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Chapter 10

Banking

Chapter 10.1Comparing Financial Institutions

Objectives Describe the services offered by financial

institutions; Distinguish among various types of

financial institutions; and Explain guidelines for choosing a financial

institution.

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How Banks Work

 

Bank – a financial institution where you may deposit money.

Money that you deposit is lent to borrowers who need cash for businesses or personal financial

needs.

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Interest – a fee paid for the opportunity to use someone else’s money over a period of time.

 Savings Account – bank pays you interest (low amount) for letting it use your money

Loans – borrowers pay the bank interest (high amount) for money needed, allowing bank to make a profit.

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Other Banking Services:

      Checking Accounts

      Safe Deposit Boxes

      Investments

      Financial Planning

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Financial Institutions

 Types:

1.   Commercial Banks – is owned by shareholders and operated for their profit.

2.   Mutual Savings Banks – are state-chartered and are operated by trustees for the benefit of depositors.

3.   Savings and Loans – were originally specialized in providing funds to home buyers, but now provide a variety of financial service.

4.   Credit Unions – is nonprofit and owned by its members.

5.   Internet-Only Banks – saves money because it is not maintaining a branch office or employees, therefore passing the savings to customers.

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Financial Services Modernization Act (1999)

This allowed financial institutions to consolidate the financial services they offer, which transformed the banking industry.

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Three Factors To Consider:

•Deposit Insurance – protects your account when a bank fails.

o    Federal Deposit Insurance Corporation (FDIC) – federal agency that insures savings, checking, and other deposit accounts in most commercial banks, saving banks, and saving associations.

o     National Credit Union Administration (NCUA) – deposit insurance for credit unions.

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•Services and Convenient Access Offering:

Services You Need.Convenient Hours.A Location Near You.Phone / Internet Services.

•Rates and Fees Be Aware of:

Interest Rate FeesSpecial Account Requirements

 10.2Banking Electronically

Objectives Explain various electronic banking methods; and Give consumer guidelines for using electronic

banking.

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Electronic Banking Methods electronic funds transfer (EFT) – movement of funds by electronic means

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ATM Transactions 

Automated Teller Machine (ATM) – computer terminal that gives bank customers electronic access to their account at any time through the use of a specially coded card

 Personal identification number (PIN) – secret code that

protects the security of your account

•Know where ATM card is all the time.•Memorize PIN•When entering pin, shield key pad or screen.•Be aware of surroundings•Count cash later.

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Point-of-Sale Transaction 

Point-of-sale transaction – paying for an item by making an electronic funds transfer at the place of purchase Debit card – allows the user to subtract money from a bank

account in order to obtain cash or make a purchase 

•Online – must enter PIN into keypad

•Offline – sign a receipt like credit card

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Automated Services 

•Direct deposit•Automated transfers between your accounts•Automated loan payments•Automated payments to a third party

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Telephone Banking

Telephone Banking – access your account by phone 

•find out account balance•make transfers between accounts•hear list of previous transactions

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Online Banking 

login name and password Advantages

•complete bank transactions at home any time•pay and receive bills online

save timesave postage

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Consumer Protection 

Electronic Fund Transfer Act – 1978•protects consumers using some forms of electronic banking•Stolen Card liability

Chapter 10.3Managing a Checking Account

Objectives Identify reasons for having a checking

account; Describe factors to consider in selecting a

checking account; and Explain checking account procedures

and responsibilities.

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How Checks Work Check – is a written order that instructs a bank to pay a specific amount of money to a particular person or business. Payee – the one to whom a check is made out to

Canceled Check – a check that is stamped and perforated to show that it’s been paid.

 

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Overdraft (Bounce) – is a lack of sufficient funds to cover the full amount of a check, marked “NOT

SUFFICIENT FUNDS”•Both you and the payee will be charged a substantial fee •Overdrafts are used to penalize because they

cost time, money, and effort•Repeatedly writing bad checks is a criminal

behavior

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Advantage of Checks

•More secure than cash.•Useable only by payee•Legal proof of payment

Deposit Slip – form that is used to put money into an account

•Usually takes one or more days to access those funds

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Choosing a Checking Account

Minimum Balance Usually given a penalty when below minimum amount

FeesMonthly service chargeCheck feeATM and Debit card fees

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Transaction LimitsLimited number of withdrawalsLimited number of teller-assisted transactions

Interest Accounts that collect interest my have more restrictions

Overdraft Protection Bank will transfer fund prior to overdraft

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Using a Checking Account

•Must be 18 years old (as stated in the book)

•Signature Card – verifies your signature•Starter Checks

 Making Deposits

•Mail•ATM•Drive-up Window•Teller Transaction

 

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 Endorsing a Check

You Can:•Deposit•Cash It•Transfer It To Another Payee

Endorsement – a signature that entitles the payee to either receives payment or transfers it to someone else.

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Three Ways to Endorse a Check

1. Blank Endorsement – Only endorsers name

2. Special Endorsement – Limits payment to a particular payee

3. Restrictive Endorsement – write “For deposit only” above name and it can only be

deposited in your account.

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Recording Transactions

Ways to Record Transactions• Pressure Sensitive Copies (Carbon Copies)• Check Stubs • Check Register

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Writing a Check

• Use ink (Black or Blue)• If you make a mistake tear up check and write

“VOID” in check registry• Have picture identification• You can have a stop payment on check if stolen or

lost

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Receiving Your Bank Statement

• Sent by bank once a month• Gives balance at beginning and end of month• Service charges

Reconciling Your Account Reconcile – to bring the bank statement and your own

record of transactions into agreement

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Steps for Reconciling Your Account

1. Check to see if all transactions are listed in registry are same as statement

2. Place a check mark on those that match

3. Outstanding – ones that were received by the bank after the closing date of your statement

4. All transactions should add up with outstanding subtracted

Objectives Describe alternatives to cash, personal

checks, and credit cards; and Explain possible reasons for using each

form of payment.

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Chapter 10.4Using Other Payment Methods

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Guaranteed Checks

Types:•Certified Check – is from a personal checking account

that has been stamped by the bank to guarantee that there are sufficient funds in the account to cover it, by putting a hold on the money. (a fee is usually

charged)

•Cashier’s Check – is issued and guaranteed by a bank, by using a bank check that is addressed to the

payee. (a fee is usually charged)

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Money Orders

– is a purchased certificate that is a safe and convenient way to pay a specified amount to a particular payee Postal Money Order – is issued and backed by the U.S. Postal ServiceTypes:

•Domestic – can be cashed at post offices and banks in the U.S. (a fixed fee is charged)

•International – Sent and cashed outside the U.S. (a higher fee is charged)

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Traveler’s Checks

– are documents that function as cash but can be replaced if lost or stolen.

•Used on vacations and trips.•Amounts - $25, $50, or $100. •Service charge fee is a percentage of the face amount.•Must be signed 2 times: once in front of the selling

agent and again in front of the payee.•Return change will be given back in cash.•Must record the serial numbers in a separate location.•If they are lost or stolen then report the serial numbers.

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Money Transfer Services

•Worldwide•Sent and delivered at designated locations.•Service fees are expensive. 

Wire Transfer

– a financial transaction that electronically moves funds from one bank to another. (Service fees for sending, receiving or both)

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Prepaid Cards (Stored-value cards)

– cards sold in specified dollar amounts that can be purchased for products or services.

Types:•Phone cards•Gift cards•Merchandise credits•Public transit cards

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Online Payment Services

•Goal is to make quick and easy payments•Safer by reducing the need to share personal information or credit cards•Deductions/payments are usually deducted directly

from an account.