1. Banking
Chapters 5

2. Types of Services Banking Payment Services Borrowing
safe storage of funds
known as time deposits
includes savings accounts and certificates of deposit
Payment Services
transfer money from your account to businesses or individuals
known as demand deposits
most common service is the checking account
Borrowing
credit cards, loans, and mortgages

3. Electronic Banking Services
Direct Deposit – paycheck goes directly to the bank
Automatic Payments – banks will withdraw a certain amount from your account to pay bills
ATMs
use for withdrawals, transfers, deposits
need a debit card or cash card and your PIN
watch out for fees!
call bank immediately if your debit card is stolen!
w/in 2 days: $50 liability; after 2 days: $500+ liability

4. Plastic Payments Point-of-Sales Transactions Stored-Value Card:
use your debit card
if system is online, you will use your PIN and money is deducted right away
if system is offline, you will not use your PIN; money is deducted w/in 2 days
Stored-Value Card:
prepaid cards for things like gas, school lunches, public transportation
can be disposable or reloadable

5. Financial Institutions
Federal Deposit Insurance Corp. (FDIC) – insures each bank account up to $100,000
Deposit-Type Institutions
Commercial Bank: for-profit bank offering a full range of services; must be chartered by the government
Savings and Loan (S&L): have evolved to be much like a commercial bank
Mutual Savings Bank: specialize in savings accounts and mortgage loan; often have more favorable interest rates for consumers
Credit Union: non-profit institution that is owned by its members who usually have a common bond; offers a full range of services; often have more favorable interest rates for consumers

6. Financial Institutions (con’t.)
Nondeposit-Type Institutions
Life Insurance Companies: primarily protect against the risk of early death; some policies contain savings and investment features
Investment Companies: combine your money with other investors and use this money to purchase stocks and bonds
Finance Companies: provide loans to people who have a hard time getting a loan elsewhere; interest rates are usually higher than most other lenders

7. Bank Selection Process
Stop by the bank and pick up brochures and speak to a service rep about bank’s services
Study the bank brochures and discuss features with your parents
Do on-line research about banks benefits, fees, and charges
Open your account and start managing money

8. Savings Plans Regular Savings Accounts Certificates of Deposit (CD)
Require you to leave your money with the bank for a specified time period
If you withdrawal the money before the maturity date, you will pay a penalty
Require a minimum deposit amount
Beware the automatic rollover

9. Savings Plans (con’t.) Money Market Accounts U.S. Savings Bonds
interest rate varies from month to month
generally has higher interest than a regular savings account, but usually requires a minimum balance
may write a limited number of checks
U.S. Savings Bonds
purchase for half the maturity value of the bond
maturity dates vary based on the interest rate
exempt from state and local taxes

10. Evaluating Savings Plans
Rate of Return
percentage increase in the value of an investment
divide the interest by the original investment
compounding usually makes your actual return greater than the stated interest rate; look for the annual percentage yield for your compounded rate of return
ALWAYS use APY or APR to compare your investment rate of return

11. More on Evaluating Savings Plans
Inflation – general rise in prices
Taxes – tax exempt plans have better returns than taxable plans
Liquidity – ability to turn investment into cash
Restrictions and Fees

12. Checking Accounts Types
regular: usually need a minimum balance or a fee is charged
activity: no minimum balance but fees are charged each time you make a deposit or write a check
interest earning account: earn a small amount of interest as long as a minimum balance is maintained
Overdrawing your account (Bouncing a check) will result in a bank fee of as much as $30
Overdraft Protection: avoids “bounce” fee by taking out a loan instead

13. Using a Checking Account
When you open the account, you will be required to fill out a signature card.
Checks you are depositing must be endorsed with your signature and account number.
When you write a check, you must sign it using the signature you wrote on the card.
There is usually a gap from the day your write the check to the day the bank receives the check
checks that you have written but the bank has not received are called outstanding checks
checks the bank has received are called cancelled checks
If a check is lost or stolen, request a stop payment order. You will be charged a fee, but the check cannot be cashed.