Banking

1. Banking Chapters 5

2. Types of Services • Banking • safe storage of funds • known as time deposits • includes savings accounts and certificates of deposit • Payment Services • transfer money from your account to businesses or individuals • known as demand deposits • most common service is the checking account • Borrowing • credit cards, loans, and mortgages

3. Electronic Banking Services • Direct Deposit – paycheck goes directly to the bank • Automatic Payments – banks will withdraw a certain amount from your account to pay bills • ATMs • use for withdrawals, transfers, deposits • need a debit card or cash card and your PIN • watch out for fees! • call bank immediately if your debit card is stolen! • w/in 2 days: $50 liability; after 2 days: $500+ liability

4. Plastic Payments • Point-of-Sales Transactions • use your debit card • if system is online, you will use your PIN and money is deducted right away • if system is offline, you will not use your PIN; money is deducted w/in 2 days • Stored-Value Card: • prepaid cards for things like gas, school lunches, public transportation • can be disposable or reloadable

5. Financial Institutions • Federal Deposit Insurance Corp. (FDIC) – insures each bank account up to $100,000 • Deposit-Type Institutions • Commercial Bank: for-profit bank offering a full range of services; must be chartered by the government • Savings and Loan (S&L): have evolved to be much like a commercial bank • Mutual Savings Bank: specialize in savings accounts and mortgage loan; often have more favorable interest rates for consumers • Credit Union: non-profit institution that is owned by its members who usually have a common bond; offers a full range of services; often have more favorable interest rates for consumers

6. Financial Institutions (con’t.) • Nondeposit-Type Institutions • Life Insurance Companies: primarily protect against the risk of early death; some policies contain savings and investment features • Investment Companies: combine your money with other investors and use this money to purchase stocks and bonds • Finance Companies: provide loans to people who have a hard time getting a loan elsewhere; interest rates are usually higher than most other lenders

7. Bank Selection Process • Stop by the bank and pick up brochures and speak to a service rep about bank’s services • Study the bank brochures and discuss features with your parents • Do on-line research about banks benefits, fees, and charges • Open your account and start managing money

8. Savings Plans • Regular Savings Accounts • Certificates of Deposit (CD) • Require you to leave your money with the bank for a specified time period • If you withdrawal the money before the maturity date, you will pay a penalty • Require a minimum deposit amount • Beware the automatic rollover

9. Savings Plans (con’t.) • Money Market Accounts • interest rate varies from month to month • generally has higher interest than a regular savings account, but usually requires a minimum balance • may write a limited number of checks • U.S. Savings Bonds • purchase for half the maturity value of the bond • maturity dates vary based on the interest rate • exempt from state and local taxes

10. Evaluating Savings Plans • Rate of Return • percentage increase in the value of an investment • divide the interest by the original investment • compounding usually makes your actual return greater than the stated interest rate; look for the annual percentage yield for your compounded rate of return • ALWAYS use APY or APR to compare your investment rate of return

11. More on Evaluating Savings Plans • Inflation – general rise in prices • Taxes – tax exempt plans have better returns than taxable plans • Liquidity – ability to turn investment into cash • Restrictions and Fees

12. Checking Accounts • Types • regular: usually need a minimum balance or a fee is charged • activity: no minimum balance but fees are charged each time you make a deposit or write a check • interest earning account: earn a small amount of interest as long as a minimum balance is maintained • Overdrawing your account (Bouncing a check) will result in a bank fee of as much as $30 • Overdraft Protection: avoids “bounce” fee by taking out a loan instead

13. Using a Checking Account • When you open the account, you will be required to fill out a signature card. • Checks you are depositing must be endorsed with your signature and account number. • When you write a check, you must sign it using the signature you wrote on the card. • There is usually a gap from the day your write the check to the day the bank receives the check • checks that you have written but the bank has not received are called outstanding checks • checks the bank has received are called cancelled checks • If a check is lost or stolen, request a stop payment order. You will be charged a fee, but the check cannot be cashed.