Unit 4 Banking Services

1. Unit 4Banking Services

2. Unit 4 Vocabulary • Drafts • Floating A Check • Liquidity • Maturity Date • Money Market Fund • Overdraft • Penalty • Reconciliation • Restrictive Endorsement • Special Endorsements • Stop Payment Order • Bank Statement • Blank Endorsements • Canceled Check • Cashier’s • CheckCertificate of Deposit (CD) • Certified Check • Checkbook register • Checking Account • Compound Interest • Demand Deposit • Deposit Slip

3. Unit 4 Essential Question • What checking and banking services are available to you?

4. Essential Question 1Banking Services • What is the purpose, use, and advantages of a personal checking account?

5. Checking Accounts • Checking Account: A banking service wherein money is deposited into an account, and checks are written to withdraw money as needed. • Drafts: Checks used to withdraw money from an account. • Demand Deposit: An account that lets you demand portions of your deposited funds at will. • Deposit Slip: A form used to record money put into a checking account.

6. Checking Accounts • Cancelled Checks: Checks the bank has processed. • Overdraft: A check written without sufficient money (funds) in an account to cover it. • NSF: Non-sufficient funds. • Floating A Check: The practice of writing a check on insufficient funds and hoping to make a deposit to cover the check before it is cashed. • This is illegal!

7. Checking Accounts • Checking accounts are convenient and safer than cash. • Canceled checks serve as receipts. • Budgeting is made easier because check records are kept.

8. Checking Accounts • Opening a checking account is quick and easy. • A signature card is prepared. • Two pieces of identification are needed.

9. Essential Question 2Banking Services • How do you maintain and reconcile a checkbook?

10. Rules for Writing Checks • Checks are used to withdraw money from the account. • Deposit Slips are used to add money to an account.

11. Rules for Writing Checks • The checkbook register should be kept accurate and a new balance calculated after every entry. • The checkbook should be reconciled immediately when the bank statement is received.

12. Rules for Writing Checks • Use good penmanship when writing checks. • Separate dollars and cents with a decimal. Do not write cents as a fraction. • Avoid “flagging” numbers such as 1,2,and 7. • Avoid curvy and curly-que writing especially with 3s and 5s. • No European 4s or 7s. • Close all loops with 6,8,9,and 0.

13. Rules for Writing Checks

14. Rules for Writing Checks • Checks cannot be cashed until they have been endorsed. • Blank Endorsement: The signature of the payee written exactly as his or her name appears on the front of the check.

15. Rules for Writing Checks • Checks cannot be cashed until they have been endorsed. • Restrictive Endorsement: Restricts or limits the use of a check.

16. Rules for Writing Checks • Checks cannot be cashed until they have been endorsed. • Special Endorsement: Also known as an endorsement in full, is written when the payee signs over a check to a third person.

17. Parts of a Check • Check number is located in the upper right corner. • American Bankers Association (ABA):located under the check number. Location and district of bank. Routs the check to the specific bank and area. • Date is located near the ABA.

18. Parts of a Check • Pay to the Order of use to identify the payee. • $ used to indicate the numerical dollar and cents value of the check. • Dollars used to indicate the value of the check in writing. • The $ and Dollars must match. • For used to indicate the reason for writing the check. • Signature line used to authorize payment.

19. Parts of a Check

20. Parts of a Check • Write check for $59.28 to Landowner’s Inc. for rent. • Write check for $133.86 to Publix for groceries.

21. Parts of a Check • Deposit $22.30 cash, checks # 212 for $28.00 and # 315 for $55.00.

22. Parts of a Check • Deposit checks # 154 for $118.00 and # 351 for $85.00, keep $25.00 cash.

23. Parts of a Check • Checkbook Register: A record of deposits to and withdrawals from a checking account.

24. Parts of a Check • Reconciliation: The monthly process of matching the bank statement with the checking account balance. • Bank Statement: A monthly statement from the bank that lists all changes in a checking account.

25. Essential Question 3Banking Services • What are the different types of checking accounts available?

26. Types of Checking Accounts • There are four types of checking accounts. • Special Accounts: • Offered to customers who write a small number of checks each month. • Normally only charged a service fee and check charge if the customer exceeds their check limit during that month.

27. Types of Checking Accounts • There are four types of checking accounts. • Standard Accounts: • Usually has a monthly service fee but no per-check fee. • Service fees can be avoided by maintaining an average minimum balance. • May also include other benefits: • Free Traveler’s Checks • Free Safe-Deposit Box • Reduced interest on Credit Card Balance

28. Types of Checking Accounts • There are four types of checking accounts. • Interest-Bearing Accounts: • Interest is paid daily on the account if an average minimum daily balance is maintained. • If the account falls below the minimum daily balance then fees and check charges would apply. • Share Draft Accounts: • Offered by most Credit Unions. • These accounts have no minimums, user fees, or check charges.

29. Essential Question 4Banking Services • What are the various banking services available?

30. Baking Services • (FDIC) Federal Deposit Insurance Corporation • Insures each depositors’ accounts up to $100,000 per account holder. • Special Checking Services • Traveler’s Checks • Insured against loss or theft • Guaranteed payment • Safer than cash • Will not bounce

31. Baking Services • Special Checking Services • Certified Checks • Your own check guaranteed by the bank • Money is taken out of your account to pay for the check • Will not bounce • Cashier’s Checks • A check drawn on the banks own funds • Money is taken out of your account to pay for the check or you must pay cash for it • Will not bounce

32. Baking Services • Special Checking Services • Money Orders • Can be purchased at banks, post offices, and other businesses • Must pay cash – checks will not be accepted • Will not bounce • Debit Cards • Discount Brokerage Services • Trusts

33. Baking Services • Stop Payment Orders: A request that the bank not cash or process a specific check. • Saving Accounts • Bank Credit Cards • Safe-Deposit Boxes • Loans • Automatic Tellers

34. Essential Question 5Banking Services • Why should you save?

35. Saving • The purpose of saving is to postpone spending until someday in the future. • Reasons for saving: • Expected and unexpected needs • Financial Security • Provides peace of mind that short term needs can be met without financial difficulty. • Disposable Income: Income available after mandatory and optional deductions are made from gross pay. Also known as net pay. • Discretionary Income: Income available after the bills have been paid. This money is what is available for saving.

36. Saving • Reasons for saving: • Meet short-term goals • Emergencies – Unemployment, sickness, accident, death in family, etc. • Vacations and Leisure – Short weekend trips, family vacations, ball games, concerts, etc. • Social Events – Weddings, proms, family reunions, retirement and graduation parties, etc. • Major Purchases – Car, remodeling, large appliances, etc.

37. Saving • Reasons for saving: • Meet long-term goals • Home Ownership – The larger the down payment the lower the mortgage payment. • Education • The cost of postsecondary education (college, technical school, apprenticeships, advanced and skill training, etc.) is continually increasing. • Start a savings plan for children now. • Retirement – Social Security will not be sufficient to support you when you are older. • Investments • Provides a hedge against inflation. • Done in addition to saving NOT in lieu of saving.

38. Essential Question 6Banking Services • How does money grow?

39. Interest • Interest:Cost of money. • Simple Interest: Interest computed on the amount borrowed or saved only. • Computed using the formula I = PRT. • I - Interest • P - Principal • R - Rate • T - Time

40. % Interest • Principal: The amount saved, borrowed or the original amount of debt. • Rate: The interest rate expressed as a percentage. • Time: The length of time the borrower has to repay the loan expressed in years or as a fraction of a year.

41. Interest • Examples: • Find the interest earned in 5 months on $500 deposited in a savings account the earns 4% simple interest per year. • What is the simple interest earned on a money market account with $1800 that yields 6% interest over 4 years? • You earned a $1.75 on $400 in 3 months. What is the interest rate?

42. Interest • Compound Interest:Interest calculated by periodically adding earned interest to an account. • By adding the interest to the principal a new principal results. • Compounded interest will grow savings faster than simple interest. • The Annual Percentage Rate (APR) is divided by the number of compounding periods in a year to determine the interest rate per period.

43. Interest • Find the interest earned in one year on $500 deposited in a savings account that yields 4% interest per year compounded quarterly. • What is the interest earned on a money market account with $1500 that yields 6% APR compounded semiannually over 5 years?

44. Essential Question 7Banking Services • What decisions need to be made when selecting a savings plan?

45. Saving • Where You Can Save • Commercial Banks • Savings Banks • Savings and Loan Associations • Brokerage Firms • Credit Unions

46. Saving • Savings Accounts • Savings should grow to provide for future needs by: • Taking advantage of compound interest • Setting aside money at regular intervals • Typical savings plans include: • Savings Accounts • Certificates of Deposit (CDs): Represents a sum of money deposited for set length of time. • Maturity Date: The day the account comes due. If the CD is not withdrawn in specified period of time, it will automatically rollover. • Early Withdrawal Penalty: A charge for withdrawing money before maturity.

47. Saving • Savings Accounts • Money Market Funds: A combination of savings and investing where the money deposited is used to purchase low risk securities. • The best savings option has all of these features: • Liquidity: Refers to how easily assets can be converted to cash without penalty.

48. Essential Question 8Banking Services • What are the advantages to saving regularly?

49. Saving • Savings Accounts • Safety: You cannot lose your money because it is insured. • Convenience: There is a bank branch located close to your home and your work. • High Return: Your money earns a competitive rate of interest. • No Early Withdrawal Penalties: You can access your account anytime without penalties.

50. Saving • Regular savings will greatly increase your earnings. • Creates a habit in the culture of saving • Compound interest helps regular investments grow faster.