Section 3 – Banking Today Chapter 10 Section 3 – Banking Today

Objectives Explain how the money supply in the United States is measured. Describe the services that banks provide. Identify different types of financial institutions. Analyze the changes brought about by electronic banking.

Riddle I have 3 coins that total 25 cents and one of the coins is not a nickel. What are the three coins?

Money Supply Categories Liquidity Money that can be easily accessed and immediately used for goods and services Currency Funds in checking accounts Traveler’s checks “Near money” Cannot be used as cash directly but can be converted fairly easily Savings Account Funds Money Market Mutual Funds Certificates of Deposit Money Supply Categories

M1 or M2? Checking account Dollar bill Personal check A new car Traveler’s check 1-carat diamond Certificate of Deposit Savings bond Individual Retirement Account

Banking Services Storing Money Saving Money Insured from robbery and bank failure Saving Money Savings and Checking Money Market Accounts Min amt of checks, interest rate can vary Certificates of Deposit Don’t touch for 1 or 2 yr, high fixed int. rate

Services… Loans Mortgages Fractional reserve banking Lend money to people and charges interest Default Mortgages A loan for buying real estate Interest

Services Credit Cards Simple Interest Compound Interest Mini loans Simple Interest Money paid on the principal Compound Interest Money paid on the principal and simple interest The amount of interest paid out by banks is less than the interest charged on loans

For Example You deposit $100 in a savings account at 5% simple interest. You will make $5 in a year if paid annually. If you leave that $105 in account your compound interest would be 5% on $105 = $5.25. Instead of just 5% on the. $100

Electronic Banking ATMs Debit Cards Home Banking Online banking Automatic Clearing Houses Automatically pays bills Stored Value Cards Gift Cards, Phone Cards, Smart cards issued to college students