Transcript Banks and Banking Chapter 5

Chapter 05
Financial Services: Savings Plans
and Payment Accounts
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A Cash Management Strategy
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Banks, saving and loan associations, credit
unions, and other financial institutions provide a
variety of financial services
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Account services provide customers with online
banking offering deposits, investments, credit
cards, loans, mortgages, rewards programs and
IRAs
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A Cash Management Strategy
MEETING DAILY MONEY NEEDS
Cash, check, credit card, and debit cards are
the most common
payment choices
Cash = _________
No matter how carefully you manage your
money, there may be times when you will
need more cash than you currently have
available. So you have two options:
1. _________________
2. _________________
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ATM (Automatic Teller Machines):
 Uses a “debit card”
 activates ATM transaction and is linked to a bank
account. It is like writing a check.
 ATM convenience can be expensive…FEES!!!
 Lost or stolen debit card:
 Notify within 2 days liability is $50
 After that it could be $500 up to 60 days
 Beyond that is unlimited
 But some card issuers may treat it like a credit card
with a $50 maximum
A Cash Management Strategy
(continued)
Common mistakes in managing cash
include…
1._____________ from impulse buying and
using credit cards
2.Not having enough ________________
(cash and checking account) to pay current
bills
3.Using __________ or borrowing to pay for
current expenses
4.Failing to put unneeded funds in an interestearning savings account or investment plan
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A Cash Management Strategy
(continued)
TYPES OF FINANCIAL SERVICES:
• __________
– Time deposits in savings, CD’s
• ___________________
– Checking accounts are called demand deposits
– Automatic payments
• _________________ for the short- or long-term
• Other financial services:
– Insurance, investment, real estate purchases,
tax assistance, and financial planning are
additional services you may use
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A Cash Management Strategy
(continued)
Other types of financial services (continued)
– ____________
• A legal agreement that provides for the
management and control of assets by one party
for the benefit of another
– ____________________________
• Also called a cash management account
• Offered by brokers and financial institutions
• Provides a complete financial service program
for a single fee, benefits include:
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Tracking money in one location
Consolidated statements
Lower fees due to higher balance aggregation
Ease for tax reporting
Ease for communicating financial issues to family
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A Cash Management Strategy
(continued)
ONLINE BANKING
• _____________
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Time and Money savings
Convenience for customer
No paper trail for identity thieves
Online transfer of funds from one account to
another
– E-mail notification regarding due dates
• ______________
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Privacy and security
Costly ATM fees
Difficulty depositing checks and cash
Overspending potential
Online scams; phishing and e-mail scams
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A Cash Management Strategy
(continued)
OPPORTUNITY COSTS OF FINANCIAL SERVICES
•
Higher rate of return may be obtained at the cost
of _______ liquidity
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Convenience of a 24-hour ______ should be considered
against service fees
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The “no fee” checking account with a $500 non-interestbearing minimum balance means lost interest of nearly $400
at 6 percent compounded over 10 years
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Financial Institutions
DEPOSIT INSTITUTIONS
• ______________________
– Offer a full range of services including checking,
savings, lending and other services
• _______________________
– Offer specialized savings plans, loans including
mortgages, and other financial planning services
• ________________________
– specialize in savings accounts and mortgage
loans: they are owned by their depositors
• ________________________
– are user-owned, nonprofit cooperative financial
institutions
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Financial Institutions (continued)
OTHER FINANCIAL INSTITUTIONS
– ________________companies
• Offer insurance, plus savings and investment
features; some offer financial planning and
retirement services
– ________________ companies
• Are also referred to as Mutual Funds
• Offer a money market fund on which you can write
a limited number of checks
– _________________ companies
• Make short and medium term loans to consumers,
but at higher rates
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Financial Institutions (continued)
OTHER FINANCIAL INSTITUTIONS
– _____________ companies
• Provide loans to customers so they can
purchase homes
– _______________
• Make loans on possessions but charge higher
fees than other financial institutions, used for
quick cash
– ________________
• Charge 1-20% of the face value of a check: 23% is average
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Financial Institutions (continued)
Choosing a financial institution, by step:
Step 1: Prepare a list of important features.
Step 2: Rank the top 3 or 4 features, for you.
Step 3: Prepare a list of financial institutions.
Step 4: Conduct research for decision.
Step 5: Make decision based upon above.
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FDIC: Federal Deposit Insurance Corporation
• Insurance that banks purchase to protect
deposits of customers against loss up to
$250,000 per depositor -in effect through
December 31, 2013. On January 1, 2014, the
standard insurance amount will return to $100,000
per depositor for all account categories except IRAs
and other certain retirement accounts, which will
remain at $250,000 per depositor.
• _______ - Federal Savings and Loan
Insurance Corporation.- Insures depositors of
savings and loans up to $250,000.00 through
2013.
• Look for sign in institution.
Savings Plans
REGULAR ______________ ACCOUNTS
• Usually involve a low or no minimum balance
• Credit unions call them share accounts
• Difficult to obtain a rate that is higher than the rate of
inflation.
CERTIFICATES OF ______________
• Require you to leave your money on deposit for a set
time period, otherwise you incur penalties
– Several types to chose from
– Consider all the earnings and all the costs
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Evaluating Savings Plans
____________________
– Percentage or yield is the increase in value due to
interest
– Example: a $100 savings account that earned $5
has a yield of 5 percent
____________________
– More frequent compounding means earning more
interest on interest previously earned
The annual ______________ yield
• Purpose: to provide consistency when comparing
different savings options.
• Formula:
– APY = 100 (Interest/Principal)
• NOTE: Formula is applicable when the number of days in the term is 365
or when the account does not have a stated maturity.
– Example: Interest of $60 on principal of $1,200
– =100 (60/1200) = 5% (APY)
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Evaluating Savings Plans (continued)
_____________________
• Requires Disclosure of...
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Fees on deposit account
The interest rate
The annual percentage yield
Other terms and conditions
____________________
– Compare your APY with inflation rate
___________________
– Taxes reduce interest earned on savings
– Taxes are not withheld from savings and
investments; you may owe additional taxes at yearend as a result of earnings on saving
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Evaluating Savings Plans (continued)
______________
– Allows you to withdraw money on short notice
without penalty or fees.
______________
– FDIC insures up to $250,000 per person per
financial institution.
______________________________
– Several restrictions can affect the choice of a
savings program
– Delay in time between earned and posted,
transactions fees from deposits and withdrawals,
time money has to be left in a deposit account in
order to receive a “free” gift, etc.
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Payment Methods
ELECTRONIC PAYMENTS
• _______________________– Is like writing a check
•
________________________–most credit cards now offer this service
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________________________-A type of electronic bank debit card that
has a specific dollar value programmed into it. Banks provide these cards
as a service for customers who cannot open checking or other deposit
accounts.
– Closed-loop cards have a one-time limit; merchant gift cards and
prepaid phone cards are two examples.
– Open-loop cards, on the other hand, can be reloaded with cash and
used again.
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____________________– A smart card is a plastic card about the size of a credit
•
card, with an embedded microchip that can be loaded with data, used for telephone
calling, electronic cash payments, and other applications, and then periodically refreshed
for additional use. Currently or soon, you may be able to use a smart card to:
– Dial a connection on a mobile telephone and be charged on a per-call basis
– Establish your identity when logging on to an Internet access provider or to an online
bank
– Pay for parking at parking meters or to get on subways, trains, or buses
– Give hospitals or doctors personal data without filling out a form
– Make small purchases at electronic stores on the Web (a kind of cyber cash)
– Buy gasoline at a gasoline station
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Checking Account
• A banking service where you __________money
into an account and checks (drafts) can be
written to withdraw money from the account
when needed.
• Is known as a ________________, because you
can demand portions of your deposited funds
when you want.
• Only the _____________ (maker) can write
checks on the account
• Usually pay a fee for checking services unless
you keep a minimum balance in your account.
• A check is a _____________ instrument,
because it promises to pay a sum on a certain
date.
Opening A Checking Account
• When you open up new checking
account, you will fill out a signature
card.
• A ____________ provides the bank
with important info and your official
signature so they can verify checks
you have written.
Checking Accounts
EVALUATING CHECKING ACCOUNTS
• Need to be evaluated based on :
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Restrictions
Fees and charges
Interest rate and computation method
Special services, such as overdraft protection
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Checking Accounts
MANAGING YOUR CHECKING ACCOUNT
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Opening a Checking Account
– ________ or _______ account
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Making Deposits
– Deposit ticket
– Endorsement
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_________ endorsement
– Just sign the check
_________ endorsement
– For Deposit Only
__________ endorsement
– Pay to the order of
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Blank Endorsement
Should only be used when you are depositing or
cashing a check, since a check can be cashed by
anyone once it is signed
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Restrictive
Endorsement
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Special
Endorsement
Allows you to transfer a check to someone else
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Bank Deposit Slip Example
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Checking Accounts
• Writing Checks – Write with ____!
1.Record the date
2.Write the name
3.Record the amount
4.Write the amount in words
5.Sign the check
6.Note the reason for payment
7.Record the check in your
__________________
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Sample Check
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Writing A Check
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If the two amounts do not match, which
one does the bank use?
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Name The Type of Endorsement
__________________
__________________
__________________
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Checking Accounts
• _________ Checks – Checks that the bank has
processed(cleared)
• Can use them as a receipt of payment
• __________ Checks – Checks that you have
written that the bank has not processed yet.
• ______________ your checking account
1.Used to compare the bank’s balance and
your checkbook balance.
2.Reasons for differences:
a.
b.
c.
Interest earned
Checks that have not cleared
Deposits not yet received by bank
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Checking Accounts
Overdraft
•A check that ________ be covered by the funds in
your account.
•When an overdraft occurs and the check is returned,
the check has “bounced”
(rubber checks)
•You also get charged a _____ for each ______
(non-sufficient funds) check that is processed.
•When checks bounce, the bank notifies you in
writing. Some banks will send you an email or text.
•You definitely need to consider having some type of
_________________on your checking account.
Payment Methods (continued)
OTHER PAYMENT METHODS
• _________ check
– Personal check with guaranteed payment
• _________ check
– Check of a financial institution you get by paying
the face amount plus a fee
• __________ order
– Purchase at financial institution, post office, store
• ___________ check
– Sign each check twice
– Electronic traveler’s checks - prepaid travel card
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