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Banking

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Banking

Financial Intermediaries• Financial Intermediaries – channels funds from

savers to borrowers• When you save you are essentially lending

funds to others.• Types of Financial Institutions

– Commercial Banks – usually more branches– Savings and Loans – fees usually lower– Credit Unions – loan rates better– Finance Companies – for high risk customers– Life Insurance Companies – policy holders only– Pension Funds

Banks

• A business that sells financial services– Consumer loans – Home mortgage loans– Business loans (commercial loans)– Checking accounts– Credit card services– Certificates of deposits– Individual Retirement Accounts– Safety Deposit Box

Dual Purpose

• Provides safe place for people to keep their money

• Provides money for people who requiring borrowing

• WHERE DO THEY GET THEIR MONEY?– FROM SAVERS LIKE YOU!!!!

Choosing a Bank

• US Bank gave away IPOD Nano’s to get you as a customer

• Check out the services they offer and the prices for the services

Questions to consider

• Do they pay a competitive interest rate?

• Is it in a convenient location?

• Are it’s hours compatible to your waking hours?

• Is it insured by the FDIC?

• Does it provide the services you require?

• Does it provide courteous and efficient service?

What types of accounts?

• Savings – safe and earn interest

• Money Market Accounts

• Checking accounts

• Debit cards

• Certificates of Deposits

• IRA’s – Individual Retirement Accounts

• Money transfers

Opening an Account

• Money to deposit – DUH!

• Identification• Social security #• Signature card signed• If under 18 – parents

are added to account as guardian

Fees

• ATM fees

• Debit card fees

• Check printing fees

• Stop payment fees

• Money order and bank check fees

• Balance inquiry fees

• Money market checking fees

Checking Accounts

• Checks are the hub of the banking system.

• You probably get paid with a check or you pay your bills with checks

• First recorded check use of a check was 1374.

• I wrote it!

Checking Variety

• Regular – write as many checks as you want, no interest on account, typically a $2.50-$15 monthly fee or per check fee of 30 cents per check – if you keep a certain minimum it could be free

• Interest Accounts – write as many checks as you want, minimum balance of $300 required or very high fees

• Money Market Checking – interest rate is significantly higher and large minimum required with usually only 3 checks per month can be written

• Money Market Funds –mutual fund companies pay market-rate interest, no fee for checks, no limit to checks written, minimum balance $250-$500 - usually have to wait 14 days to write checks on deposits

Minimum Balances• The least amount of money a bank requires you

to keep on deposit to qualify for certain benefits like reduced fees or free checking, or to earn a stated rate of interest.

• Usually figured on the average minimum balance for the month.

• Be careful not to sign up for accounts with required minimums for earning interest or avoiding fees if you’re not likely to meet them.

• Can be costly mistake!!!

The Life of a Check

You Write A Check

1) You go shopping at Joe’s Electronics and buy a CD player for $100 with a check from an account you have with First National Bank, Your Town, USA.

The Store Deposits The Check

2) Joe’s Electronics deposits the check in its account with Citizen’s Bank, Main Town, USA

This can be done physically or by Check 21

Check 21

Electronic Check Exchange allows for paper checks to be made into an electronic image.

This reduced costs associated with sorting, transporting, and reconciling of paper checks.

A merchant or bank will provide this service.

Magnetic Inking

3) The store or bank places a magnetic ink code for the dollar amount in the lower right-hand corner of the check.

It’s money in the Bank

4) Citizen’s Bank credits Joe’s account.

The Bank Sends Your Check Image to the Federal Reserve

5) Citizen’s bank sends an electronic image of the check to the Fed

6) The checks are read for financial institution information and amounts

The Stores Bank Account Is Credited

7) After the Federal Reserve Bank processes your check, Citizen’s bank is credited with $100.

8) After processing the Federal Reserve presents the check to First National Bank for payment.

Your Account Is Debited

9) Your bank pays the Federal Reserve and debits your account.

Float

• There is a short period of time between when the store’s bank is credited for the check and when your bank is presented with the check. During this time, both financial institutions have the same funds available to them, called float.

• During week-ends or holidays when high volumes of checks are being processed, float is created.

• Imaging (Check 21) has been created to reduce float.

Issues

• Bouncing checks – if there’s not enough money in your account when you write a check – your bank can refuse to honor it, or pay it.

• The person who cashed it could be charged a fee as well as you who wrote it.

• Today those charges are typically $30!!!

• These are called rubber checks because they bounce to the ceiling and back!!!

Overdraft Protection

• Best way to avoid rubber checks• A special line of credit that covers checks

you write when there isn’t enough money in your account

• The bank automatically transfers money to your account to cover the check.

• They charge you interest on the amount transferred but it is less than the Insufficient Funds charges

Stop Payment

• If you write a check and then decide you don’t want to pay, or if you lose the check, you can – for an extra fee – stop payment.

• This has to be done with 14 days of the issued check and lasts for six months. The fee is usually $15.00.

• The bank must honor your order if it is timely. Always keep receipts to show written proof of a stop payment

Special Checks

• There are times when your personal checks are just not good enough!!

• Sometimes you will need to guarantee the payment if a large amount of money is involved.

• Banks can provide several types of special checks, as can the U.S. Post Office.

Cashier’s Checks

• Guarantee that the check is good because it is drawn against the bank’s account

• You give the bank money and they write the check on a machine-printed check.

• You get a carbon copy of the check.

Certified Checks

• Personal checks that your bank guarantees it will honor.

• You write the check, your bank freezes, or puts a hold on your account for the amount of the check, and stamps certified on the face.

• There is a fee for each certified check, and you can’t stop payment once it reaches its destination.

Traveler’s Checks

• Issued by travel companies, banks and credit card companies to be used in place of cash in places where you might have difficulty using a personal check.

• You purchase various fixed denominations in local or overseas currencies (this recommended). You sign your name on the checks when you purchase them, and when you redeem them the vendor makes sure they match, along with some ID.

• If lost or stolen you can replace them immediately.

Money Orders

• Useful if you don’t have a checking account.

• They cost about $3.00 at banks and about 80 cents at post offices. Also available at Wal-mart, Albertsons, etc. for 25 cents.

• They are guaranteed. This is the least expensive of the guaranteed checks.

ATMs

• You can avoid long lines for deposits or cash by using an ATM

• Most banks are part of regional and international networks that let you withdraw cash from your accounts at ATMs around the world.

• You can complete as many separate transaction as you want, but you can only withdraw from $200-$500 per day.

Monthly Statements

• Balancing your checkbook every month helps you keep tabs on where your money is going.

• You have a monthly snapshot of your dealings with the bank all on one document.

• My nephew did not check his monthly statements for three months – someone else was using his ATM card (stolen from his room) and he didn’t notice it until he got notices from the bank that he was overdrawn!!! CHECK YOUR STATEMENTS MONTHLY!!!

Certificates of Deposits

• Minimum deposit is $500 and the time length varies from 30 days to 5 years.

• The money put in is known as the principal, the length of the CD is the term, and the time it ends is called the date of maturity.

• The yield or interest is higher and it is insured up to $250,000 (FDIC)

• Interest is compounded daily, monthly, quarterly, or semi-annually.

Risks of CD’s

• Your money is locked in at a specific rate, even if interest rates go up.

• You will lose interest if you withdraw the money early – usually 3-6 months interest

• If you bank mergers – your CD terms and rates may change

Savings

• Putting money away for a rainy day is the basic idea behind savings accounts.

• Most banks allow transfers from savings to checking, checking to savings, savings, to checking, etc., etc., etc.

• You can get your money any time you want, but interest is usually lower

• Insured up to $250,000 (FDIC)

Safety Deposit Box

• Designed to keep important papers and objects, such as deeds, jewelry, birth and marriage certificates, plus an inventory of your valuable possessions.

• I actually did a video of my house (inventory) and put it in my safety deposit box for insurance purposes.

• Usually a shoe box size is about $25/year

E-Banking

• Direct deposits – paychecks/investments• Wire transfers/only take an instant and the

money is there for your children’s enjoyment (college checking account)

• Bill payment• Account management• Real-time account information• 24 hour access• If your bank does offer it – find another bank –

usually free services