Financial Institutions

Financial Institutions

Who likes what best???? Savers Simple Interest Borrowers
Compound Interest

The GREATER the risk, the GREATER the possible return.
In careers. In relationships. In sports. In investments.

Investment Options CD (Certificate of Deposit): like a savings account you agree not to withdraw from for a certain period of time. Mutual Fund: a corporation that exists only to buy stock in other corporations (easy way to diversify) IRAs & 401(k)s: tax sheltered retirement plans Bond: JUST A LOAN to corporation (corporate bond) to government (Treasury bond) to local government (municipal bond)

Risk vs. Return Activity
Risk Return Bonds Stocks Savings Acct’s CD’s Mutual Funds Treasury Bonds

Basic Investment Considerations - Continued
The Relationship Between Risk & Return Stocks Bonds Mutual Funds Risk CD’s Savings Accounts Return

Not A Gamble: U.S. Stock Market History
S&P 500 was at 400 in 1993; at 1100 on Feb If you bought 100 shares of SPX in 1993 it was worth $40,000. today it would be worth $110,000. Ten shares could have been bought for $4000 and today would be worth $11,000. S&P 500 was at 400 in 1993; at 1100 on Feb If you bought 100 shares of Vanguard 500 in 1993 it was worth $40,000. today it would be worth $110,000. Ten shares could have been bought for $4000 and today would be worth $11,000. 7 7

Why Stay with Stocks? Long-Term Annual Returns (1925-2008)
Small Company Stocks: 11.7% (most risk) Large Company Stocks: 9.6% Long Term Corp. Bonds: 5.9% US Treasury Bills: 3.7% (least risk) Inflation: %

Consider Investment Options Around the Room
Move to the point in the room that best represents your desired mixture of investments between the ages of 20 and 30.

Consider Investment Options Around the Room
Move to the point in the room that best represents your desired mixture of investments between the ages of 50 and 60.

If you choose to invest money, your two big options are stocks and bonds.
Why is this guy recommending what he’s recommending?

Clicker Quiz

1) A man has $100 to invest and hopes to receive 10 times the amount back ($1,000) by the end of 5 years. This could be BEST accomplished by A placing the money in a savings account B depositing the money in a CD C purchasing $100 worth of stock in a start-up company D buying $50 worth of bonds and investing $50 in a mutual fund

2) Bob has $25,000 that he would like to invest in a diversified manner. Bob's BEST investment option to accomplish this goal would be to A. purchase $25,000 worth of one company's stock. B. purchase $25,000 worth of corporate bonds. C. purchase $25,000 worth of shares in a mutual fund. D. purchase $25,000 worth of U.S. government securities.

3) Eric has $2,000 that he wants to place in a savings account
3) Eric has $2,000 that he wants to place in a savings account. He has researched two accounts, and both pay 3.5% interest. Account X pays simple interest. Account Y pays compound interest. Eric should choose A. account X because it would pay tax free interest. B. account Y because it would pay interest on interest. C. account X because the interest rate would increase over time. D. account Y because the interest rate would decrease over time.

4) Why does consistent investing over long time periods yield large returns for investors?
A) Simple Interest B) Compound Interest

5) Bonds are most like A) stocks B) insurance C) savings accounts
D) loans

6) Which would be the best deal for the borrower on a 2 year loan for $5,000:
A) 7% simple interest B) 7% compounded monthly C) 7% compounded quarterly

7) Which would be the best deal for the lender on a 2 year loan for $5,000:
A) 7% simple interest B) 7% compounded monthly C) 7% compounded quarterly

Financial Institutions
Credit Unions like banks owned by depositors exclusive club higher rates on savings, lower rates on loans Payday Loan Company make small loans at high interest/fees (15% common) usually, you leave them a post-dated check Savings & Loan banks that primarily offer savings accounts & mortgages Financial Institutions

Let’s Call These Places
Speaker Phone Time Let’s Call These Places

Personal Loan Ranges & Rate Ranges
Payday Loan _______________Rate___________ Car Title Pawn _______________Rate___________ Finance Company ____________Rate___________ Bank _______________Rate___________ Credit Union ___________Rate___________

Current Rate On A $10,000 5 yr CD Bank Rate: ________
Credit Union Rate: _______

Let’s Compare CD Rates. Which one is the bank, and which one is the credit union?

The Spread Interest paid on savings acct’s is < interest charged on loans. The difference is called the SPREAD.

The Spread A bank pays 5% interest on its savings account.
The bank takes some of the money deposited in savings accounts, & loans that money out. On average, the bank charges 11% on its loans. What’s the spread? Why does the bank do this?

Instructions/Assignments for Thursday & Friday
Checkbook balance worksheet. Economics Haiku (Draw For Topic) Use Key To Grade Your Benchmark mark DGI and SM Risk/Return Essay Review Picture (Use Haiku Topic)

Haiku Example If not for the cat, And the scarcity of cheese,
I could be content.

“Can I Afford It?” Video Clip

Borrowers & Lenders Find Your Match!

Who’s Your Middle-Man???

Financial Institutions Clicker Quiz

1. The interest a bank pays on its savings accounts is generally _________ the interest it earns on loans. A) the same as B) lower than C) higher than

2. A woman is considering purchasing a new lawn mower that costs $120
2. A woman is considering purchasing a new lawn mower that costs $120. While employed, the woman does not currently have enough money in her account to pay for this item. Which of the following financial institutions would be the MOST likely to help her buy the lawn mower? A payday loan company B credit union C savings and loan D commercial bank

3. Which business would be most likely to offer financing through a finance company?
A) a dollar store B) a grocery store C) a restaurant D) a furniture store

4) The main difference between a credit union and a commercial bank is that
A. only commercial banks offer checking account services to its members. B. commercial banks make loans, but don't offer checking or savings account services. C. credit unions don't make home and car loans, whereas commercial banks do make home and car loans. D. credit unions are only available to specific customers, but commercial banks are available to the everyone.

5) In order for a bank to have the chance to make a profit, they must
A. charge borrowers a lower interest rate than they charge depositors. B. pay depositors a lower interest rate than they charge borrowers. C. charge borrowers a higher fee than they charge to depositors. D. charge borrowers and depositors the same interest rates.

6) A bank pays an average of 2% interest on it’s savings accounts and CD’s. The same bank charges an average of 8% on loans. What is the spread? A) 2% B) 6% C) 8% D) 10%

What is a bank? Private, for-profit businesses Make loans
Federal Reserve Bank of Atlanta What is a bank? Private, for-profit businesses Make loans Hold deposits Banks are private businesses that hold deposits and make loans to households and businesses. Deposits held by banks create a pool of loanable funds that enable borrowers to pursue investment opportunities. Other financial institutions such as savings and loans or credit unions provide similar services. Commercial banks lend a portion of the deposits they receive to businesses or consumers wanting loans. The banks charge interest on these loans. Commercial banks may receive their license to operate from either the federal government or their local state government. Federally chartered banks are known as “national banks” while state chartered banks are known simply as “state banks.” 4/16/2017 47 47

Why Should You Use a Bank?
Federal Reserve Bank of Atlanta Why Should You Use a Bank? Keep your money safe from loss or theft Make payments easily and inexpensively Maintain records of your financial transactions Deposit your paycheck directly Build savings and earn interest Establish credit Access mortgage loans, car loans, and other products 4/16/2017 48 48

Banks help you meet your goals
Federal Reserve Bank of Atlanta Banks help you meet your goals Access to: Car loans Credit cards Mortgage loans Student loans Business loans & services Money management services Retirement Savings Accounts Remittances & wire transfers 4/16/2017 49 49

How do overdrafts and bounced checks happen?
Federal Reserve Bank of Atlanta How do overdrafts and bounced checks happen? When you Write a check, Withdraw money from an ATM Use your debit card to make a purchase, or Make an automatic bill payment or other electronic payment for more than the amount in your checking account, you overdraw the account. Your bank(or S & L or credit union) has the choice to either pay the amount or not. If it pays even though you don’t have the money in your account, you may be charged an “overdraft” fee. If your bank returns your check without paying it, you may be charged a “bounced-check,” or “nonsufficient funds,” fee. And the person or company that you wrote the check to-for example, a store, your landlord, or the phone company- may charge you a “returned-check” fee in addition to the fee your bank charges you. 4/16/2017 50 50

How can you avoid overdraft fees?
Federal Reserve Bank of Atlanta How can you avoid overdraft fees? Keep track of how much money you have in your checking account by keeping your account register up-to-date Pay special attention to your electronic transactions. Don’t forget about automatic bill payments you may have set up for utilities, insurance, or loan payments Keep an eye on your account balance Review your account statements each month Record all checks when you write them and other transactions when you make them. And don’t forget to subtract fees. Record your ATM withdrawals and fees, debit card purchases, and online payments. Remember that some checks and automatic payments may not have cleared yet. Between statements, you can find out which payments have cleared and check your balance by calling your bank or by checking online or at an ATM. Be sure to find out the actual amount in your account—your account balance not including any funds available to you through “courtesy overdraft-protection,” or “bounce coverage,” plans. Sometimes mistakes happen. If you do overdraw your account, deposit money into the account as soon as possible to cover the overdraft amount plus any fees and daily charges from your bank. Depositing money into your account can help you avoid additional overdrafts and fees. 51 4/16/2017 51

What are “courtesy overdraft-protection plans”?
Federal Reserve Bank of Atlanta What are “courtesy overdraft-protection plans”? The bank is “covering” your check or withdrawal allowing the check or transaction to clear. You will still pay an overdraft fee or a bounce coverage fee to the bank for each item. You will avoid the merchant’s returned-check fee and will stay in good standing with the people with whom you do business. 4/16/2017 52 52

What are other ways to cover overdrafts?
Federal Reserve Bank of Atlanta What are other ways to cover overdrafts? 1. Link your checking account to a savings account you have with the bank. 2. Set up an overdraft line of credit with the bank. 3. Link your account to a credit card you have with the bank If you overdraw your checking account, the bank can transfer funds from your savings account to your checking account. Ask your bank about transfer fees You need to apply for a “line of credit” just as you would apply for a regular loan. If you overdraw your account, the bank will lend you the funds by using your line of credit to cover the overdraft. You will pay interest on this loan, and there may be an annual fee. But the overall costs may be less than the costs for courtesy overdraft-protection plans. If you link your account to a credit card, any overdraft amount becomes a cash advance on your credit card. You will probably be charged a cash-advance fee, and interest charges on the advance will start immediately. The cost of this option depends on the interest rate on your credit card and how long you take to pay back the advance. 4/16/2017 53 53

Ways to cover your overdrafts
Federal Reserve Bank of Atlanta Ways to cover your overdrafts Example of possible cost for each overdraft* Good account management $0 Link to savings account $5 transfer fee Overdraft line of credit $15 annual fee + 12% APR Link to cash advance on credit card $3 cash-advance fee + 18% APR Courtesy pay overdraft-fee $20 to $42 (PER CHECK) Bounced check $40 to $60 ($20 to $30 bank fee + $20 to $30 merchant fee PER CHECK) * These costs are only examples. Ask your bank, savings and loan, or credit union about its fees. 4/16/2017 54 54

FDIC Federal Deposit Insurance Corporation
Federal Reserve Bank of Atlanta Federal Deposit Insurance Corporation Insures the deposits in commercial banks against loss. Since its inception in 1933 no depositor has ever lost one cent of FDIC-insured funds Source: FDIC 4/16/2017 55 55

FDIC FDIC Basic Coverage Limits:
Federal Reserve Bank of Atlanta FDIC FDIC Basic Coverage Limits: Single Accounts (owned by one person): $250,000 per owner Joint Accounts (two or more persons): $250,000 per co-owner IRAs and other certain retirement accounts: $250,000 per owner These limits will expire 1/1/2014 Source: A single account is a deposit account owned by one person and titled in that person's name only, with no beneficiaries. All of your single accounts at the same insured bank are added together and the total is insured up to $250,000. For example, if you have a checking account and a CD at the same insured bank, and both accounts are in your name only, the two accounts are added together and the total is insured up to $250,000. Note that retirement accounts and eligible trust accounts are not included in this ownership category. A joint account is a deposit account owned by two or more people and titled jointly in the co-owners' names only, with no beneficiaries. If all co-owners have equal rights to withdraw money from a joint account, a co-owner's shares of all joint accounts at the same insured bank are added together and the total is insured up to $250,000. If a couple has a joint checking account and a joint savings account at the same insured bank, each co-owner’s shares of the two accounts are added together and insured up to $250,000 per owner, providing up to $500,000 in coverage for the couple’s joint accounts. Certain retirement accounts are deposit accounts owned by one person and titled in the name of that person's retirement plan. Only the following types of retirement plans are insured in this ownership category: Individual Retirement Accounts (IRAs) including traditional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plans for Employees (SIMPLE) IRAs Section 457 deferred compensation plan accounts (whether self-directed or not) Self-directed defined contribution plan accounts Self-directed Keogh plan (or H.R. 10 plan) accounts All deposits that an individual has in any of the types of retirement plans listed above at the same insured bank are added together and the total is insured up to $250,000. For example, if an individual has an IRA and a self-directed Keogh account at the same bank, the deposits in both accounts would be added together and insured up to $250,000. 4/16/2017 56 56

The “Unbanked” and “Underbanked”
Federal Reserve Bank of Atlanta The “Unbanked” and “Underbanked” 25.6 percent of American households (about 60 million adults) are unbanked or underbanked. A breakdown by race shows that 43.3 percent of Hispanic households, 44.5 percent of American Indian/Alaskan households and nearly 54 percent of black households are unbanked or underbanked. At least 71 percent of un- and underbanked households have incomes of $30,000 per year or less. The most common reason people offered for not having a bank account was feeling that they did not have enough money to justify one. About two thirds of unbanked households use one or more of these financial tools: non-bank money orders & check cashing, payday loans, pawn shops, rent-to-own agreements and refund anticipation loans. About one quarter of unbanked households use none of the aforementioned services, which suggests that cash is their go-to commerce tool. Source: FDIC Report 12/2009 Unbanked: This term refers to people who have neither checking nor savings accounts, and who rely primarily on non-bank financial institutions (like check cashing services, payday lenders, refund anticipation loans, etc.) for their financial needs. Underbanked: This refers to people who have either a checking or savings account, but rely on alternative financial sources at least once or twice a year. 4/16/2017 57 57

Federal Reserve Bank of Atlanta
What Do You Know? 4/16/2017 58 58

1. People are able to make deposits to and withdrawals from both savings accounts and checking accounts. True False 4/16/2017 59

2. Check-cashing services charge small fees for cashing checks.
True False 4/16/2017 60

FALSE: The fees for check-cashing services vary, but
Federal Reserve Bank of Atlanta FALSE: The fees for check-cashing services vary, but these companies charge either a percentage of the check amount or a minimum fee to cash a check-typically up to $10 each time a check is cashed. If your check is for $100 and you have to pay a $10 fee, you are paying 10 percent of your earnings in fees. 4/16/2017 61 61

3. Usually, people are able to cash checks for free or for a much reduced fee (less than a few dollars a month) at the bank where they have a savings or checking account. True False 4/16/2017 62

TRUE: Often students can take advantage of the low or no monthly
Federal Reserve Bank of Atlanta TRUE: Often students can take advantage of the low or no monthly fees that many banks and credit unions offer to students. A student who has a no-fee student checking account would not pay a fee to cash a check. If savings or checking accounts do have fees, they rarely add up to more than a few dollars a month. Therefore, the monthly fees, if any, for a basic savings or checking account are usually less than the fee charged by a check-casing service to cash just one check. 4/16/2017 63 63

4. There are fees or costs associated with savings and checking accounts.
True False 4/16/2017 64

TRUE: There are fees associated with checking accounts. For example,
Federal Reserve Bank of Atlanta TRUE: There are fees associated with checking accounts. For example, there are fees for ordering checks and fees if you bounce a check, i.e., have an “overdraft,” or use a debit card when there isn’t enough money in the account. There may also be fees if you are required to keep a certain amount (a “minimum balance”) in your account and you don’t. If you lose a check and ask the bank to issue a “stop-payment order” for the check so that someone doesn’t find it and then forge your name and cash it, you’ll also be charged a fee. 4/16/2017 65 65

5. Savings accounts pay interest on the balance in the account.
True False 4/16/2017 66

TRUE: Keeping your savings in an account
Federal Reserve Bank of Atlanta TRUE: Keeping your savings in an account that earns interest is a way to make your savings grow. 4/16/2017 67 67

6. It isn’t legal for companies to require employees to use “direct deposit.”
True False 4/16/2017 68

FALSE: It is legal and many companies do have this
Federal Reserve Bank of Atlanta FALSE: It is legal and many companies do have this requirement. Businesses actually consider direct deposit to be an employee benefit because direct deposit is considered to be more convenient, safer and more efficient then cashing paper checks. 4/16/2017 69 69

7. With a checking account, you can write checks to pay for many types of goods and services.
True False 4/16/2017 70

TRUE: If you want to write a check to pay for your
Federal Reserve Bank of Atlanta TRUE: If you want to write a check to pay for your school yearbook, you can do so if you have a checking account. If you have to pay your own car insurance, you can write a check. 4/16/2017 71 71

8. There are no fees associated with savings accounts.
True False 4/16/2017 72

FALSE: There may be fees associated with a savings
Federal Reserve Bank of Atlanta FALSE: There may be fees associated with a savings account. You may be required to have a minimum balance. If the amount in your account falls below that amount, you may be charged a fee. There may be a limit on how often you may make a withdrawal from a savings account. If you make a withdrawal more often, you may be charged a fee. 4/16/2017 73 73

9. You may use an ATM or debit card with both savings and checking accounts.
True False 4/16/2017 74

TRUE: You can make arrangement with your bank to
Federal Reserve Bank of Atlanta TRUE: You can make arrangement with your bank to have a debit card that you can use to make withdrawals and deposits from both checking and/or savings accounts. 4/16/2017 75 75

10. Banks are a safe place to keep your money.
True False 4/16/2017 76

TRUE: The Federal Deposit Insurance Corporation
Federal Reserve Bank of Atlanta TRUE: The Federal Deposit Insurance Corporation (FDIC) insures deposits in bank accounts up to $250,000 per person per institution. 4/16/2017 77 77

Financial Institutions

Similar presentations

Presentation on theme: "Financial Institutions"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Financial Institutions

Similar presentations

Presentation on theme: "Financial Institutions"— Presentation transcript:

Similar presentations

About project

Feedback