1. 1 C HAPTER 4 Banking Services: Savings and Payment Services Overdraft fees now average $35 per transaction. That was $31.5 billion in 2012, up from $30.8 billion in 2011. -- abcNews, Center for Responsible Lending http://abcnews.go.com/Business/banks-raking-profits-overdraft-fees/story?id=17408954&singlePage=true

2. 2 Types of Financial Institutions Deposit type financial institutions  Commercial banks are corporations that offer a full range of services including checking, savings, and lending  Insured by FDIC  Credit unions are user-owned and nonprofit  Hence their fees are usually lower than banks and the rates they pay are usually higher than banks  Insured by NCUA/NCUSIF Discussion: Are there any significant differences between banks and credit unions? Is your money safe?

3. 3 Types of Financial Institutions Non-deposit type financial institutions  Investment companies offer money market mutual funds. You can write checks on your account  (More about money markets when we get to investments)  Post office, convenience stores offer money orders  Check-cashing outlets charge 1% to 3% or more to cash a check  A bank or credit union will cash your checks for free  Pawnshops make loans on possessions (60%?!)  Loan-Until-Payday companies (244%?! 400%!) (continued) Where do you see the most check-cashing outlets, pawnshops, loan-until-payday companies, etc.?

4. 4 Which type of financial institution do you use? A. Commercial bank B. Credit union C. Other (check cashing, post office, etc.) D. I do not have any money so I do not need one! Discussion: Why and how do people choose one financial institution over another?

5. 5 On-line banking Banking through the telephone, personal computer, and other on-line services Access 24 hours a day, 7 days a week  ATM is your teller if you need cash or want to deposit money Privacy and security are concerns  Do you allow your browser to store your password? Do you have a strong password? Why are financial institutions pushing these services? Some banks (example: HSBC) are attracting Internet-only customers with very high yields on their savings accounts. What is their motivation to do this?

6. 6 Types of Financial Accounts Savings accounts  Savings accounts (banks, a.k.a. passbook saving accounts)  Share accounts (credit unions, a.k.a. savings accounts)  Certificates of Deposit (CDs) – Shop around! Payment accounts  Checking accounts (banks)  Share draft accounts (credit unions, a.k.a. checking)  NOW accounts (Negotiable Order of Withdrawal)  Checking account that earns interest (negligible)  Overdraft Protection?  For checks? Yes, get it. Link it to your savings account  For debit cards? No way! Must now “opt-in”  Careful – compare costs. How much is it?

7. 7 Money market  Money market account (bank or credit union)  Insured!  Money market mutual fund (mutual fund company)  Not Insured! (but still very, very safe) Trust accounts – FBO (usually for minors or the aged) Asset Management Accounts – Through brokerages  Very high class! Usually around $100+ per year Club accounts  “Christmas Club”  “Vacation Club” Tanda? – Cundina? – Paluwagan? (continued) Types of Financial Accounts

8. 8 The number of electronic payments now far exceeds the number of paper check payments  Many Millenials don’t even have (or want) a checkbook Types of checking accounts  Regular  Usually have a monthly service charge  Activity account  Charge a fee for each check written  Some have both types of fees!  No-fee checking accounts have been the norm but that is currently changing  Banks need to make up for the fees they are losing because of the recent changes in the banking laws Selecting Payment Methods

9. 9 Other Payment Methods Certified check  Personal check with guaranteed payment Cashier’s check  Check of a financial institution you get by paying the face amount plus a fee Money order  Purchase at financial institution, post office, store Traveler’s check  Each check must be signed twice  Electronic traveler’s checks – prepaid travel card with ability to get local currency at an ATM  Much less popular than they once were

10. 10 Other Payment Methods Electronic cash  ATM Point-of-sale transactions  Stored-value cards  For long distance, tolls, library fees  Smart cards – not linked to your bank account  Were supposed to replace cash  Never really caught on  Gift cards  Internet payments – PayPal, Yahoo!, etc. Credit cards (continued)

11. 11 A computer terminal that allows customers to conduct banking transactions  Debit card or cash card activates transactions  Linked to a bank account – Requires a PIN  Liability if debit card is lost or stolen To reduce ATM fees you can...  Compare ATM fees before opening an account  Use your own bank’s ATM when possible  Withdraw larger cash amounts as needed  Use personal checks, traveler’s checks, credit cards, and pre-paid cash cards when traveling Automated Teller Machines

12. 12 Evaluating Savings Plans Rate of return or yield  Percentage increase in value due to interest Compounding - interest on interest  Annually, semiannually, quarterly, daily Annual Percentage Yield (APY) After-Tax Rate of Return  (1 – Marginal-Tax-Rate) x Rate-of-Return  (1 – 25%) x 4% = 0.75 x.04 = 0.03 = 3%  So even if you are earning 4%, after you pay the taxes on the interest you earned, you are actually earning only 3%

13. 13 What is “Truth in Savings?” Requires disclosure of...  Fees on deposit accounts  The interest rate (a.k.a. the nominal rate)  The Annual Percentage Yield (APY) Establishes rules for advertising accounts Sets formulas for computing the APY Interest must be compounded on the full principal amount in the account each day  The bank can put a hold on your money but it still must pay you any interest you deserve

14. 14 Check Reconciliation More than half Americans do not reconcile their checkbook balances Check Register  Keep it current!  Write every transaction down – Immediately!  Keep an electronic register and a written one Bank Statement Check reconciliation forms Check register spreadsheet Quicken, etc.

15. 15 Okay, ‘fess up! Do you reconcile your checking account balance? A. I balance it to the penny B. I have a pretty good idea of the accuracy C. Nope – I never reconcile it D. As long as there are more checks in my checkbook, what do I have to worry about?

16. 16 Check Reconciliation When you get the monthly bank statement…  Record cleared checks  Identify outstanding checks  Record deposits confirmed  Identify deposits in transit  Look for transactions that were left out of the check register  Reconcile! (continued) Let’s try an example…