1. Unit 3 – Banking Services
Financial Institutions
Savings Accounts
Checking Accounts

2. Financial Institutions
Learning Objectives
Describe the different types of financial institutions.
Identify the benefits of different financial institutions.

3. Commercial Banks
Full service bank, offers wide variety of services and products including checking, savings loans, credit cards, investments
Insured by FDIC - $250,000 per depositor

4. Savings and Loan Associations
Focus mortgages and loans to customers that hold a savings account.
Generally pay higher interest rate than commercial banks

5. Credit Unions
Non-profit institution owned by the members (usually have a common bond)
Insured by NCUA ($250,000)
Usually charge lower fees and loan rates

6. How to Choose
Are you looking for low costs, low fees, and high returns on deposits (interest rates)?
What services are important to you?
Do you need loans, mortgages, or working capital for a small business?
How important is convenience for you?

7. Savings Accounts
Learning topic #2

8. Learning Objectives Describe the three different ways to save
Understand how to determine which method of savings is right for you
Understand and calculate the two ways in which banks calculate interest on savings accounts
Understand and be able to describe the concept of “time value” of money.
Apply the “Rule of 72” to a financial decision.

9. Savings Accounts
The purpose of a savings account is to accumulate money in a safe place for some future use.
Most savings accounts pay interest at a low rate.
There are three basic types of savings accounts.

10. Savings Accounts .01% - 1% Basic or Regular Savings Account
Most common type of savings account, and the simplest to use.
Savings account will typically have no minimum balance requirement, or a low one.
Easy access to your money.
Often offers a low interest rate.

11. Savings Accounts 1% - 2% Money Market Account
Often receive a higher interest rate than you would with a basic savings account.
May also have to keep a higher minimum balance (the amount differs from bank to bank).
Easy access to the funds in your account, though the number of withdrawals you can make will probably be limited.
In addition, you may have the ability to write checks, but the number you are allowed to write will also probably be limited.
1.3%

12. Savings Accounts 2% - 4% CD (Certificate of Deposit)
Must leave your money in the account for a specific amount of time, which varies by bank and type of CD, before you can have access to it.
Usually have to pay penalty for withdrawing from a CD before its maturity date.
Typically offer a higher interest rate than other types of savings accounts and will often be fixed.
2.3%

13. Activity: Bank Scavenger Hunt
(minimum opening deposits, monthly fees, current interest rates)

15. Computing Interest
Most savings accounts earn a set amount of interest.
The interest earned on savings accounts is taxable
The amount of money you have in your account that the bank uses to calculate how much interest they need to pay you is called the principal.
The higher the rate of interest (%), the more money the account earns.

16. Simple Interest
Simple interest – When interest is computed on the principal alone for a certain time period.
This method assumes that one interest payment will be made at the end of the period.
Interest rates are usually given in yearly rates.
The interest may be paid after a certain amount of months, in which case the months must be converted into a fraction of a year (shown as a decimal).
Interest is only calculated on the amount the account holder has deposited, not on any of the earned interest that has been added to the account balance.

17. Simple interest formula
I=PRT
I = interest
P = principal
R = interest rate (in decimal form)
T = time in years

18. I=PRT Interest = Principal (Rate)(Time)
Time – time in years that we are calculating interest for. If interest is calculated for a certain amount of months, this number will be shown as a decimal to represent a fraction of the year.
Number of months we are calculating for divided by number of months in a year:
6 months (calculated twice a year) 6/12 = .5
3 months (calculated 4 times a year - quarterly) 3/12= .25

19. Simple Interest Example
An account holder has a principal amount of $1000 in their savings account. Their annual interest rate is 6%, and it gets paid into their account every 6 months. Using the simple interest method, calculate the amount of earned interest after 6 months.
Simple Interest
Interest (I) = Principal (P) x Rate (R) x Time (T)
Interest = $1000 x 6% annual rate x 6 months
Interest = $1000 x .06 x .5
Interest = $30

20. Compound Interest
Compound interest - Interest earned is added to the principal, then interest will be calculated on the principal plus the interest that was earned earlier.
Earning interest on interest, aka - free money on free money!!!
The longer you save, the more you will amass in your account(s).

21. Compound Interest Table Example
An account holder has $100 (principal) in their savings account, and the annual rate it 6%. The interest is compounded quarterly (4 times a year) for 3 years.
An interest rate of 6% per year is 1.5% each quarter (6 divided by 4).
You must start a compound interest table by calculating the rate used for each period…annual interest rate/number of time periods in a year!!!

22. Compound Interest Table Example
An account holder has $100 (principal) in their savings account, and the annual rate it 6%. The interest is compounded quarterly (4 times a year) for 3 years. An interest rate of 6% per year is 1.5% each quarter (6 divided by 4).
You must start a compound interest table by calculating the rate used for each period…annual interest rate/number of time periods in a year!!!

23. What is the FUTURE VALUE of your $
Compounding will make your money grow over time.
That is why you need to think of your money not only in terms of what it can buy today, but also in terms of its potential future value.
Future Value = the value that a sum of money today will be worth at some point in the future if invested for a return

24. What is the FUTURE VALUE of your $
Example--you want to spend $20,000 on a car.
Calculate the cost of that car not only in today’s dollars but by taking into account the potential future earnings of those dollars

25. FV= PV x (1+i)N FV= $20,000 x (1.10)20 FV= $20,000 x 6.727
The future value . . .
If you invest $20,000 in an account with an annual rate of return of 10% and never add another penny, how much do you think it could grow to in 20 years?
Approx. $135,000 of future savings!
FV= PV x (1+i)n
FV = future value
PV= present value (principal/amount of money today)
i = interest rate (in decimal form)
N= number of in years that money is invested
FV= PV x (1+i)N
FV= $20,000 x (1.10)20
i = discount rate when finding present value
Make sure
FV= $20,000 x 6.727
FV= $134,540

26. Calculating Future Value Using Tables
Question: How much will $1,000 deposited in a savings account earning an annual interest rate of 6 percent be worth at the end of 5 years?
(take the $ amount and multiply by the # found in the table)
FV = $1,000 x 1.338
FV = $1,338

27. Time Value of Money
The time value of money is the relationship between……
Time
Money
Interest Rate
And their effect on……
Earnings Growth

28. Time Value of Money
The more time you have to save, the more money you will have at the end of the time period.
The more money you have to save, the more money you will have at the end of that time period.
The higher the interest rate you can earn, the more money you will have at the end of the time period.
These are the three most important factors in determining how much money will be available to meet your specific financial goals.

29. So what is Present Value??
Present value is the amount of money you have today
$100 today > $100 future
2 main factors: Investment opportunities and inflation
What about future amounts that have a greater face value? So how do you compare the future values from values of today?

30. Present Value Example You won the lottery. Woohoo!!
$1,000,000 today or $1,050,000 in one year
“If I accept the $1M today is there an investment opportunity that could offer me returns of $50,000 or more??”

31. …or you can use the tables to solve!!
Present Value example
FV= $1,050,000
i= 10%
N= 1
FV = PV x (1+i)N
PV = FV
(1+i)N
PV = 1,050,000
(1.10)1
PV = $954,545
$954,545 < $1,000,000
…or you can use
the tables to solve!!

32. Why is PV and FV important?
Powerful tools in financial decision making
Aids in calculating return on investment and annuities
If a company wants to expand operations in five years and need $50,000, how much do they need to invest now?

33. Rule of 72
The Rule of 72 - helps you to figure out how to double your money!
If you know how much interest you will be earning you can calculate how many years it will take to double your money.
Example 1: 72 / 6% interest = 12 years
If you’d like to double your money within a specific time frame, you can calculate what interest rate you will need.
Example 2: 72 / 9 years = 8% interest 72
Interest Rate =
Years Needed to
Double Investment 72
Interest Rate
Required =
Years Needed to
Double Investment

34. Rule of 72 Practice
#1: If someone earns 3.5% interest on their savings account, how long will it take them to double their money?
72 / 3.5% interest = 20.6 years
#2: If someone has 12 years to save their money, what interest rate will they need in order to double their money?
72 / 12 years = 6%

35. Activity: Calculation Practice

36. Checking Accounts
Learning Topic #3

37. Learning Objectives
I can explain the purpose and uses of a checking account
I can explain the purpose of and prepare a checkbook register
I can write a check and prepare a deposit and withdrawal slip
I can explain the purpose of and prepare a bank reconciliation

38. Checking Accounts
Provide a safe place to keep money and allow users easy access to the money in the account.
Checking accounts at banks are generally insured by the Federal Deposit Insurance Corporation (FDIC) up to the legal limit of $250,000 per depositor per bank.

39. Checking Accounts Ways to get money out of a checking account
Bank withdrawal – need withdrawal slip
ATM withdrawal
Automatic withdrawal – money is deducted from your account and transferred to another party.
Check – a written order to a bank to pay the stated amount to the person or business named on the check.

40. Opening a checking account
Opening a checking account varies from bank to bank, two standard requirements are:
Money
Photo ID
Some banks may also require:
Social Security Card
Savings account
Once open, they will have you fill out a signature card:
Signature card: Provides an official signature that the bank can compare to the signature written on checks.

41. Keeping a checkbook register
Checkbook register – A tool that can be used to track checking account transactions. It can also provide a record of payments made for bills or purchases. This is the account holder’s record of all of their transactions.
What to record in a checkbook register:
Deposits
Checks
Withdrawals
Fees
Electronic transfers

42. Keeping a checkbook register

43. Writing Checks A check is a legal document used to transfer money.
Payer – the person who writes the check
Payee – the person or business the check is written to.

44. Steps for Check Writing
Enter date *Never Post Date – writing a date that will occur in the future
Enter the name of the Payee
Enter the amount of the check in numbers, immediately after the dollar sign
Write the dollar amount in words *Draw a line to the end if entire space is not used up *Use the word “and” to separate dollars and cents
Sign your name
Enter a note on the memo line
state the purpose of the check (optional)

45. Rent ($850) is due to your landlord, Steve Adams, tomorrow
10/21 17
Steve Adams
850.00
Eight hundred fifty and 00/
Jillian Thomas
November Rent

46. Tips for writing checks
Always use pen!
If you make a mistake, start over with a new check
If you have a check with a mistake on it, write “VOID” across the check in large letters.

47. Writing Checks
Endorsement – Signature by payee or instructions by payer on the back of a check.
3 kinds of endorsements:
1. Blank – signature by payee
2. Restrictive – the purpose of the transfer is
written before the signature of the payee
Example – For Deposit Only
3. Special – The words “Pay to the order of” and the name of the person or company to which the check is being made out to are written before the signature of the payee.

48. Writing Checks Deposit – money added to an account
Can be done in person at a bank or at an ATM.
Must complete a deposit slip.
List cash as one number
List check amounts separately
Subtract out any money that you would like to receive back from the teller.
Include signature if you are requesting cash back.

49. Writing checks
Automatic deposit – Money is electronically placed in an account (ex. Direct deposit) Bank statement – The bank’s record of all of the transactions on your account(s) for a period of one month. The bank will send it to you once a month, either by snail mail or , to be reviewed by you for accuracy. Reconciliation – Comparing your checkbook register with the bank statement and making necessary adjustments, so that the two balances are the same.

50. Practice Checking Account Transactions… check, deposit slip, and check book register

51. Activity: Checking Account Transactions