Financial Institutions and Services

The interaction that financial institutions create between consumers, businesses and government keeps the economy alive

Why Their Important

• The money you deposit is loaned to other consumers and businesses to purchase houses, cars, land, equipment, etc.

• Our Economy could not function without financial institutions, they keep money flowing throughout the economy among consumers, businesses and government

If we didn’t use banks

• Money couldn’t circulate easily• Our Nation’s money supply would shrink• Funds wouldn’t be available for consumer spending• Demand for goods and services would fall• Businesses wouldn’t get the money to modernize and develop

new products• The economy would slow down• Jobs would become scarce

The economy depends on the flow of money and the services financial institutions provide

Different Types of Financial Institutions

Commercial Banks

• Are owned by stockholders and operated for profit

• Primary functions are to receive, transfer, and lend money to individuals, businesses, and governments

• Their often called full-service banks & offer a wide variety of services

Commercial Banks

• These banks may be charted by the federal government or state government

• Federally charted banks are called national banks. They must comply with federal banking regulations

• State charted banks are regulated by state banking commissions

Federal Deposit Insurance Corporation

• AKA FDIC – Is a U.S. government agency that protects bank customers’ by insuring their deposits ~ guarantees depositors are protected if the bank fails or cannot repay deposits on demand

• FDIC also supervises bank policies and operations

Goal is to help maintain consumer and business confidence in the banking system

FDIC

• Insures depositors up to $100, 000 of a customers total deposits

• Increased to $250,000 until the end of 2013• Varies a bit between consumer and business

accounts

Savings and Loan Associations 2 Types

• They use to only make mortgage loans & paid dividends on depositors’ savings

• Today S&Ls offer most of the same services commercial banks do

• Mutual S&Ls – owned and operated for the benefit of their depositors who receive dividends on their savings

• Stock S&Ls – owned by stockholders and operate for a profit

Credit Unions

• Are a nonprofit financial cooperative owned and operated for the benefit of its members

• Services are only offered to members• Membership is available through affiliation

with an employer, union, church, or community organization

• They do not pay federal income taxes (nonprofit)

Credit Unions

• Members often run the institutions• Operating costs are usually low• Successful CRs can lend funds to members at

slightly lower rates than other institutions and slightly higher interest rates on savings

• May be either state or federally chartered• National Credit Union Administration (NCUA)-

Insures and oversees most CRs

Mutual Savings Banks

• MSBs are owned and operated by its depositors

• After deducting operating costs and cash for reserves, earnings are divided among depositors through dividends

• Used to be mostly loans, NOW they are similar to commercial banks

Choosing a Financial Institution

• Consumers generally look for checking, savings, investment and credit services

• Do the research! Find out about services and fees

• May be wise to visit in person• Chose the best institution to help you manage

your money• Safety ~ make sure they are insured by the FDIC

or NCUA

~ Check Cashing Services ~

• Are not financial institutions• Businesses that provide certain financial

services for a fee• Usually people that don’t have bank accounts

and need cash immediately• Experts advise staying away from these

businesses; they are not federally insured and have very high fees

Services of Financial Institutions

• Most services are provided by Electronic funds transfer ~ the movement of money electronically from one institution to another

• EFTs are much faster than checks and even cash

Automated Teller Machines

• ATM ~ Called cash machines• Computer terminal used to transact business with a financial

institution• ATM Card ~ allows customers to withdraw and deposit cash• The card is coded with account information and protected by

a PIN number (personal identification number)• Usually open 24/7 with lots of locations

Direct Deposits or Withdrawals

• Using this service, paychecks, social security checks, and other payments are deposited directly into their accounts

• Bill-paying services are also offered; no checks are needed• Money can be transferred from one account to another• All transactions are recorded and are on monthly bank

statements• Very easy and convenient to manage your money and keep

track of your banking transactions

Point-of-Sale Transfers

• A POS ~ is the place a transaction was made• A Point–of-Sale transfer occurs when you move

money from your account to pay for a purchase• You use your debit card – information is

scanned and immediately taken out of your account

• Allows you to make purchases without checks, cash or credit

Online Banking Services

• Customers can do their banking 24/7 from a computer ~ anywhere

• Check account balances, review account history, arrange and schedule electronic bill payments

• Confirm deposits, withdrawals and transfers• Banks use codes & security measures to

protect customer information

Overdraft Protection

• An overdraft is writing a check for an amount greater than the balance in your account

• With overdraft protection service, institutions will honor the check even if it exceeds your balance

• There is usually a fee ($25.00 or higher) for each overdraft

• Money is usually transferred from savings to checking

• Find out policies and fees from your bank

Stop Payment

• Upon request, institutions will refuse to honor a check you wrote

• Useful if a check is lost or stolen & you want to prevent others from cashing it

• Also useful if you have a grievance with the purchase of a good or service

• Usually a charge but well worth it!

Drive-Up & Mail-In Services

• Service is offered by many institutions• Convenient for customers making deposits or

withdrawals by mail or drive-up windows• Available when institutions are closed

Safe-Deposit Boxes

• This is an important feature if you need a safe location for valuable or irreplaceable items

• You can rent a box (in vaults) Jewelry, birth certificates, and insurance policies are examples

• Rental charges vary by institution

Financial Counseling & Special Programs

• Specialized services may include a trust department, tax reporting, and financial planning, Money market funds & mortgage loans

• May be fees, vary by institution

Personal Checking Accounts

• When you earn a regular income, this is usually the first service many people need

• Safe place to keep your money• “Convenient” way to buy goods and services

and pay bills• Provides a record of deposits and receipts of

payments• Aids in money management if responsibly used

& helps to build a good credit rating

Checking Account Features

Accounts and Services

Restrictions and Penalties

• Ask about minimum balance requirements, withdrawal limitations, and penalties for overdrafts or late payments on credit accounts

• These items can increase the cost of services & make managing your money more complicated

Fees and Charges

• Ask about all the fees and charges associated with the type of account you want

• May include maintenance fees, charges for ATM use, low-balance fees, check-writing fees, and check printing fees

• Vary by institutions & types of accounts• Higher balance accounts usually reduce or

eliminate these fees

Interest Rates

• Research ~ Compare rates by different institutions

• Look for rates for borrowing money and using credit

Convenience Services

• Look for the institution that makes managing your money the easiest for you

• Services that save you time and effort including hours, ATM usage, locations, online banking and credit cards

Checking Account Types

~ Basic Checking Accounts ~• Permits you to deposit and withdraw your

money and write checks• Usually requires a minimum balance to avoid

service charges• May be a monthly service charge and a fee per

check• Varies by institutions

Interest-Bearing Checking Account

This is a combination savings and checking account

• Your money earns interest & you can write checks on your account

• Credit unions – called share drafts• Banks & S&Ls – called NOW accounts• Varying interest rates, balance requirements,

and service charges by institutions

Lifeline Checking Accounts

• Relatively new accounts that are intended for low-income customers

• Some states require banks (by law) to make these accounts available

• Low minimum deposit & balance requirements, low monthly fees, & limits on the # of checks you can write

Opening a Checking Account

Certain restrictions apply if under 18 years of age

• Some banks require a parent or guardian to be on the account with you

• You will be asked to sign a signature card, this is the only signature the bank will honor on checks and withdrawal slips

• Begin signing your name the same way every time to avoid confusion later on

Opening a Checking Account

• If you want someone else to have check-cashing privileges on your account, they need to sign a signature as well

• If you share an account with a parent or spouse, it becomes a joint account

• Upon opening an account, you will receive a small book of starter checks; their blank but show your account number

• Personalized checks will have your name & address, and account number

• The checkbook will have a register for keeping track of your transactions

Managing the cards linked to your account

• You may be offered credit, debit, and ATM cards when you open a checking account

• Ask about service fees associated with using your ATM card

• Avoid errors by recording all transactions & fees in your checkbook register

• Keep receipts• Use responsibly

ATM Cards

• Allows you to get cash from your account at any time

• Located everywhere!• Usually no charge if you use the same

institution• You will receive your own PIN number to use,

do not let anyone else know your number

Safety Tips for using an ATM

• Memorize your PIN number ~ if stolen, they would have complete access to your account; don’t carry it with you

• Protect your privacy – know who’s around you; if people are to close, cancel your transaction

• Be aware of Suspicious people – Criminals target ATMs as easy places to steal money

• Use an ATM in a well-lighted area; avoid nighttime use; if necessary go to a grocery store of high traffic area; chose a drive-up rather than a walk-up machine

• Make transactions at walk-up ATMs quick! Have your card ready, leave immediately, and count your money later

Debit Cards

• Financial Institutions usually offer a combined debit and ATM Card

• They can be used anywhere where credit cards are accepted

• You swipe your card and enter your PIN number, the money is subtracted from your checking account

Safety ~ Be Aware of your surroundings ~

Making Deposits

• When depositing money in your account, you will fill out a deposit slip

• You enter the total amount deposited; cash coins and checks

• Be sure to enter the deposit in your checkbook register

• Save your receipts!!

Endorsing Checks

• Before depositing or cashing a check, you must endorse it

• Endorsing a check simply means to sign it a certain way on the back of the check (Don’t do this until you are at the bank)

Three Ways to Endorse Checks

1. Blank Endorsement ~ Requires only the signature of the payee – The payee is the person the check is written to

2. Restrictive Endorsement ~ Can be used only for the specific purpose stated “For Deposit Only”

3. Special Endorsement ~ Used to transfer to another party “Pay To The Order Of _______”

Writing Checks

1. Write the current date2. Name of Payee3. Amount of check in numbers4. Amount of check in words5. Reason for check in Memo section6. Your signature – the way it appears on your signature

cardIf you make a mistake, write VOID on the checkMake sure you enter all transactions in your checkbook

register

Special-Use Checks

1. Cashiers Check – drawn by the bank on its own funds and guarantees payment; must be signed by a bank official

2. Certified Check – A personal check with a banks guarantee that the check will be paid (used for people/businesses who don’t accept personal checks)

3. Money Order – An order for a specific amount of money payable to a specific payee (people who do not have checking accounts) sold at banks and stores

4. Traveler’s Checks – People who do not want to carry cash; usually on vacation. These checks can be replaced if lost or stolen by the agency who issued them