Loans Internet banking Bank cards 5-3 Banking Services and Fees Slide 19

What Are the Costs of Banking? Monthly account fees Nonsufficient fund fees Special service fees Examples: stop payment, cashier’s check, money order ATM fees Inactive account fees 5-3 Banking Services and Fees Slide 20

What Are Consumer Responsibilities? Maintain your balance. Avoid writing bad checks. Monitor your account. Reconcile your bank account. Know your rights. Be aware of consumer protection laws. 5-3 Banking Services and Fees Slide 21