1. Banking Procedures and Services
Chapter 12
Banking Procedures and Services

2. Learning Objectives
Explain the difference between different types of financial institutions
Learn the basics of having a checking account
Identify other banking services
Describe the two major federal insurers
Explain the function and goals of the Federal Reserve

3. Objective 1 and 2
Explain the difference between different types of financial institutions
Learn the basics of having a checking account

4. Banks and Financial Institutions
Depository Institutions
Nondepository Institutions
Choosing a Bank
Provide traditional checking and savings accounts for individuals and businesses
Also provide loans
Examples: commercial banks, savings banks, and credit unions
They pay interest on deposits people leave with them
They use those deposits to make loans which they charge interest for = how they profit
Charge other fees (overdraft protection, checking account fee, etc
Institutions that provide certain financial services but do not accept traditional deposits
Examples:
insurance companies
finance companies
securities firms (brokerage firm = stocks/bonds)
investment companies
Banks and credit unions differ on fees charged, interest rates paid on deposits, and access to automatic teller machines (ATMs) and branches
If an ATM is not in your bank’s network, you will be charged a significant fee for the withdrawal

5. Checking Accounts
What it is: an account which you can deposit money and withdraw money by writing checks or using debit cards
A check = a written order from your bank instructing it to pay money from your account to another party
A check will have: routing number, checking number, check amount
A check may NOT have: the address of the account holder

6. 25.00
Twenty five and 00/100
John Public

7. NOW Account and Debit Cards
What it stands for: Negotiable Order of Withdrawal account
Much like a checking account except they pay a small amount of interest on money in account
Requirement = Must have a minimum balance in order to earn interest (example: $1,000)
Not as liquid as an ordinary check account
Enables you to withdraw cash from your account at ATMs or to pay directly for goods or services
A check in a card form
Don’t forget to write everything down
Require PIN (personal identification numbers)
Usually 4 digits – memorize it

8. Using and Balancing Checking Accounts
Using Your Account
Balancing Your Account
Record everything in your check register (purchases and deposits)
Check register = small ledger the bank gives you for keeping track of your account balance
Important to record in register:
Checks you wrote (subtract)
Deposits you made (add)
Debit card purchases made (subtract)
Every MONTH the bank sends you a bank statement with all your deposits and purchases for the month
Reconciling your account = (every month) comparing your check register to the bank statement to look for errors

9. 415
4/15/2015
Great Department Store
42.39
Forty two & 39/100
John Doe

11. Objective 3
Identify other banking services

12. Other Banking Services
Safety Deposit Boxes – small container located inside the bank vault where you can store valuables (paperwork like wills, objects like jewelry). You must rent it.
Cashier’s Checks – check that is written to a specific payee but charged against the bank instead of your account - when you purchase a cashier’s check, the bank takes the money out of your account immediately (use when personal checks not accepted)
Money Orders – similar to cashier’s check – purchased for cash so the recipient can trust that they are worth what they say they are
Traveler’s Checks – checks written by a large financial institution with no payee specified – accepted around the world - if you lose it, it can be replaced
All paid for in advance

13. Banking Services Continued
Bank drafts - occur when you authorize someone to take money out of your bank account automatically to satisfy some financial obligation (car payments, house payments, utilities, contributions to retirement, etc.)
Whenever you authorize someone to access your bank account for payment or for deposit, you are making an electronic funds transfer

14. Objective 4
Describe the two major federal insurers

15. Deposit Insurance FDIC NCUSIF
Created by the federal government in response to the Great Depression
Depositors would go to the bank to withdraw their money and the bank had already gone out of business so their money was gone
FDIC restored and maintained depositor’s confidence in the banks by inuring people’s deposits against loss
Covers checking, savings, NOW accounts, and CDs
Like the FDIC, but for credit unions
Credit union: functions like a bank but has nonprofit standards and is owned by its members
Also backed by the federal government

16. Objective 5
Explain the function and goals of the Federal Reserve

17. Facts to Know
The achieve goals, the Fed uses monetary policy (involves raising or lowering money supply to achieve some goal)
The Federal Reserve is in charge of determining how much money is in circulation
When the Fed is concerned about inflation, they’ll shrink the money supply
The Feds overall goals: 1. stabilize prices 2. encourage economic growth 3. encourage full employment
When the Fed makes more money available, interest rates go down