Chapter 5: Banking

Section 5.1

Financial Services and Institutions

How to manage your cash

• When banking started in 1791 there were only 8 branches.

• Today there are over 11,000 banks, 2,000 savings and loans, and 12,000 credit unions

• Your choice of financial services will depend on your daily cash needs

Daily Cash Needs

• What do you spend money on from day to day?

• Do you carry around cash?

• Do you have a debit card?

Sources of Quick Cash

• Sometimes you need more cash than you have

• Do you take it from your savings?

• Do you borrow from a financial institution?

• What are the pros and cons of each?

Types of Financial Services

• Banks offer a variety of services to stay competitive with other banks

• Savings

• Payment services

• Borrowing

Savings

• What are some types of savings that we have already talked about?

Payment Services

• Transferring money from your personal account to a business or another individual

• This can sometime be referred to as an auto transfer or a bill payment

Borrowing

• What are some ways that you can borrow money that we have already discussed?

Other Services

• Larger banks and their affiliates can offer a wide range of other services such as– Stocks– Bonds– Mutual Investments– Income tax assistance– Financial Planning Services

Electronic Banking Service

• Online services can help customers get up to date account information

• Security is the number one issue for online customers

• Make sure you set your information up with a strong password or security code.

Direct Deposit

• How Many of you have a Direct Deposit?

• An automatic deposit of net pay into your personal account

• What are some advantages? Can you think of any disadvantages?

Automatic Payments

• With your authorization a bank can either make a bill payment for you or you can set up for a company to take money automatically out of your account

• Pros and cons??

ATM

• (Automated Teller Machine)

• Did you know that using an ATM that is not owned by your bank charges you?

• What happens if you lose your card?

Plastic Payments

• POS (point of sale) transactions – a purchase with your debit card

• Stored- Value cards – prepaid cards, can be reloadable or rechargeable

Opportunity Costs of Financial Services

• Find a balance between your short term financial goals and your future financial goals

• Are there locations near you

• Are there convenient ATM locations

• Do they offer free checking

• What hidden fees are there

FDIC

• FDIC (Federal Deposit Insurance Corporation)

• FDIC insures the money in your account up to $100,000

Commercial Banks

• They are a for profit organization that offers a wide range of financial services

• They serve individuals and businesses

• They are authorized by the state or federal government to conduct business.

Savings and Loan Associations

• Specializes in savings accounts and mortgage loans

• They may offer the some services that a commercial bank offers such as, checking accounts, and loans

• Insured by (SAIF) Like FDIC but for savings and loans associations

Mutual Savings Banks

• Specialize in only savings accoutns and mortgage loans.

• Do not offer commercial bank services

• Have lower interest rates on their loans and higher interest rates on savings

Credit Unions

• Nonprofit financial institution that is owned by its members.

• Members usually have some type of bond like teachers credit union, or a labor union credit union.

• May have lower fees and interest rates than commercial banks

Non- Deposit Institutions

• Life insurance companies

• Investment companies

• Finance Companies

• Mortgage Companies

Questions you need to ask yourself

• Where can you get the highest interest rate?• Where can you bank with little to no fees?• Can you borrow money when you need to?• Do they offer free financial advice?• Do they have convenient locations?• Is online banking available?• Are they FDIC or SAIF insured?