Chapter 5 The Banking System Financial Institutions Deposit
Chapter 5 The Banking System
Financial Institutions • Deposit Institutions – Commercial Banks – Credit Unions – Savings and Loan Administrations • Non-Deposit Institutions – Life Insurance Companies – Investment Firms – Finance Companies Slide 2
Deposit Institutions • Commercial Banks – For profit – Offer full range of services – Individuals – Businesses • Credit Unions – Non-profit – Owned by members – Services similar to commercial banks Slide 3
Deposit Institutions • Savings and Loan Administrations (S&L) – Specialize – Lower interest rates on loans – Higher interest rates on savings accounts Slide 4
What Is the Purpose of a Checking Account? • A checking account is a demand deposit account on which checks are drawn. • A check is a written order to a bank to pay a person or business. 5 -1 Checking Accounts Slide 5
Making Withdrawals and Deposits • A withdrawal involves taking money from your account. o Writing checks o Using debit and ATM cards • A deposit of money can be made to your account. o Endorsing checks o Direct deposit 5 -1 Checking Accounts Slide 6
Writing Checks • Postdated check – check written with a date in the future Slide 7
Endorsements Signature of the payee is on the back - Least secure Limits the use of the check Transfers the right to cash the check to someone else Slide 8
Checkbook Register 5 -1 Checking Accounts Slide 9
Checking Account • What do you do if a check is lost or stolen? – Stop payment order – Not the same as a cancelled check! • What do you do if you write a check you no longer want to issue? – VOID Slide 10
Making Deposits Slide 11
How Do You Reconcile a Bank Statement? • Bank reconciliation is the process of adjusting the checkbook register and bank statement so they agree. • The bank statement lists checks, withdrawals, deposits, service charges, interest, and fees. • Consider deposits in transit, outstanding checks, and transposition errors. 5 -1 Checking Accounts Slide 12
How Do You Reconcile a Bank Statement? Slide 13
What Is the Purpose of Savings? • A savings account is a demand deposit account for the accumulation of money. • It is a safe place to hold money to meet future needs and wants. • It pays interest at a low rate. 5 -2 Savings Accounts Slide 14
How Can You Grow Your Savings? • Principal is the money set aside on which interest is paid. • Simple interest is computed once during a time period. • Compound interest is earned on both principal and interest earned previously. 5 -2 Savings Accounts Slide 15
What Are Your Savings Options? • Money market • Variable interest rate with market • Minimum balance • Higher interest • Certificates of deposit (CDs) • Fixed interest rate • Set period of time 5 -2 Savings Accounts Slide 16
What Are Your Savings Options? • U. S. savings bonds • Guaranteed minimum interest rate • Tax advantages • Individual retirement accounts (IRAs) • Help you save for retirement 5 -2 Savings Accounts Slide 17
The FDIC “Federal Deposit Insurance Corporation” • Protects depositors of insured U. S. banks against loss if the bank fails • Covers all types of deposits • Covers principal and accrued interest • Does not insure some items o Examples: stocks, bonds, valuables • Insures deposits in different banks separately 5 -2 Savings Accounts Slide 18
What Banking Services Are Available to Consumers? • • Safe deposit boxes Overdraft protection ATMs Cashier’s checks Financial advising Loans Internet banking Bank cards 5 -3 Banking Services and Fees Slide 19
What Are the Costs of Banking? • Monthly account fees • Nonsufficient fund fees • Special service fees o Examples: stop payment, cashier’s check, money order • ATM fees • Inactive account fees 5 -3 Banking Services and Fees Slide 20
What Are Consumer Responsibilities? • Maintain your balance. o Avoid writing bad checks. • Monitor your account. o Reconcile your bank account. • Know your rights. o Be aware of consumer protection laws. 5 -3 Banking Services and Fees Slide 21
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