Financial Institutions and Services

8 Financial Institutions and Services

Chapter Objectives • Identify different types of financial institutions. • Select the financial services that will best meet your needs. • Use ATM and debit cards responsibly. • Manage a personal checking account. • Write and endorse checks correctly. • Calculate a checkbook balance.

Types of Financial Institutions • Economic system cannot function without financial institutions • They are financial go-betweens that keep money flowing throughout the economy among consumers, businesses, and government

Commercial Banks • Commercial banks offer a wide variety of services continued

Commercial Banks • Federal Deposit Insurance Corporation (FDIC) maintains confidence in the banking system by • insuring bank customers’ deposits • examining and supervising financial institution policies and operations

Savings and Loan Associations • Savings and loan associations (S&L) offer many of the same services of commercial banks • Two S&L types: • Mutual savings and loan associations • Stock savings and loan associations

Credit Unions • Credit union memberships available through employers, unions, religious organizations, community organizations, or other groups • Lower operating costs (no federal income taxes required) allow them to pay higher interest rates on savings and charge lower rates on loans continued

Credit Unions • Either federally or state chartered • National Credit Union Administration (NCUA) • grants federal charters • supervises credit unions across the country • insures deposits

In Your Opinion • Would you prefer to use a credit union if you had access to one? Why or why not?

Mutual Savings Banks • Mutual savings banks exist in only 17 states • Earnings divided among depositors as dividends • Offer a wide variety of services • Receive and pay dividends on deposits • Make home mortgage and improvement loans

Choosing a Financial Institution • What services does the institution provide? • What fees are charged? • Is the staff helpful?

Safety • Look for signs that say • “Insured by the FDIC” • “Insured by the NCUA” • This means the institution is regularly checked and passes ongoing examinations

Services of Financial Institutions • Electronic funds transfer (EFT) makes transactions quickly and conveniently • Automated teller machine (ATM) lets you access your account to withdraw cash, make deposits, perform other services • To use an ATM you need • an ATM card • a personal identification number (PIN)

Checks and payments are deposited directly into an account Bills can be paid without writing and mailing checks Money can be automatically transferred from checking to savings Direct Deposits or Withdrawals

Point-of-Sale Transfers (POS) • Moves money from your account to pay for a purchase without using checks, cash, or credit • A merchant scans a debit card and purchase amount immediately transfers from customer’s to merchant’s bank account

Online Banking Services • Online access to accounts using identification number and security code • You can • check account balance • review account history • schedule electronic bill payment • confirm deposits, withdrawals, and transfers • Personal financial software often available

Overdraft—the act of withdrawing money or writing a check for an amount greater than an account balance Financial institutions offer overdraft protection Banks charge fees for each overdraft Overdraft Protection

Stop Payment • A financial institution will refuse to honor a check written by a customer • A fee is usually charged • Customers must request this service

Drive-Up and Mail-In Services • Customers make deposits and withdrawals by • mail • drive-up windows

Safe-Deposit Boxes • Customers’ important documents and valuables are stored in a secure vault • An annual fee is usually charged

Other Special Programs • Trust preparation department • Tax reporting assistance • Financial planning • Money market funds • Mortgage loans

Personal Checking Accounts • Advantages of checking accounts: • Safe place to keep money • Easy way to buy goods and services • Easy way to pay bills • Provides record of deposits and receipts • Aids in money management • Helps build sound credit rating

Accounts and Services • Look for financial institutions that offer the accounts and services you want in a checking account • Ask about availability of different features and their fees, if any

Restrictions and Penalties • Minimum balance requirements • Withdrawal limitations • Overdraft penalties • Late payment on credit penalties

Fees and Charges • Maintenance fees • Charges for ATM use • Low-balance penalties • Check-writing fees • Check-printing costs

Interest Rates • Interest rates • paid on interest-bearing checking accounts • charged to borrow money • charged to use a bank credit card • Look for high yields on savings and low rates for using credit

Convenience • Convenient hours • ATMs in various and convenient locations • Online banking availability • Credit cards offered

Checking Account Types • Basic checking accounts are good for people who write many checks and can keep the minimum balance continued

Checking Account Types • Interest-bearing account: • Combination savings and checking account • Also called share drafts or NOW accounts • Lifeline account: • An option for low-income customers

Opening a Checking Account • Sign a signature card • Those under 18 usually need a joint account with a parent; spouses often share joint accounts • Record all starter checks and personalized checks that you use • Keep track of transactions with a register

Managing the Cards Linked to Your Account • Advantages of ATM and debit cards: • Eliminate need to carry lots of cash • Access to your money at any time • Access to your money almost anywhere • Access to goods and services of businesses that do not accept checks continued

Managing the Cards Linked to Your Account • Keep all receipts • Record transactions and fees in checkbook register • Safeguard your card and PIN • Know your balance and don’t overdraw your account

ATM Cards • Use ATMs affiliated with your bank’s network • Usually no fee charged • Other ATMs charge fees, which can add up

Debit Cards • Used at ATMs and businesses that accept credit cards • Similar to writing a check; the purchase amount comes directly from your checking account

Making Deposits • Deposits can be made • in person • by mail • at an ATM • Fill out a deposit slip • Save receipts and record deposits in your register

Endorsing Checks • Before you cash or deposit a check made out in your name, you must endorse it continued

Endorsing Checks • Three ways to endorse a check: • Blank endorsement–just the payee signs • Restrictive endorsement–the specific use is noted, such as “for deposit only” • Special endorsement–the payee writes “pay to the order of…” and signs, and the other party also signs

Writing Checks • Use dark ink • In case of error, destroy check and write a new one • Fill in the • date • payee name • check amount in numbers and words • your signature continued

Writing Checks • Filling out checkbook register • Record check number, date, payee, and amount • Subtract check amount from balance • Record deposit dates and amount • Add deposit amount to balance • For destroyed checks, write number and “void”

Balancing Your Checkbook • Bank statements are sent out monthly • Always check the statements against your records continued

Balancing Your Checkbook • Bank statement contents include • beginning and ending balances • total amount of checks and payments • total amount of deposits and credits • details of checks paid (dates, numbers, amounts) and canceled checks or check photocopies • other items paid (withdrawals, fees, bills) • deposits and credits (dates, descriptions, amounts) continued

Balancing Your Checkbook 1. Compare canceled checks with those recorded in checkbook register 2. Compare deposits in register with those on statement and your receipts 3. Check ATM transactions and fees in register against those on statement continued

Balancing Your Checkbook 4. Subtract service charges on statement from register balance 5. Account for checks, ATM transactions, and deposits not yet on statement 6. If numbers from Step 5 and bank statement balance are not equal, check math or contact the bank for help

In Your Opinion • Why might you want to balance your checkbook more often if you make debit purchases or bank online?

Special-Use Checks • Most financial institutions offer these, usually for a fee • cashier’s checks • certified checks • money orders • traveler’s checks

Central Ideas of the Chapter • Financial institutions are vital to the economy because they make financial transactions possible. • A checking account is a basic tool to help you manage your financial resources.

Glossary of Key Terms Back • ATM card. A card that allows customers to withdraw cash from and make deposits to their accounts using an ATM. • automated teller machine (ATM). A computer terminal used to transact business with a financial institution. • bank statement. A record of checks, deposits, and charges on a checking account.

Glossary of Key Terms Back • cashier’s check. A check drawn by a bank on its own funds and signed by an authorized officer of the bank. • certified check. A personal check with a bank’s guarantee the check will be paid. • commercial bank. A bank owned by stockholders and organized to receive, transfer, and lend money to individuals, businesses, and governments.

Glossary of Key Terms Back • credit union. A nonprofit financial cooperative owned by and operated for the benefit of its members. It accepts deposits, makes loans, and provides other services. • electronic funds transfer (EFT). The movement of money electronically from one financial institution to another. • endorse. To sign one’s name on the back of a check in order to cash or deposit the check.

Financial Institutions and Services