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Banking Basics Deposit Accounts Created By: Laura Kinchen
Types of Deposit Accounts • Checking accounts • Savings accounts • Certificates of deposit (CD’s)
Checking accounts The most commonly used payment service is a checking account. Money that you place in a checking account is: • Called a demand deposit • Able to be withdrawn at any time, or on demand Checking accounts can be divided into three main categories: • Regular accounts • Activity accounts • Interest-earning accounts • Write checks to pay bills or buy goods or services • Linked to an ATM/Debit card
Shopping Around: Checking Accounts • SERVICES • Location of bank • Location of ATMs • Banking hours • Minimum balance required • Minimum transactions or limits • Interest-bearing accounts? • Other • COSTS • Non-primary bank ATM transactions • In-branch transaction fees • Per-check fees • Other checking fees • Overdraft protection • Printing of checks
Using a Checking Account Checks are: • the most common kind of negotiable instrument in use • a safe way to send funds through the mail • convenient receipts for the people who write them
Types of checking accounts • Two common types of checking accounts are joint checking, which is owned by two more people, and express checking, which was created for customers who seldom need to enter the bank building. • An express checking account would be appropriate if you're comfortable using an ATM, telephone or computer to make bank transactions. • These accounts usually have low minimum balance requirements and no monthly fees.
Opening a Checking Account • Deposit money in a bank • Sign a signature card • **Then the bank agrees to pay money out, up to the amount you have deposited, when you write a check.
Balancing your Checkbook • You should balance, or reconcile, your bank statement as soon as possible after receiving it. Carefully compare the check register balance with the bank statement balance to make sure that they agree. • Don’t forget to take into consideration outstanding checks, or checks you have written that have not yet been returned to the bank for payment.
Writing a Check • Banks provide regular and special printed check forms. These checks display a series of numbers printed in magnetic ink that make it possible for computers to process the checks quickly and accurately.
Parities to a Check • A check is a draft drawn on a bank and payable on demand. • Drawer: person who writes the check • Drawee: bank ordered to pay the money • Payee: person the check is made out to
What is a Savings Account • A deposit account designed to simply hold money that you do not need immediate access to. • When contrasted with checking accounts, bank savings accounts tend to pay a slightly higher rate
Types of Savings Accounts • Two common types of savings accounts are passbook accounts and high-yield savings accounts. Passbook savings accounts are so named because all deposits, withdrawals and interest are recorded in a passbook, which is updated by the bank but kept by the account holder. This type of account is good for someone who makes infrequent transactions. • A high-yield savings account is an account the bank offers only to certain clients because it earns a higher interest rate than other accounts. To qualify, you must make a sufficiently large initial deposit and maintain a high minimum balance.
Savings Accounts Savings Accounts Regular savings accounts, traditionally called passbook accounts, are ideal if you plan to make frequent deposits and withdrawals. These accounts: • Require little to no minimum balance • Allow you to withdraw money on demand The trade-off for this convenience is that the interest you earn will be low compared with other savings plans. • Earn more money on your deposits • Usually use money only on things you saved for • Can be linked to an ATM/Debit card
Easy Access to Savings Account • Savings accounts offer easy access to your cash. In other words, your money is liquid (meaning you can make a withdrawal easily and quickly) in a bank savings account. • Note that savings accounts are not as liquid as checking accounts, because you can get money from a checking account by simply writing a check.
Savings Accounts Grow Your Money • When you have money in a bank savings account, your money earns interest. • Your bank savings account pays a rate of return on all the money in the account called your APY. That means that you get "paid" for keeping your money in the account. • savings accounts pay you more on your money than checking accounts
What is a Certificate of Deposit • A certificate of deposit (CD) is a short to medium-term, FDIC insured investment available at banks. • Customers agree to lend money to the institutions for a certain amount of time. In exchange for doing so, the customers is paid a predetermined rate of interest.
Certificates of Deposit • CDs are accounts where you leave your money for a set period of time, such as six months, one, two, or five years, which is called a term. • CD’s usually earn a higher rate of interest than in a regular savings account. The longer you keep your money in a CD, the higher the interest rate. • you will pay a penalty if you withdraw your money early.