1. Chapter 5 The Banking System

2. Ch. 5 Objectives
Explain the purpose and use of checking accounts and savings accounts
Prepare checks and deposit slips and maintain a checkbook register
Prepare a bank reconciliation between checkbook register and bank statement
Explain how you can grow your savings with compound interest
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3. Financial Planning
Three main influences when considering financial planning:
Life Situation
Personal Values
Economic Factors
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4. Why Save and Invest Money?
Allow your money to grow
Keep up with inflation
Earn interest on interest
Make your money work for you
Through:
Compounding interest
Investment growth
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5. Time Value of Money
A dollar you receive in the future will be worth less than a dollar you receive today

6. Did You Know?
Small amounts saved and invested can easily grow into larger sums
If a person saved a dollar each day by not having a candy bar or soda, they would save $365 per year, if the $365 was deposited into a certificate of deposit (CD) with 5% interest, the money could grow to nearly $400 in one year!

7. Cash Management
The daily routine of handling money to take care of individual or family needs
Effective cash management includes having money available for:
Living expenses
Emergencies
Savings
Investing
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8. Cash Management Tools
Financial accounts used to assist with cash management
Tool
Interest
Special Features
Checking Account
1.5%
Checks used in place of cash
Easy access
Saving Account
2.3%
Temporary holding place
Money Market Account
2.6%
Minimum balance
Tiered interest rates
Limited withdrawals
Certificate of Deposit
4 – 5.4%
Penalty for early withdrawal
Not easy to access funds
Savings Bond
Tax advantages

9. Why Have Checking Account?
Checking Account – A demand deposit account on which checks are drawn
Check - a written order to a bank to pay a person or business.

10. Checking Accounts Why open a checking account?
Safe place to keep money (Insured by the FDIC)
Easy to pay bills by mail (writing a check)
Easy access to money to make cash purchases
Withdrawal money
Write checks against the account
Debit cards
Internet Banking

11. Checking Account Features
May be interest earning
Minimum balance requirements
(Money Market Checking)
Charge transaction fees
Limited number of checks written monthly
Reduces the need to carry large amount of cash

12. Opening a Checking Account
What will I need?
Money! ($50 or $100)
Personal information
Identification
Provide an official signature
What will I be given?
Checkbook
Checkbook register
Debit card

13. Checkbook Register A way to track your account transactions
5-1 Checking Accounts
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14. Withdrawals and Deposits
A withdrawal involves taking money from your account.
Writing checks
Using debit cards
A deposit of money can be made to your account.
Endorsing checks
Direct deposit

15. Writing a Deposit Slip Sally Smith___________ Deposit Slip
Sally Smith
500 Great Street
Yourtown, NJ 55555
Dollar Cents
CASH
CHECKS
List Singly
Total From Other Side
SUBTOTAL
*Less Cash Received
NET DEPOSIT $
Date: 9/2/2006
Sally Smith___________
Sign here
Guardian Angel Banking
423 South 15th
Yourtown, NJ 55555 :
(If you need some cash now)

16. Writing a Check
Sally Smith
500 Great Street
Yourtown, NJ 55555
503
Date: 9/6/2006
Pay to the
Order Of The Pizza Place
$ 9.50
_Nine dollars_ /100_ Dollars
Guardian Angel Banking
423 South 15th
Yourtown, NJ 55555
Memo __Pizza_ ___ Sally Smith____
: : 503

17. Endorsing A Check Three Types
Signature on the back of the check approving it for deposit. Checks must be endorsed to be deposited*
Three Types
Blank
Restrictive
Special
*Safest way to endorse the check is to wait until going to the bank to deposit
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18. Blank Endorsement Receiver of the check signs his/her name
Anyone can cash or deposit the check after it has been signed
Endorse Here
X Sally Smith_________
DO NOT WRITE, STAMP OR SIGN BELOW THIS LINE. RESERVED FOR FINANCIAL INSTITUTION USE
________________________________
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19. Restrictive Endorsement
More secure than blank endorsement
Receiver writes “for deposit only” above his/her signature
Allows the check only to be deposited, not cashed
Endorse Here
For Deposit Only – Acct
X Sally Smith_________
DO NOT WRITE, STAMP OR SIGN BELOW THIS LINE. RESERVED FOR FINANCIAL INSTITUTION USE
_______________________________
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20. Special Endorsement Pay to the order of Mike Smith
Receiver signs and writes “pay to the order of” (fill in person’s name)
Allows the check to be transferred to a second party
Also known as a third-party check
Endorse Here
Pay to the order of Mike Smith
X Sally Smith_________
DO NOT WRITE, STAMP OR SIGN BELOW THIS LINE. RESERVED FOR FINANCIAL INSTITUTION USE
_______________________________
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21. Check 21 Check clearing for the 21st Century Act (check 21)
Current trend that changes how money is withdrawn and deposited into accounts

22. How Check 21 Works Prior to Check 21
Paper checks physically moved from place to place
After Check 21
Paper checks scanned to computer to create a “substitute check” (truncated)
Substitute check is transferred electronically from place to place
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23. Monthly Statement Comes from your bank
Lists information about each transaction during the period
Lists the current balance during the period

24. Reconcile a Bank Statement
Bank reconciliation - the process of adjusting the checkbook register and bank statement so they agree
Consider the following:
deposits in transit
outstanding checks
transposition errors

25. What Is the Purpose of Savings?
Savings Account - a demand deposit account for the accumulation of money
It is a safe place to hold money to meet future needs and wants
It pays interest at a low rate
5-2 Savings Accounts

26. Liquidity
How quickly and easily an asset can be converted into cash. Liquid assets are important for emergency situations
Investors should - Invest in both liquid and non-liquid tools

27. Liquidity
Checking Account Savings Account Money Market Account Certificate of Deposit(CD) Savings Bond IRA (401K)- Individual Retirement Account
Most Liquid
Least Liquid

28. Cash Management Tools
A financial account used to assist with daily cash management
Tool
Interest
Special Features
Checking Account
1.5%
Checks used in place of cash
Easy access
Saving Account
2.3%
Temporary holding place
Money Market Account
2.6%
Minimum balance
Tiered interest rates
Limited withdrawals
Certificate of Deposit
4 – 5.4%
Penalty for early withdrawal
Not easy to access funds
Savings Bond
Tax advantages

29. Watch Your Money Grow! How can you grow your savings? Through…
Principal
Simple interest
Compound interest
5-2 Savings Accounts
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30. Computing Simple Interest –
P = amount of money invested
R = interest rate
T = time period that money will be set aside
Simple Interest
Interest (I) = Principal (P) × Rate (R) × Time (T)
= $1,000 × 6% annual rate × 6 months
= $1,000 × 0.06 × 6/12 = $30
Simple Interest – interest computed on principal once during a certain time period

31. Computing Compound Interest- see Charts on page 165 and 166
Future Value of Money
Quarterly Compounding
Annual Interest Rate 6%
Beginning Rate Ending Year Balance 6% Quarter Balance
1 $ $1.50 $1.52 $1.55 $1.57 $106.14
2 $ $1.59 $1.62 $1.64 $1.66 $112.65
3 $ $1.69 $1.72 $1.74 $1.77 $119.57
Compound Interest – interest earned on both the principal and previously earned interest

32. Rule of 72 How long will it take to double my money?
Divide annual interest rate into 72
Example: if you invest $50 at 6% interest, your money will grow to $100 in 12 years
( 72 ÷ 6 = 12 years)

33. Focus On . . .
The FDIC
Protects depositors of insured U.S. banks against loss if the bank fails (up to $250k per account
Covers all types of deposits
Covers principal and accrued interest
Does not insure some items
Examples: stocks, bonds, valuables
Insures deposits in different banks separately
5-2 Savings Accounts
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34. Available Banking Services
Safe deposit boxes
Overdraft protection
ATMs
Cashier’s checks
Financial advising
Loans
Internet banking
Bank cards
5-3 Banking Services and Fees
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35. Costs of Banking Monthly account fees Nonsufficient fund fees
Special service fees
Examples: stop payment, cashier’s check, money order
ATM fees
Inactive account fees

36. What Are Consumer Responsibilities?
Maintain your balance.
Avoid writing bad checks.
NSF means bounced check
Monitor your account.
Reconcile your bank account.
Know your rights.
Be aware of consumer protection laws.

37. Success Skills Negotiating
It is the process of reaching an agreement that benefits both parties.
Understand your position.
Understand the other party’s position.
Create a proposed solution.
Identify what is important and what you are willing to give up.
5-3 Banking Services and Fees
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