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Financial Services and Institutions

Name____________________

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How to Manage Your CashWhat are your cash needs? Banking began in 1791 – 1 central bank with 8

branches Today –

11,000 _________ 2,000 _____________________ 12,000 ____________________

Types of Financial Services Savings – safe storage of funds

Time Deposit – money left in the bank for months/yrs ____________________ Certificates of Deposit (CD’s)

Payment Services – transferring money from a personal account to businesses or individuals for payment is a basic function of day-to-day financial activity at a bank. Checking account – ___________________– withdraw money at any

time or on demand

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Types of Financial Services (cont) Borrowing – need to borrow money

Short term – credit cards, personal loan _____________–

mortgage – for a house Auto loan – for a car

Other Financial Services _____________________ Stocks, bonds, mutual funds, income tax assistance,

financial planning

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Electronic Banking ServicesHow can you use electronic banking services? Direct Deposit – automatic deposit of net pay to an

employee’s designated bank account Save time money and effort ______________________

Automatic Payments – Utility companies, lenders and other businesses allow customers to use an automatic payment system ____________________________

Automated Teller Machines (ATMs) – cash machine, computer terminal that allows a withdrawal of cash from an account…make deposits…transfer money from one acct. to another Debit card…allows you to use ATM or pay for purchases

from checking/savings PIN – _________________– needed to access and use your debit

card

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Plastic Payment ATM Fees – convenience fee for using the card

Lost – must notify bank ___________…most card issuers will not hold you responsible

Point-of-Sale Transactions – purchase by a debit card of a good/service at a retail store, restaurant. _______________ ________________________________

Stored-Value Cards – Prepaid cards that you can use for bus, school lunches, long-distance phone calls

________________________

Electronic Cash – plan is to create electronic versions of all existing payment systems, will no longer handle currency

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Types of Financial Institutions Federal Deposit Insurance Corporation

Great Depression of the 1930’s People lost their deposits

_______________________ Protect deposits - $100,000 (Federally Chartered Banks) Currently at ________________(Due to expire Dec 2013)

Deposit Institutions – deposit type institutions Commercial Banks ______________institution that

offers a full range of financial services…checking…savings…lending Individuals and businesses

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Types of Financial Institutions Savings and Loan Associations (S&L) – traditionally

specializes in savings accounts and mortgage loans The Savings and Loans Crisis created the greatest banking collapse

since the Great Depression of 1929. By 1989, over half the Savings and Loans had failed

Mutual Savings Banks Credit Unions – non-profit financial institution that is owned

by its members and organized for their benefit ______________________ College Alumni Assoc

Non-Deposit Institutions ______________________ Investment Companies ______________________ Mortgage Companies

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Problematic Financial Businesses Be careful of these financial businesses

________________________ Check Cashing Outlet ________________________ Rent-to-Own Centers

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Comparing Financial Institutions Where can you get the highest interest rate

for your savings ________________________________ Offer of credit cards or loans Do they offer free financial advice ____________________________ Convenient branch locations

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Savings Plans and Payment Methods Regular Savings Accounts

Passbook or monthly or quarterly statements Frequent deposits and withdrawals ______________________________ Lower interest rates

Certificates of Deposit (CD) savings alternative in which money is left on deposit for a stated period of time to earn a specific rate of return Low risk _____________________________

Trade-off: 1 month to 5 yrs, pay penalty for early withdrawal, minimum deposit

Maturity date – _________________________________

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Savings Plans and Payment Methods Money Market Accounts – savings account that

requires a minimum balance and earns interest that varies from month to month Minimum balance of _____, penalty for below minimum Write a limited amount of checks _________________________

U.S. Savings Bonds - bonds require that you leave the money in the account for a longer period of time. You purchase the bond at one half its face value. If you cash in the bond before that time, you will not receive the whole value of the bond. ____________________________

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Evaluating Savings Plans Rate of Return (yield) – percentage of increase in

the value of your _____________________________ Example – Initial deposit $75, $3 interest earned…the rate

of return is 4% Total interest/initial deposit (3 divided 75 = .04 (4%)

Compounding – is the process in which interest is earned on both the principal, the original deposit, and any previously earned interest

Truth in Savings – have to inform you of the following: ___________________________ Interest Rate Annual percentage yield (APY) Term and conditions of the savings plan

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Evaluating Savings Plans Annual Percentage yield (APY) – the

amount of interest that a deposit would earn, after compounding, for one year. _____________________________________ The APY helps your determine the amount you can

expect to earn on your money

Liquidity – Check the savings plans you are considering to determine whether they charge a penalty or pay a lower rate if interest if you withdraw your funds early.

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Types of Checking Accounts Regular Checking Accounts – usually do

not require a __________________________

Activity Accounts – write few checks, will be charged per check and deposit

Interest-Earning Checking Account – combination checking/savings…pay interest if minimum balance is kept

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Evaluating Checking Accounts Restrictions – is there a _________ balance

requirement

Fees and Charges – monthly service charge, fees for check printing, overdrafts, stop payment orders

Interest – Interest rates, frequency of compounding

Special Services – ATM Electronic banking Overdraft protection – automatic loan made to an account

if the balance will not cover checks written

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Using a Checking AccountHow do you open and use a checking account? Individual – ____________________ Joint – two or more owners Signature Card – ________________________

Writing Checks Check Register – small booklet that you use to

record your activity Record in check register – date, number of check,

name of party who will receive payment, exact amount of check

Record all checks, deposits, ATM activity

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Making a Deposit To add money to your checking account, fill

out a deposit slip

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Endorsements Signature of payee, the party to whom the check

has been written. Blank Endorsement – payee signature on back of check

Sign your name

Restrictive Endorsement – check holder’s signature and a restriction on how the paper may be used by the bank Write “For Deposit Only” and then you sign your name

Special Endorsement – allows you to transfer a check to an organization or another person Write the words “pay to the order of” followed by the name of

the organization or person, and then you sign your name

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Endorsements 1.

2.

3.

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Endorsing a check: Do not endorse a check until you are ready to

____________________________ Write your signature on the back of the check

at the top ______________________ Sign your name exactly as it appears on the

front of the check Use a _______ so that the signature cannot be

erased If depositing, write, “For Deposit Only” above

your signature

Check Clearing – system that ensures that the money you deposited in the acct is available for withdrawal (2-5 days)

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Keeping Track of a Checking Account Each month your bank will send you a

statement that shows your checking account activity for the month __________________ Checks you have written (charged

against your account) ____________________ Debit card charges (identified by the

business to whom you made the payment)

___________________ Fees

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Reconciliation Balance reported on the bank statement may

be different from the balance in your check register Written checks that have not yet

____________________ Deposit money into your account after the bank

prepared your statement ________________________ Interest paid

Bank Reconciliation – report that accounts for the differences between the bank statement and a checkbook balance Balancing your check book: Bank statement =

checkbook

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Balancing your Checkbook1. Compare checks written in checkbook to bank

statement (ck#-101,102,103-stmt-101,102) Outstanding checks – checks you have written that

haven’t cleared the bank (103) Subtract total amount of outstanding cks from bank

statement balance

2. Determine whether any recent deposits are not on the bank statement

Add amounts of those deposits to the bank statement

3. Subtract fees and charges listed on the statement from your checkbook balance

4. Add interest earned to your checkbook balanceCheckbook=Bank Statement

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Other Payment Methods Certified check – personal check with a

guaranteed payment – deducts amount out of your account immediately – fee charged

Cashiers Check – ___________________________

Money Order – pay the amount of the check + fee (also can be purchased at ___________for a smaller fee)

Travelers Check – used for traveling, can be replaced if stolen (amount + fee)

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How Do Banks Make Money? Banks make money by making loans Federal Reserve sets a reserve requirement

3%-10% for each deposit the rest can be loaned out You deposit $100, the bank can loan out $90 (if

reserve is 10%)