Chapter 5 Banking Procedures Copyright 2007 Thomson SouthWestern

Chapter 5 Banking Procedures Copyright 2007 Thomson South-Western

Introduction to Checking Accounts • A check is a written order to pay a stated amount to a person or business • Checking account – Is a demand deposit in a bank or other financial institution – Provides a safe place to keep money – Provides easy access to the money • The FDIC insures accounts for up to $100, 000 per depositor per bank 5 -1 Checking Accounts Slide 2

Opening an Account • To open an account, you will need to – Provide personal data and identification – Deposit money – Each person on the account that writes checks must fill out a signature card for security purposes 5 -1 Checking Accounts Slide 3

Bank Fees • Some banks charge monthly fees for holding an account with them • Checking accounts sometimes pay interest but may have a minimum deposit in order to avoid any fees • Some banks charge for every check written Slide 4

Keeping a Checkbook Register • Checks and a checkbook register are received when you open an account • A checkbook register – Can be used to track checking account transactions – Can provide a record of payments made for bills or purchases – Shows how much money is in the account – Tracks checks, withdrawals, deposits, and fees 5 -1 Checking Accounts Slide 5

Sample Checkbook Register 5 -1 Checking Accounts Slide 6

Writing Checks • Use ink to write the data on checks – The current date – The name of the payee – The amount in numbers and words – Your signature – A note on the Memo line • If you make a mistake – Write VOID on the check and in the register – Begin a new check 5 -1 Checking Accounts Slide 7

Parts of a Check • Payee – the person or entity receiving the check (Pay to the order of…) • Memo – a note to indicate what the money is used for (lawn care, hair cut, etc. ) • Other – date, amount, written out amount, signature Slide 8

Sample Check 5 -1 Checking Accounts Slide 9

Using Debit and ATM Cards • Debit card – Allows the account holder to withdraw cash at an ATM – Can be used to make purchases – The withdrawal is made electronically • ATM card – Allows the account holder to withdraw cash or make deposits at an ATM 5 -1 Checking Accounts Slide 10

PIN Number • Both Debit and ATM cards require a personal identification number or PIN number in order to access the account. • The PIN number is required for both deposits and withdrawals at an ATM machine AND inside a bank • The PIN number you choose should be difficult for someone to guess (don’t use your birth date, phone or social security number but choose something you can remember Slide 11

Protecting Account Data • Crimes can be committed using account and personal data – Check fraud and forgery – Identity theft • To help prevent crime – Keep cards and account information in a safe place – Protect your PIN or password when using cards 5 -1 Checking Accounts Slide 12

Making Deposits • Endorse checks to be deposited • 3 types of endorsements 5 -1 Checking Accounts Slide 13

Making Deposits • Complete a deposit slip, including – Current date – Amount of cash (bills and coins) – Check numbers and amounts – Total amount of cash and checks – Cash amount received, if any, and your signature – Net deposit amount • Record the deposit in the check register 5 -1 Checking Accounts Slide 14

Reconciling a Bank Statement • Bank statements – Come in paper or electronic form – Show the checks, other withdrawals, and deposits made to an account • Purpose of a bank reconciliation – To review the bank statement – To update the checkbook register – To bring the statement and register balances into agreement 5 -1 Checking Accounts Slide 15

Focus on. . . Check Cashing Services • Are businesses that charge a fee to cash a check • Charge fees that vary by state and by the type of check being cashed • May also make payday loans 5 -1 Checking Accounts Slide 16

The Purpose of Savings • Saving means accumulating money to use for future needs • A savings account – Is a demand deposit in a bank or other financial institution – Is a safe way to set aside money – Typically pays interest – May have some restrictions on how quickly or easily the money can be withdrawn 5 -2 Savings Accounts Slide 17

Principal • The sum of money set aside on which interest is paid Slide 18

Computing Interest • Money deposited in a savings account typically earns a set rate of interest – Simple interest SIMPLE INTEREST Interest (I) = Principal (P) x Rate (R) x Time (T) Interest = $1, 000 x 6% annual rate x 6 months $30 = $1, 000 x 0. 06 x 0. 5 5 -2 Savings Accounts Slide 19

Computing Interest – Compound interest QUARTERLY COMPOUNDING Annual Interest Rate 6% Quarterly Interest Year Beginning Balance Rate 1 2 3 4 Ending Balance 1 $100. 00 0. 015 $1. 50 $1. 52 $1. 55 $1. 57 $106. 14 2 $106. 14 0. 015 $1. 59 $1. 62 $1. 64 $1. 66 $112. 65 3 $112. 65 0. 015 $1. 69 $1. 72 $1. 74 $1. 77 $119. 57 5 -2 Savings Accounts Slide 20

Savings Options • • Certificates of deposit (CDs) Money market accounts Individual retirement arrangements (IRAs) U. S. savings bonds The Treasury. Direct Web site provides information on savings bonds and may be purchased there as well. 5 -2 Savings Accounts Source: Treasury. Direct, http: //www. treasurydirect. gov (accessed April 27, 2006). Slide 21

Meeting Financial Goals • When choosing a savings option, consider – The amount to save – The length of time you will save – The interest you can earn • Use the Rule of 72 to estimate how long it will take the money to double at a certain compound interest rate – 72/rate per annum=number of years to double 5 -2 Savings Accounts Slide 22

Rule of 72 Example • If you invest $100 with a compounding interest rate of 9% per annum, the rule of 72 gives 72/9=8. 0432 • Therefore it will take approximately 8 years for your $100 investment to become $200 • This is for compound interest, not simple interest • Therefore if the annual interest is 9% it doesn’t matter if you invest $1 or 1 million dollars, the amount of time for it to double is Slide 23 the SAME!

Bank Services • • • Safe deposit box Overdraft protection Cashier’s checks and money orders Stop payment Bank cards Bank loans Banks offer home mortgages and other types of loans. 5 -2 Savings Accounts Slide 24

Success Skills Negotiating • Means working to reach an agreement that benefits you – Understand your position (what you want) – Understand the other party’s position – Create a proposed solution – Be willing to compromise when appropriate 5 -2 Savings Accounts Slide 25

Ethics Writing Bad Checks • A bad check is one you write but do not have money in the account to pay • Monitor your account carefully to avoid writing a bad check by mistake • Show ethical behavior by not writing a bad check intentionally 5 -2 Savings Accounts Slide 26

Technology Corner Internet Banking • Involves banking using phone or Internet access to bank accounts • Offers various services – – – Electronic payment of bills Transfer of money between accounts Checking that deposits are posted Seeing which checks have been processed Seeing interest or fees that have been posted 5 -2 Savings Accounts Slide 27

Federal Reserve System • Is the central bank of the United States • Seeks to provide the nation with safe, flexible, and stable monetary and financial systems Source: The Federal Reserve Board, http: //www. federalreserve. gov/consumers. htm (accessed October 20, 2006). 5 -3 The Federal Reserve System Slide 28

Monetary Policy • Key interest rates are controlled by the Fed – Discount rate – Federal funds rate – Prime rate • The Fed sells and buys U. S. government securities in open-market transactions – Government bills (Treasury bills) – Treasury notes – Treasury bonds 5 -3 The Federal Reserve System Slide 29

Monetary Policy • The Fed plays a major role in operating the country’s payment systems – Reserve banks act as a clearinghouse for checks – Checks may be deducted from your account in a single business day • The Fed regulates the banking industry – All interstate banks must be Fed members – Intrastate banks are also subject to Fed rules 5 -3 The Federal Reserve System Slide 30

Building Communications Skills Reading Comprehension • Is the ability to understand what is read • Can be improved with practice – – Read slowly and think about the material Note the paragraph structure and topic sentences Underline key points Read the material a second time, focusing on vocabulary and details 5 -3 The Federal Reserve System Slide 31