Banking Essential Questions

1. BankingEssential Questions • Why is it important to balance a checking account? • Why should the Federal Reserve oversee financial institutions and the money circulation of the economy? • What are the benefits to comparing financial institutions and the services they provide?

2. Friday February 2ndPersonal Finance Agenda • Journal: 7 Dangers of using a debit card • Available on the share drive • Cash flow and personal balance sheet activity • Banking Notes / PowerPoint 1-17 • Homework • JA Workbooks page 4-5 • JA Workbooks page 55-57

3. Financial Institutions • Depository Institutions: Businesses which accept deposits and offer multiple services in banking and finance. • Bank: A for-profit financial institution owned by investors in its stock that provides financial services to any customers. • Credit Union: A not-for-profit financial institution owned by its members that provides services to its members at low fees.

4. Depository Institutions • Why consumers might use them? • Safety • Interest • Cheap loans • Why consumers might not use them? • Fees • Required minimum balance • Privacy

5. Commercial Bank Vs Credit Union • Commercial Bank • Largest financial institutions • Services include checking/savings accounts, credit cards, safe deposit boxes, CDs, loans, debit cards, investments • Bank of America, U.S. Bank, Commerce Bank are all examples • Credit Union • Not-for-profit and member owned • Services include share account, share draft account, safe deposit box, share draft certificate, credit card, loans, investing, insurance • NCUA insured • Usually lower fees and loan rates and higher interest rates • First Community, American Eagle, Vantage are all examples

6. Compare and Contrast

7. Credit Unions and Banks • Credit Union • Accounts are federally insured up to $250,000 by the National Credit Union Administration (NCUA) • Banks • Accounts are federally insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC)

8. Savings and Loan Associations • Loans and mortgages to customers w/ savings account • Generally higher interest rate than commercial banks • Offer interest-earning checking accounts • Also insured • Example: Pioneer Federal Savings & Loan • Services: Checking/savings/retirement accounts, CDs, loans, investing

9. Financial Services Most of these services are offered at banks or credit unions Online Banking, Online Brokerage, Checking Accounts, Savings Accounts, Certificates of Deposit (CDs), Individual Retirement Accounts (IRAs), Savings Bonds, Credit Cards, Check Cards, Gift Cards, Payroll Cards, Commercial Prepaid Cards, Auto Loans, Boat Loans, RV Loans, Student Loans, Other Loans, Home Mortgages, Mortgage Refinance Loans, Home Equity Loans, Military Bank, Student Centers, Accessible Banking, Small Business Banking Services, Merchant Services , Home Buying, Investment Services, IRAs, Mutual Funds, 529 College Savings Plans, Life Insurance (various types), Long-Term Care Insurance, Homeowner’s Insurance, Renter’s Insurance, Condo Insurance, Auto Insurance, Supplemental Income Insurance, Foreign Currency Exchange, Traveler’s Checks, International Wire Transfers, and More

10. Interest Earning Accounts • Savings Account: An account that helps you save money and earn a small amount of interest at the same time (Share Account @ Credit Union) 2. Checking Account (sometimes): An account that allows withdrawals by means of check, debit card, etc. (Share draft account @ Credit Union) 3. Certificate of deposit (also known as a Share Certificate account at a credit union) - CD • Insured interest-earning savings account w/ restricted access to the funds 4. Money market account: A deposit account, which has a relatively high rate of interest, typically requires a higher minimum balance to earn interest or avoid monthly fees, and has a restricted # of transactions • Higher interest rates than savings, may have limited check writing

11. Interest Paying Accounts • Credit Cards • Home Loans • Car Loans • Personal Loans • School Loans

12. Checking Account • An account that allows withdrawals by means of check, debit card, etc. • May or may not earn interest • Features • Minimum balance • Possible fees • Small amount of interest • Very liquid

13. Savings account • An account that helps you save money and earn a small amount of interest at the same time • Low interest bearing • Money can be accessed or transferred many ways • ATM • Telephone • Internet • Bank

14. Money market account • Deposit account with a relatively high interest rate • Higher minimum balance to avoid monthly fees • Restrictions on the number of transactions • Features • Minimum balance - $1000 • Government insured account • Limited accessibility • Tiered interest rates

15. Certificate of Deposit (CD) • Time deposit paying a specific rate of interest for a specified period of time, with a penalty imposed for premature withdrawal of the deposited funds • Features • Time: 7 days to 8 years • Deposits: $100 - $100,000 • Low risk • Low liquidity • Low interest rate • Guaranteed interest

16. Bonds • A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing • Face Value: How much it is worth • Coupon Rate: Interest rate • Maturity Date: Time at which bond can be collected • Types include government, municipal, corporate, convertible

18. Liquidity Most Least Liquid Interest Checking Account Savings Account Money Market Deposit Account Certificate of Deposit Savings Bond Least Most Liquid Interest

19. Types of Insurance Federal Deposit Insurance Corporation (FDIC) • Protects depository institution accounts • Insures commercial banks and savings and loan National Credit Union Administration (NCUA) • Provides insurance for credit unions Federal Savings and Loan Insurance Corporation (FSLIC) • Provides insurance for savings and loan

20. The Federal Reserve Bank • The Fed • The Banker’s Bank • The goal of the Fed is to keep unemployment low, prices stable, and interest rates at a moderate level • Conduct monetary policy • Regulating and supervising the banking industry • Providing financial services to banks • There are twelve reserve banks across the country

21. FED structure and tools • Structure • Board of Governors (7 members) • 12 Regional Reserve Banks • Federal Open Market Committee (FOMC) • Tools of monetary control • Reserve Ratio: % of deposits kept on-hand • Discount Rate: Interest rate Fed charges banks on loans • Open-Market Operations: Buy/Sell gov. bonds

22. Methods of Payment • Cash: Money in the form of paper currency or coin • Personal Check: Written order to a financial institution directing the financial institution to pay stated amount of money, from the customer’s account. • Credit Card: Specially coded plastic card issued by banks & businesses authorizing the holder to purchase goods & services on credit. • Debit Card: Specially coded plastic card issued by a financial institution that allows the cardholder to transfer funds electronically and immediately from his/her checking account. As if were paying w/ check

23. Methods of Payment • Point-of-sale (POS) terminals: are located at stores and allows the consumer to use a debit card to make purchases. • Personal Identification Number: Pass-code # you use to get access to your savings and/or checking account • Money Order: A written order for the payment of a sum to a named individual; obtainable and payable at a bank, post office, or convenient store. For a fee usually $.99-$5 Usually smaller amounts of $. Less than $1,000

24. Methods of Payment • Cashier’s Check: A check drawn by a bank (for a fee) on its own funds and signed by the bank's cashier. Guaranteed funds (larger amounts) • Traveler’s Check: An internationally redeemable draft (check) purchased in various denominations from a bank or traveler's aid company and payable only upon the purchaser's endorsement against the original signature on the draft. • Smart Card: A prepaid smart card contains stored value which the person holding it can spend at retailers. As well as personal info and other data • Contactless Payment: Swiping in front of sensor, (RF). May require signature if purchase is over $25.

25. Credit Cards • Pre-approved credit • Charged to an individuals account and they may pay later • Interest is charged • Money is being borrowed from the credit card company

26. Debit Cards • A card (looks similar to a credit card) that is linked to an individuals bank account • Money is immediately deducted from the bank • No interest charged

27. Opening an Account • Photo Id: driver’s license, passport, etc… • Social Security Number • Signature Card • Deposit • May be charged for checks

28. Deposit Slip x Today’s date goes here 4 7 5 2 5 Print Your Name Here Print Your Address Here 5 4 7 5 2 Sign Your Name Here 5 0 0 0 3 3 3 3 3 3 4 3 2 5 2 5 Click the numbers 5-E-1

29. Completing a Deposit Slip • Checks • If more checks are being deposited than number of spaces on the front, use the back • List each check • Add the total, enter it on the front

31. http://www.google.com/imgres?q=parts+of+a+check&hl=en&gbv=2&biw=1366&bih=629&tbm=isch&tbnid=KAk5_qzEivM2wM:&imgrefurl=http://www.gcflearnfree.org/moneybasics/6.5&docid=t9pT9UVgPmmeJM&w=550&h=300&ei=YlyTqmvIOKKsgKtpZnXCQ&zoom=1&iact=hc&vpx=706&vpy=323&dur=4578&hovh=166&hovw=304&tx=117&ty=87&page=1&tbnh=101&tbnw=172&start=0&ndsp=23&ved=1t:429,r:13,s:0

32. Endorsements Endorse: To sign the back of a check to make it payable to the specified payee. Blank Endorsement: Signature of payee Restrictive Endorsement: Signature of payee w/ words “For Deposit Only” & account number Endorse Here X Student Name Endorse Here For Deposit Only—Acct. # 987654321 Students Name X

33. Endorsements Special Endorsement:Forwarding a check to someone by writing “pay to the order of” + their name and then putting your blank endorsement Joint Endorsement:Multiple payees endorsing the same check Endorse Here John Doe Jane Doe X Endorse Here Pay to the Order of Jonathon Smith Student Name X

34. How Check 21 Works Prior to Check 21 • Paper checks physically moved from customer to business to various banks and the transfer of money from customer’s bank to business’ bank took days After Check 21 • Paper checks are scanned into a computer system at the place of business and immediately returned to the customer. This electronic copy of the check is called a substitute check. The substitute check is then transferred electronically to various banks and the transfer of money customer’s bank to business’ bank takes hours

35. Overdraft Overdraft: A deficit in a bank account caused by drawing more money than the account holds(debit card, ATM withdrawal, or check) • Overdraft charge typically between $20-$35 • Over 50 million Americans overdraw annually costing 24 billion in overdraft fees Overdraft protection: which draws from a savings account, credit card, or another checking account • This usually costs $5-$10 • New regulation will decline transaction unless specified otherwise Stop payment order: request to not fulfill payment on a check you have written. Typically costs between $20-$30

36. Reading a Bank Statement Teens – Lesson 6 - Slide 6-H

37. Check Register • Date • The date the check was written or transaction was made (B&PF p.142)

38. Check Register • Check Number • The number of the written check; if a debit card or ATM was used, write DC or ATM

39. Check Register • Description of Transaction • The person/business the check was written to or where the debit card was used • Gray line can be used to write the memo

40. Check Register • Payment/Debit(-) • Amount of the transaction • Deducted from the balance

41. Check Register • Deposit/Credit(+) • Amount of the transaction • Added to the balance

42. Check Register • √ T • A box used to track whether the check has cleared on the monthly bank statement when reconciling at the end of each month

43. Check Register • Fee (if any) • Any extra fees charged to the account • Listed on the bank statement

44. Check Register • Balance • The running total of the checking account • Calculated by adding or subtracting each transaction • Keep this updated

45. Reconciling a Checking Account Reconcile: Comparing the bank statement to your checkbook register and accounting for any differences. Step 1: Obtain the current balance from your bank statement. Step 2: Add any deposits that you have recorded in your check register but that are not on this statement. Step 3: Subtract any outstanding checks (checks you have written but that have not yet cleared the banking system). step 4: Compare result with the current balance in your check register * Helps you avoid bouncing checks * Lets you know how much is in your account • Keeps you in control of your finances

46. Steps for Reconciling • View the monthly bank statement and check register $275.00 $275.00 $74.94

47. √ √ √ √ √ √ √ Place a check mark in the √ T column for all transactions that have been cleared and are shown on the bank statement $275.00

48. Determine the current account balance from the bank statement $275.00

49. Add any outstanding deposits – transactions that have not cleared the bank Calculate the Subtotal

50. Subtract any outstanding withdrawals and calculate Compare the total with the checkbook register. If the totals are different, double check the math and make sure all service fees and bank charges are recorded in the check register.