Chapter 5 The Banking System

1. Chapter 5 The Banking System

2. Financial Institutions • Deposit Institutions • Commercial Banks • Credit Unions • Savings and Loan Administrations • Non-Deposit Institutions • Life Insurance Companies • Investment Firms • Finance Companies Slide 2

3. Deposit Institutions • Commercial Banks • For profit • Offer full range of services • Individuals • Businesses • Credit Unions • Non-profit • Owned by members • Services similar to commercial banks Slide 3

4. Deposit Institutions • Savings and Loan Administrations (S&L) • Specialize • Lower interest rates on loans • Higher interest rates on savings accounts Slide 4

5. What Is the Purpose of a Checking Account? • A checking account is a demand deposit account on which checks are drawn. • A check is a written order to a bank to pay a person or business. 5-1 Checking Accounts Slide 5

6. Making Withdrawals and Deposits • A withdrawal involves taking money from your account. • Writing checks • Using debit and ATM cards • A deposit of money can be made to your account. • Endorsing checks • Direct deposit 5-1 Checking Accounts Slide 6

7. Writing Checks • Postdated check – check written with a date in the future Slide 7

8. Endorsements Signature of the payee is on the back - Least secure Transfers the right to cash the check to someone else Limits the use of the check Slide 8

9. Checkbook Register 5-1 Checking Accounts Slide 9

10. Checking Account • What do you do if a check is lost or stolen? • Stop payment order • Not the same as a cancelled check! • What do you do if you write a check you no longer want to issue? • VOID Slide 10

11. Making Deposits Slide 11

12. How Do You Reconcile a Bank Statement? • Bank reconciliation is the process of adjusting the checkbook register and bank statement so they agree. • The bank statement lists checks, withdrawals, deposits, service charges, interest, and fees. • Consider deposits in transit, outstanding checks, and transposition errors. 5-1 Checking Accounts Slide 12

13. How Do You Reconcile a Bank Statement? Slide 13

14. What Is the Purpose of Savings? • A savings account is a demand deposit account for the accumulation of money. • It is a safe place to hold money to meet future needs and wants. • It pays interest at a low rate. 5-2 Savings Accounts Slide 14

15. How Can You Grow Your Savings? • Principal is the money set aside on which interest is paid. • Simple interest is computed once during a time period. • Compound interest is earned on both principal and interest earned previously. 5-2 Savings Accounts Slide 15

16. What Are Your Savings Options? • Money market • Variable interest rate with market • Minimum balance • Higher interest • Certificates of deposit (CDs) • Fixed interest rate • Set period of time 5-2 Savings Accounts Slide 16

17. What Are Your Savings Options? • U.S. savings bonds • Guaranteed minimum interest rate • Tax advantages • Individual retirement accounts (IRAs) • Help you save for retirement 5-2 Savings Accounts Slide 17

18. The FDIC “Federal Deposit Insurance Corporation” • Protects depositors of insured U.S. banks against loss if the bank fails • Covers all types of deposits • Covers principal and accrued interest • Does not insure some items • Examples: stocks, bonds, valuables • Insures deposits in different banks separately 5-2 Savings Accounts Slide 18

19. What Banking Services Are Available to Consumers? • Safe deposit boxes • Overdraft protection • ATMs • Cashier’s checks • Financial advising • Loans • Internet banking • Bank cards 5-3 Banking Services and Fees Slide 19

20. What Are the Costs of Banking? • Monthly account fees • Nonsufficient fund fees • Special service fees • Examples: stop payment, cashier’s check, money order • ATM fees • Inactive account fees 5-3 Banking Services and Fees Slide 20

21. What Are Consumer Responsibilities? • Maintain your balance. • Avoid writing bad checks. • Monitor your account. • Reconcile your bank account. • Know your rights. • Be aware of consumer protection laws. 5-3 Banking Services and Fees Slide 21