Unit 2 Banking and Credit

1. Unit 2Banking and Credit Chapter 5 Banking

2. Financial Institutions Outline • Introduction • Definitions • Financial Institutions & Services Available • Benefits & Advantages • Financial Services • Review

3. Financial Institutions • Businesses which offer multiple services in banking and finance • Services may include savings & checking accounts, loans, investments, and financial counseling

4. Depository Institution (Banks) • Follow state and federal regulations • Offer banking services and loans • Serves both individuals and businesses • Examples – Commercial banks, savings & loans associations, and credit unions

5. Credit Unions Credit Union – is a nonprofit financial institution that is owned by its MEMBERS and organized for their benefit. • Credit Union fees and loan rates may be lower than those at commercial banks. • May offer free financial counseling

6. Depository Institutions WHY CONSUMERS MAY USE THEM: WHY CONSUMERS MAY NOT USE THEM: • To keep money safe • To receive the advantages of interest earning accounts • To have the opportunity to receive lower cost loan • Fees are to high • Minimum balances required are too high • They wish to keep their financial information private

7. Insurance For Financial InstitutionsFDIC • Federal Deposit Insurance Corporation (FDIC) • Federal government agency which protects bank accounts • Each depositor is insured up to $100,000 Congress has temporarily increased FDIC insurance from $100,000 to $250,000 per depositor until December 31, 2009. What caused Congress to make this change?

8. Insurance For Financial InstitutionsContinued • Savings Association Insurance Fund (SAIF) • A branch of the FDIC • Provide insurance for Savings & Loan Associations • Same insurance level as the FDIC A sign will be posted if a bank is insured

9. The Federal Reserve • The Federal Reserve is an agency that controls the money supply. • Responsible for knowing how much money is in circulation, both as currency and in checking accounts. • This helps them determine when more money is needed. • 12 Federal Reserve Banks make currency available to banks that in turn may lend to consumers or businesses.

10. Federal Reserve Bank

11. Money Facts Worksheet • You may work together with a partner quietly to fill out the following worksheet. • The following websites may be helpful • http://www.didyouknow.cd/fastfacts/money.htm • http://www.bep.treas.gov/document.cfm/18/94

12. Banking • Let’s review what we learned last time! • The question that you may have today!! • Mrs. Bain, what are we going to be learning today? • We will be working on a Bank worksheet towards the end of the period.

13. Financial ServicesFor Short-Term Needs Daily purchases Living Expenses Emergency Fund

14. Financial Services For Long-Term Needs Major purchases Long-term financial security

15. Electronic Bank Services • Direct Deposit • An automatic deposit system where money is automatically put into your account without you having to cash your check. It saves time, money, and effort. • Automatic Payments • Auto-Pay – Each month a certain amount is deducted from your account and sent to where you ask it to go. For example, utility bill, cable bill • Automated Teller Machines (ATMs) • A computer terminal that allows a withdrawal of cash from an account. • Debit card – a cash card that allows you to withdraw money or pay for purchases from your checking or savings account. What is a drawback of using a debit card?

16. Plastic Payments • Point of Sale Transactions – Is a purchase by a debit card of a good or service at a retail store. • ON-line card works like an ATM card. Requires PIN. Money is transferred from your account INSTANTLY. • OFF-line card does not require PIN. Money is deducted from your account within a day or two. • Stored-Value Cards – Prepaid cards for school lunches, phone cards, store cards. • Electronic Cash – Some companies are working on a plan that no one will need to carry money with them even credit cards.

17. Opportunity Costs of Financial Services You need to ask yourself several questions of each choice you make as you select financial services? • Is a higher interest rate on a certificate of deposit worth giving up liquidity, which is the ability to easily convert your resources into cash without losing its value? • Would you trade the convenience of getting cash from the ATM near your office for lower ATM fees? • Is it worth opening a checking account that has no fees—but does not earn interest—if you have to keep a minimum balance of $500?

18. Questions You Should Know Before Choosing a Financial Institution? • Where can you get the highest rate of interest on your savings? • Where can you obtain a checking account with low (or no) fees? • Will you be able to borrow money from the institution when you need it? • Is the institution FDIC- or SAIF insured. • Does it have on-line banking?

19. Review • Money management is part of everyday life! • Depository institutions offer multiple services – shop around for the one which best fits your needs! • Ensure the depository institution is insured by the FDIC or NCUA • Comparison shop the financial services and interest rates offered before choosing a depository institution

20. Any Questions?

21. Financial Institution Worksheet • Research information for Commercial Banks and Credit Unions. • Fill out the handout with the information you find.