Depository Institutions Take Charge of Your Finances

Depository Institutions Depository Institutions – businesses which offer multiple services in banking and finance – These institutions include: Banks Savings and Loans Credit Unions – Institutions are regulated by various state and federal agencies

Depository Institutions Why consumers may not use them: Fees are too high Minimum balances required are too high They wish to keep their financial information private Why consumers may use them: To keep money safe To receive the advantages of interest earning accounts To have the opportunity to receive lower cost loan

Federal Reserve Bank Federal Reserve Bank – is part of the central banking system in the United States – Services provided to depository institutions include: Collecting checks Electronically transferring funds Distributing and receiving cash and coin

Federal Reserve Bank Which federal reserve bank located in your region?

Life of a Deposited Check Look closely at steps 2-4 to see how the Federal Reserve bank plays an integral role in how a check transaction works

Depository Institutions Commercial Bank Credit Union Savings and Loan Association

Commercial Bank Commercial Banks – Usually the largest depository institutions – Considered full-service depository institutions because offer a wide variety of services and products Available to a variety of consumers Examples – Wells Fargo, US Bank, Chase Bank

Credit Union Credit Unions – Non-profit cooperative depository institution Owned by members who share a common bond Examples – Rocky Mountain Credit Union, Teachers Federal Credit Union

Savings and Loan Association (S&Ls) Savings and Loan Association – Focus on providing loans and mortgages Customers must have a savings account with them Examples – American Federal Savings Bank, Pioneer Federal Savings & Loan.

Types of Insurance Federal Deposit Insurance Corporation (FDIC) – Federal government agency which protects depository institution accounts – Insures commercial banks and savings and loan associations National Credit Union Administration (NCUA) – Provides insurance for credit unions

Insurance Protection Insurance protection – Each depositor is insured up to $100,000 for money deposited in a regular account – Each depositor is insured up to $250,000 for qualified retirement deposits – The same protection is available from both FDIC and NCUA Insurance is important because the risk of loss. Risk of Loss is used to determine which party should be responsible for damage occurring to products after a service transaction has been completed but prior to delivery.

Interest Interest – the amount of money that is either gained or lost when accessing services offered by a depository institution – Two types of interest include: Interest earning - Money earned from an investment instrument Interest bearing - The charge for money that a consumer borrows from a depository institution

Interest Rates Interest rate – the percentage used annually to calculate the total interest either gained or lost Type of accountInterest rateImpact on the consumer Interest earningHighMore money earned by the consumer LowLess money earned Interest bearingHighMore money paid by the consumer LowLess money paid Credit unions typically offer rates which have the most positive impact on the consumer

Depository Institution Services

Common Services Offered Checking account (also known as a Share Draft Account at a credit union) – Paper checks or debit cards that are used to withdraw money – May or may not be interest bearing Savings account (also known as a Share Account at a credit union) – An account in which money is typically deposited to earn interest – Interest bearing

Interest Earning Accounts Stock – Ownership, represented by shares in a corporation Certificate of deposit (also known as a Share Certificate account at a credit union) – An insured interest-earning savings instrument with restricted access to the funds Money market account – An account which offers higher interest rates than a savings account and may offer limited check writing privileges Bond – A debt instrument issued by an organization, such as a business or the government – Designed as an investment for the purchasers to earn interest

Interest Bearing Accounts Credit card – A card used to make a purchase now and repay later If the balance is paid before the grace period ends, interest is not added If the balance is paid after the grace period, the payment of interest is required Loan – Money borrowed and paid back with interest Mortgage – loan for a home Personal – interest rates vary depending upon type of loan – Loan types can include vehicle, school, etc.

Additional Services Which May Be Offered Safe-deposit box – A secured box in a bank to be used for valuable and important personal items Financial counseling – Information and advice is given to customers to help make financial decisions

Assignment Depository Institutions: Note taking guide