2. Chapter 5 Banking

3. Financial Services and Institutions Section 5.1

4. Types of Financial Services 3 Main Categories: Savings Payment Services Borrowing

5. Savings Safe storage of funds for future needs Allows money to grow Time Deposit—money left on deposit for months or years

6. Payment Services Transferring money from a personal account to businesses or individuals for payment Ex. Write check or online bill pay Demand Deposit—money placed in a checking account that you can withdraw at any time

7. Borrowing Borrowing money for the short term Ex. Credit Card Borrowing money for the long term Ex. Mortgage or auto loan

8. Electronic Banking Services Online services Account info/statements, Bill pay, Transfer funds Automatic Payments Make sure you have enough money Check to make sure proper amount was sent Direct Deposit* Saves time, money, and effort Direct Deposit—an automatic deposit of net pay to an employee’s designated bank account

9. Electronic Banking Services (Continued) ATM* Consider/compare fees Debit Card* Requires PIN If lost, report immediately Automated Teller Machine (ATM)—a computer terminal that allows a withdrawal of cash from an account Debit card—a cash card that allows you to withdraw money or pay for purchases from your checking or savings account

10. Bank vs. Credit Union Commercial Banks* Offer full range of services Ex. TD Bank or Bank of America Credit Union* Owned by members—does not operate to make a profit Ex. Central Jersey Credit Union Commercial Bank—a commercial bank is a for- profit institution that offers a full range of financial services including checking, savings, and lending Credit union—a nonprofit financial institution that is owned by its members and organized for their benefit

11. Money Rules #84

12. Savings Plans and Payment Methods Section 5.2

13. Compounding* Interest Simple Interest PrincipalPercentYearAmount after each year (% earned on principal) 100051 1050 2 1100 3 1150 4 1200 5 1250 Total interest after 5 years: $250 Compound Interest PrincipalPercentYearAmount after each year (% earned on principal) 100051 1050 2 1102.50 3 1157.63 4 1215.51 5 1276.29 Total interest after 5 years: $276.29 Can be compounded monthly, quarterly, yearly etc. More frequently = better Compounding—the process in which interest is earned on both the principal and on any other previously earned interest

14. Compounding Interest Formula

15. Compounding Interest Example

16. Rate of Return* Rate of return—the percentage of increase in the value of your savings from earned interest

17. Rule of 72

18. Money Rules #22

19. Savings & Checking Accounts Savings: Put money in and earn interest aka “time deposit” Checking: Put money in to use for payment services aka “demand deposit” May link accounts to avoid “over drawing”* your account Overdraft protection—an automatic loan made to an account if the balance will not cover checks written

20. Choosing Savings & Checking Accounts Consider: Restrictions (ex. Minimum balance) Fees/charges Interest (Rate of return) Liquidity (how easy to withdraw) Special Services (ex. Overdraft protection or electronic check clearing)

21. Writing a Check

22. Keeping a Register

23. Issues with Checks Voiding a check For mistakes while writing the check Stop-Payment order* If a check is lost or stolen May be charged fee Stop-payment order–a request that a bank or other financial institution not cash a particular check

24. Making Deposits Fill out deposit slip, scan check at ATM, or take a picture and upload with your phone Must include your endorsement* Do not endorse a check until you are ready to cash or deposit it Endorsement—signature of payee, the party to whom the check has been written

25. Check Clearing Remember, You do not have access to the money until the check “clears” Aka Pending deposit

26. Money Rules #18

27. Bank Reconciliation* Aka “balancing your checkbook” Keep track of ALL transactions Bank Reconciliation—a report that accounts for the differences between the bank statement and a checkbook balance

28. Bank Reconciliation Steps Step 1: Compare and match Step 2: Bring your register up to date Step 3: Total outstanding transactions (checks or deposits) Step 4: Reconcile your statement with your register

29. Money Rules #19