1. Chapter 5 The Banking System

2. What Is the Purpose of a Checking Account?
A checking account is a demand deposit account on which checks are drawn.
Why do people have checking accounts?
A check is a written order to a bank to pay a person or business.
5-1 Checking Accounts
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3. What Is the Purpose of a Checking Account?
To open a checking account, the account holder will need some money.
Usually it only takes 50 to 100 to open an account.
To open an account you will need to give up some personal information such as your social security number
A bank account be individual or joint
5-1 Checking Accounts
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4. Checkbook Register Account holders should verify all amounts deducted
A checkbook register is a tool that can be used to tracking checking account transactions
This register tracks both deposits and withdrawals.
A deposit is adding money to a checking or savings account.

5. Checkbook Register
5-1 Checking Accounts
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6. Making Withdrawals and Deposits
A withdrawal involves taking money from your account.
Automatic withdrawals
Writing checks
Using debit and ATM cards
5-1 Checking Accounts
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7. Writing Checks Checks are legal transfers of money.
Postdated checks are checks written with a date that will occur in the future.
Banks usually will not hold the check until the future and will process them without regard to the date
Debit card: used to withdraw money from your checking account
It allows you to make purchases by swiping the card through a point of sale terminal at the stores counter
Debit card and credit cards do not have the same protection.
Credit cards allow you to reverse and dispute charges.
If a debit card is stolen, funds can be withdrawn from your account.
Check fraud and forgery

8. Making Withdrawals and Deposits
A deposit of money can be made to your account.
Endorsement: signature
Blank: signature of payee is written on back
Restrictive: restricts or limits use of check
Special: transfers the rights to cash the check to someone else
Direct deposit: wages or benefits are automatically deposited into a bank account
An electronic funds transfer uses a computer based system to move money from the drawers account to the payees account
5-1 Checking Accounts
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9. How Do You Reconcile a Bank Statement?
Bank reconciliation is the process of adjusting the checkbook register and bank statement so they agree.
The bank statement lists checks, withdrawals, deposits, service charges, interest, and fees.
Consider deposits in transit, outstanding checks, and transposition errors.
5-1 Checking Accounts
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10. Fees
When a paper check is transformed into a digital image it is considered truncated.
Fees can include monthly service fees (5 to 20) and transaction fees (20 cents)

11. What Is the Purpose of Savings?
A savings account is a demand deposit account for the accumulation of money.
It is a safe place to hold money to meet future needs and wants.
Can be linked to checking account
5-2 Savings Accounts
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12. How Can You Grow Your Savings?
Principal is the money set aside on which interest is paid.
Simple interest is computed once during a time period.
Compound interest is earned on both principal and interest earned previously.
5-2 Savings Accounts
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13. Computing Simple Interest
P = amount of money set aside
R = interest rate
T = time 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
5-2 Savings Accounts
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14. The Future Value of Money
Saving a single sum
Saving a lump sum for a period of time
Saving on a regular basis
Setting aside money regularly
Annuity: when you set aside a fixed amount on a regular basis over time
Rule of 72
How long will it take my investment to double?
Divide the annual interest rate into 72
Invest $50 at 6%
It will double in 12 years (72/6=12)
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15. Computing Compound Interest
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
5-2 Savings Accounts
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16. What Are Your Savings Options?
Money market accounts earn the market rate of interest.
Certificates of deposit (CDs) pay a fixed interest rate for a time period.
U.S. savings bonds pay a guaranteed minimum interest rate.
Individual retirement accounts (IRAs) help you save for retirement.
5-2 Savings Accounts
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17. Places To Save Your Money
Online only banks: banks placed solely online.
Not always FDIC insured
Brokerage Firms: generally pay higher on savings accounts
International banks: Will become more commonplace as we get older and wont be so scary.
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18. Focus On . . .
The FDIC
Protects depositors of insured U.S. banks against loss if the bank fails
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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19. What Banking Services Are Available to Consumers?
Safe deposit boxes
Secure container located in the bank vault
Overdraft protection
If you write a check the your account does not have enough to cover, bank will cover it
ATMs
Cashier’s checks
Check issued from bank funds
5-3 Banking Services and Fees
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20. What Banking Services Are Available to Consumers?
Money Order
Type of check used to pay bills or make payments for which money is guaranteed
Financial advising
Loans
Internet banking
Bank cards
5-3 Banking Services and Fees
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21. What Are the Costs of Banking?
Monthly account fees
Service fee for maintaining a checking account ($10-$20)
Nonsufficient fund fees
Bounced Checks: check that in not honored by a bank and returned to the payee’s bank because of nonsufficient funds is a bounced check
Cost $30-$40 per check
5-3 Banking Services and Fees
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22. What Are the Costs of Banking?
Special service fees
Examples: stop payment, cashier’s check, money order
ATM fees
Fee from another bank to withdraw money
$2-$7
Inactive account fees
Does not meet minimum account usage requirements
$5-$15
5-3 Banking Services and Fees
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23. What Are Consumer Responsibilities?
Maintain your balance.
Avoid writing bad checks.
Monitor your account.
Reconcile your bank account.
Know your rights.
Be aware of consumer protection laws.
5-3 Banking Services and Fees
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24. 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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