1. 1.7.3.G1 4.02A Depository Institutions Take Charge of Your Finances 1.7.3

2. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Classification of Financial Institutions-Depository  Earns income for their business by accepting deposits from customers  Offer multiple services in banking and finance  Types include: Commercial banks- full service - offer many different services, including savings, loans, and checking accounts. Savings and Loan associations (S&Ls) -traditionally specialize in savings and home loans, but now are very similar to commercial banks. Credit unions- not-for profit, serve their members only, and are owned by their depositors.

3. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 3 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Depository Institutions Why consumers may use them: Why consumers may not use them: Fees are too high Minimum balances required are too high They wish to keep their financial information private To keep money safe To receive the advantages of interest earning accounts To have the opportunity to receive lower cost loan

4. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Services include: Federal Reserve Bank Federal Reserve Bank – is part of the central banking system in the United States Collecting checks Electronically transferring funds Distributing and receiving cash and coin

5. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Federal Reserve Bank Which federal reserve bank is located in your region?

6. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Life of a Deposited Check Step 1: A check is deposited… Step 2: The depositor’s bank encodes, endorses, and sends the check to the reserve bank in the region or to a private clearing house Step 3: Then the check makes its way to the regional reserve bank, or the clearinghouse for the region where the check originated Step 4: From here it goes to the check writer’s bank Step 5: The check writer’s bank deducts the amount from the account

7. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Depository Institutions Commercial Bank Credit Union Savings and Loan Association

8. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Benefits of using financial institutions Convenience Cost savings Safety and security

9. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Commercial Bank Usually the largest depository institutions Considered full-service depository institutions Available to a variety of consumers Owned by shareholders and operated for profit Profit distribution =dividends Receive, transfer, lends money to individuals, businesses, & governments May be chartered by state or federal government Regulated by state or federal government Examples – Wells Fargo, US Bank, Chase Bank

10. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 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 Insured through NCUA  link to National Credit Union Administration link to National Credit Union Administration

11. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Credit Unions May be state or federally chartered Membership available to those who belong to a place of employment, union, religious organization, community organization, etc. Since nonprofit, they pay no federal income taxes With lower operating costs, often can :  lend money at slightly lower interest rates  Sometimes they are able to pay higher interest rates on savings Typical services: checking accounts, saving accounts, loans and mortgages, and credit cards; offer share, share draft, and share certificate accounts; many offer free financial counseling

12. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Savings and Loan Association (S&Ls) Focus on providing loans and mortgages Customers must have a savings account with them Examples – American Federal Savings Bank, Pioneer Federal Savings & Loan. Savings and loan (S&L) associations Two types  (1) Mutual S&L: owned and operated by depositors  (2) Stock S&L: owned by stockholders May be state or federally chartered

13. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Savings and Loan Association (S&Ls) Insured by Savings Association Insurance Fund (SAIF), a branch of FDIC Originally specialized in providing funds to home buyers Now provide a variety of financial services: interest- earning checking accounts, savings accounts, loans and mortgages

14. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 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

15. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Insurance Protection Insurance protection  Each depositor is insured up to $250,000 for money deposited in a regular account and $250,000 for retirement deposits  Available from both FDIC and NCUA Insurance is important because of the risk of loss Risk of Loss is used to determine which party should be responsible for damage or loss of products after a service transaction has been completed but prior to delivery

16. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Interest Interest - the amount of money that is either gained or lost when accessing services offered by a depository institution Interest rate - the percentage used annually to calculate the total interest either gained or lost Type of accountInterest rateImpact on the consumer Interest bearing - money earned from an investment instrument High More money earned by the consumer LowLess money earned Interest bearing - the charge for money that a consumer borrows from a depository institution High More money paid by the consumer LowLess money paid Credit unions typically offer rates which have the most positive impact on the consumer

17. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Brokerage firms Licensed institutions that specialize in investments Offer cash management plans to buy and sell securities (stocks, bonds) Not insured by FDIC Not insured by NCUA Examples:  Merrill Lynch  Charles Schwab  Edward D. Jones

18. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Depository Institution Services

19. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 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 earning Savings account Also known as a Share Account at a credit union An account in which money is typically deposited to earn interest Interest earning

20. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Interest Bearing Accounts Ownership, represented by shares in a corporationOwnership, represented by shares in a corporation Stock Share certificate account at a credit unionShare certificate account at a credit union An insured interest – earning savings instrument with restricted access to the fundsAn insured interest – earning savings instrument with restricted access to the funds Certificate of Deposit An account which offers higher interest rates than a savings account and may offer limited check writing privilegesAn account which offers higher interest rates than a savings account and may offer limited check writing privileges Money Market Account A debt instrument issued by an organization such as a business or the governmentA debt instrument issued by an organization such as a business or the government Designed as an investment for the purchasers to earn interestDesigned as an investment for the purchasers to earn interest Bond

21. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Additional Services Available 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.

22. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 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.   Real estate purchases   Retirement planning

23. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 23 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Trust Management Manages investments on behalf of their customers and third parties such as minors or the elderly Bank has fiduciary responsibility - be trustworthy, be faithful Trustee - manages funds for benefit of 3 rd party and trustor Ex: The Bank Trustor - provides funds for investment Ex: Your parents 3 rd Party - Benefits from funds Ex: A minor- You

24. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 24 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Retirement Planning Financial institutions offer information, consultations & funding options for 401K plans, IRAs (Individual Retirement Accounts), SEPs, Keogh plans Stocks, bonds Annuities Certificates of Deposit Mutual Funds Money Market Accounts

25. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 25 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona How Do I choose a Financial Institution? Consider:  Services offered  Safety  Convenience  Fees and charges  Restrictions

26. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 26 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Comparative Questions Convenience – Does the institution offer the access desired?  Physical locations available  Online services Easy to access & use  ATM machines

27. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 27 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Conclusion & Review

28. 1.7.3.G1 © Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 28 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Review Money management is part of everyday life! Depository institutions offer multiple services – shop around for the one which best fits your needs! Ensure the depository institution is insured by the FDIC or NCUA Comparison shop the financial services and interest rates offered before choosing