1. BANKING SERVICES Ch. 5.1 Deposit Accounts

2. 2 Categories of Deposit Accounts Transaction Account An account that allows transactions to occur without restrictions on the frequency or the volume of transactions. Time Deposit Deposit accounts that are held for or mature at a specified time

3. Demand Deposit Account A type of deposit account that is payable on demand whenever the depositor chooses

4. Transaction Accounts Many are demand deposits The total funds in transaction accounts affect the money supply because of their high liquidity. They are a large component of M1. They require banks to hold reserve funds, because the money could be demanded by the depositor at any time Most common form is checking accounts

5. Checking Accounts Most common form of a transaction account You withdraw money from the account by means of a check A check is a written notice to the bank to pay a named person a specified amount from your account

6. Checking Accounts Offer customers quick access to their money Provide a convenient way to pay bills Facilitate transferring funds to other institutions Prior to writing a check, customers need to have sufficient funds in the bank to cover checks written & any fees to be deducted There are many types of checking accounts to best fit customers’ needs

7. New Technology & Checking Accounts Direct Deposit Auto Debit Online banking Electronic bill pay

8. Types of Ownership of Checking Accounts Individual Account owned by 1 person Joint Account 2 or more owners, each of whom has equal & independent access to it

9. 2 Types of Joint Checking Accounts “Tenants in Common” Frequently used by business partners The approval of all owners is required to make withdrawals “Joint Tenancy” Co-owner account Each co-owner can make deposits & withdrawals independently May be used by siblings, roommates, spouses, etc. Provides the “right of survivorship”

10. Check 21 Federal legislation that became effective in October of 2004, that created a new category of negotiable instrument, & allows banks to process check information electronically

11. Types of Checking Accounts Basic “Free” “No Service Charge” Interest-Bearing Express Lifeline “No-Frills” Asset management

12. Basic Checking Accounts 9 characteristics of Basic Checking Accounts: 1. May vary considerably in set fees & services 2. Do not pay interest 3. Basic fee 4. Return of canceled check may cost or not be an option 5. Offer a few simple services for minimal cost 6. May have no charges if maintain a minimum balance 7. Price extra services per item 8. Only certain amount of checks allowed per month 9. Charges for ATMs Ideal for: __those who don’t plan to keep a high balance

13. “Free” Checking Accounts List 3 characteristics of “Free” Checking Accounts: 1. 2. 3.

14. “No Service Charge” Checking Accounts List 3 Characteristics: 1. 2. 3.

15. Interest-Bearing Checking Accounts List 4 Characteristics: 1. 2. 3. 4.

16. Express Checking Accounts List 6 Characteristics: 1. 2. 3. 4. 5. 6. Popular with: ____________________________

17. Lifeline Checking Account List 3 Characteristics: 1. 2. 3. Attractive to: ___________________________

18. “No Frills” Checking Accounts List 5 Characteristics: 1. 2. 3. 4. 5. Designed for: ___________________________

19. Asset Management Checking Accounts List 5 Characteristics: 1. 2. 3. 4. 5.

20. Online Banking Accounts Available as either independent accounts or as an additional service to standard brick-and-mortar accounts May offer lower minimum balances & fewer fees than traditional banks. Offer a variety of services ranging from consolidated management of multiple accounts through automated bill payments

21. Mobile Banking Banking transactions can be performed from mobile phones such as:  Balance inquiries  Payment requests  Paycheck deposit alerts  Bounced check notification

22. ATM Fees Should be carefully assessed Can possibly incur 2 fees when using an ATM that is not affiliated with your own bank (one from your bank, and one from the other bank)

23. Choose the Type of Account that is Best for Your Needs

24. Time Deposits Deposits that are held for or mature at a specified time Include:  Savings accounts  Money market deposit accounts  Certificates of deposit (CDs)  Various bonds Less liquid than checkable deposits No reserve requirements imposed by the Fed

25. Savings Accounts Most common type of time deposit Banks may require up to a 7-day notice before withdrawing your money (most don’t do this) Savings accounts valued at less than $100,000 are part of the M2 money supply Can make deposits in person, by mail, electronically, or by direct deposit

26. Statement Savings Accounts Provide a monthly or quarterly computerized statement detailing all account activity, including interest credited & fees charged Often, statements are combined with those of other accounts held a t the bank, providing a complete and clear picture of all banking activity

27. Savings Accounts One of the safest places to put money Accounts are insured by the FDIC up to $100,000 per depositor per bank If liquidity is needed, then savings accounts are a good option

28. Money Market Deposit Accounts (MMDAs) Time deposits that offer a higher rate of interest than savings accounts, but they usually require a higher initial deposit to open an account

29. Money Market Deposit Accounts List 7 Characteristics: 1. 2. 3. 4. 5. 6. 7.

30. Certificates of Deposit (CDs) Certificates issued by banks that guarantee the payment of a fixed interest rate until the maturity date Maturity dates may range from 7 days to 10 years The larger the amount of the CD & the longer the term, the greater the interest rate.

31. CD Interest Rates Variable rate CDs are often linked to the prime rate & may offer an interest rate at a predefined % rate less than the prime rate Some CDs offer “bump-ups” that provide the opportunity to increase the interest rate on the CD when interest rates rise A “callable” CD can be called in at the discretion of the issuing institution

32. CD Maturity Dates Usually less than 18 months You can get your money before the maturity date, but you will pay an interest penalty, anywhere from 3 to 6 months’ worth of interest

33. CDs Safe, insured by FDIC up to $100,000 Not very liquid You should consider the maturity date when investing in CDs, because the interest rate remains the same on fixed rate CDs If interest rates rise, the CD rate will not earn as much as other investments If interest rates fall, fixed rate CD can be good You must also decide how long you’re willing to tie up your money

34. Credit Union Accounts These accounts usually represent shares in the credit union rather than deposits “Share-draft account” = checking account “Share-account” = savings account “Share certificate” = CD