Chapter 9 10 Checking Accounts Savings Accounts and

Chapter 9 &10 Checking Accounts Savings Accounts and Banking Services 9. 1 9. 2 10. 1 10. 2 Checking Accounts Banking Services and Fees Growing Money: Why, Where, and How Savings Options, Features, and Plans © 2010 South-Western, Cengage Learning

Checking Account Basics n Checks follow a process through the banking system. n The payee cashes your check. n The bank that cashed the check returns it to your bank. n Your bank withdraws the money from your account and sends it to the other bank. n Your bank then stamps the back of your check, indicating that it has cleared. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 2

Checking Account Basics (continued) n You must also maintain enough money in your account to cover all the checks you write. n A check written for more money than your account contains is called an overdraft. n A bank that does not honor a check usually stamps the check with the words “not sufficient funds” (NSF) and returns the check to the payee’s bank. n When this occurs, the check has bounced. n Your bank can charge you a fee for each NSF check processed. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 3

(continued) Checking Account Basics n Floating a check is writing a check and hoping to deposit money to cover it before the check clears. n Floating a check is very risky because today’s electronic systems allow checks to process very quickly and is illegal in most states. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 4

Types of Checking Accounts n Joint accounts n Special accounts n Standard accounts n Interest-bearing accounts n Share accounts Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 5

Opening a Checking Account n Signature authorization form n Initial deposit Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 6

Using Your Checking Account n Writing checks n Paying bills online n Making deposits n Using a checkbook register n A checkbook register is a booklet used to record checking account transactions. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 7

Making a Deposit teens – lesson 6 - slide 6 -D © 2010 South-Western, Cengage Learning

Check Details Click the numbers 1 2 3 4 5 6 7 8 9 10 11 This Enter Put Here your the just the personal date number you check signature write of. Number. this number each Check. here. check. again (see above right). On Here Legibly Place Make the isis sure to lower where the your print add Routing your Account line, the any you personal amount information write Number out the ofinformation the money name for you (Note amount your want ofthis the bank that on like check toparty the sometimes related (used this. check is you for to are iselectronic this these correct. writing check. two your check transfers numbers to (the of arefunds payee). the reverse from Beyour sure of what account to write is shown to orthe print here. ) payee’s legibly!account) © 2010 South-Western, Cengage Learning

DO NOT WRITE BELOW THIS LINE ENDORSE HERE: Endorsed check © 2010 South-Western, Cengage Learning

Bank Reconciliation n The process of matching your checkbook register with the bank statement is known as bank reconciliation. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 11

Endorsing Checks n A check generally cannot be cashed until it is endorsed. n To endorse a check, the payee signs the top part of the back of the check in ink. n There are three major types of endorsements. n Blank endorsement n Special endorsement n Restrictive endorsement Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 12

Blank Endorsement n A blank endorsement is the signature of the payee written exactly as his or her name appears on the front of the check. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 13

Special Endorsement n A special endorsement, or an endorsement in full, is an endorsement that transfers the right to cash the check to someone else. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 14

Restrictive Endorsement n A restrictive endorsement restricts or limits the use of a check. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 15

Let’s Practice Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 16

Why You Should Save n The best reason to save money is to provide for future needs, both expected and unexpected. n Saving regularly will help you meet your short-term and long-term needs. Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 17

Short-term Needs n Short-term needs are expenses beyond your regular monthly items. n Usually you will have to pay for these things out of savings. n Examples of short-term needs include the following: n Emergencies n Vacations n Social events n Repairs n Major purchases Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 18

Long-term Needs n Long-term needs are expenses that are costly and require years of planning and saving. n Examples: n Home ownership n Education n Retirement n Investing Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 19

Financial Security n Peace of mind comes from knowing that when needs arise, you will have adequate money to pay for them. n The amount of money you save depends on: n The amount of your discretionary or disposable income n The importance you attach to savings n Your anticipated needs and wants n Your willpower Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 20

How Money Grows n The amount of money you deposit into a savings account is called the principal. n For the use of your money, the financial institution pays you money called interest. n Interest represents earnings on principal. n As principal and interest grow, more interest accumulates. n This is known as compound interest, or interest paid on the original principal plus accumulated interest. Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 21

Annual Percentage Yield (APY) n Annual percentage yield (APY) is the actual interest rate an account pays, stated on a yearly basis with the compounding included. Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 22

Compounding Interest Annually Year Beginning Balance Interest Earned (6%) Ending Balance 1 $100. 00 $6. 00 $106. 00 2 $106. 00 $6. 36 $112. 36 3 $112. 36 $6. 74 $119. 10 n The Year 1 ending balance is the Year 2 beginning balance. n The Year 2 ending balance is the Year 3 beginning balance. n The 6% interest rate stays the same, but the interest earned increases each year. Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 23

Compounding with Additional Deposits Year Beginning Balance Deposit Interest Earned (5%) Ending Balance 1 $0. 00 $100. 00 $5. 00 $105. 00 2 $105. 00 $100. 00 $10. 25 $215. 25 3 $215. 25 $100. 00 $15. 76 $331. 01 4 $331. 01 $100. 00 $21. 55 $452. 56 $105. 00 + $100. 00 = $205. 00 × 0. 05 = $10. 25 $205. 00 + 10. 25 = $215. 25 Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 24

Where to put your money so it can grow? ? Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 25

Regular Saving Account Basics n A savings account (at a bank) or share account (at a credit union) is a place to deposit money you don’t plan to spend right away. n You can add or take out money at any time, without penalty. n A savings account a good place for short- to mediumterm financial goals. n Many banks and credit unions make saving easy by allowing you to set up an automatic savings plan, where money is transferred automatically from your checking to your savings account every month. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 26

Regular Saving Account Basics n. The savings institution is allowed to use your money to invest and earn a profit. n. You are paid a small amount of interest for depositing your money. n Your money is insured against loss. Deposits in banks, no matter what type, are almost always safer than other investments because of the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA). Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 27

Savings Deposit 2 6 1 Today’s date goes here Print Your Name Here 3 Print Your Address Here 4 Sign Your Name Here 5 3 33 3 3 Click the numbers © 2010 South-Western, Cengage Learning 7 x 125 0 9 3 75 2 5 500 3 4 75 0 0 4 25 3 4

Checking Account Advantages n Convenience n Safety n Built-in record keeping system n Access to bank services Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 29

Regular Savings Account Advantages n A savings account has a major advantage— high liquidity. n Liquidity is a measure of how quickly you can get your cash without loss of value. n Convenience n Safety n Built-in record keeping system n Access to bank services Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 30

Liquidity n Liquidity is how quickly you can turn savings into cash when you want it. n The need for liquidity will vary, based on your age, health, family situation, and overall wealth. Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 31

Safety n Safety of principal means that you are guaranteed not to lose your savings deposit, even if the bank or other financial institution fails and goes out of business. n(FDIC) n(NCUA). Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 32

Convenience n Locations n Services offered Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 33

Interest-Earning Potential (Yield) n You want to earn as much interest as you can on your deposit, while maintaining the degree of liquidity, safety, and convenience you want. n Shop around for the best Annual percentage yield (APY) in your area for the type of account you want. Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 34

Selecting a Savings Plan n Liquidity n Safety n Convenience Generally are advantages if you do your homework n Interest-earning potential (yield) n Fees and restrictions Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 35

Additional Savings Options Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 36

Certificate of Deposit n A certificate of deposit (CD), or time deposit, is a deposit that earns a fixed interest rate for a specified length of time. n A CD requires a minimum deposit. n You must leave the money in the CD for the full time period. n If you take out any part of your money early, you will pay an early withdrawal penalty. n A CD has a set maturity date, which is the date on which an investment becomes due for payment. Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 37

Early CD Withdrawal Penalizes Principal Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 38

Money Market Account n A money market account is a type of savings account that offers a more competitive interest rate than a regular savings account. n There are two different kinds of money market accounts: n Money market deposit account n Money market fund n On average, money market funds will pay a higher interest rate than money market deposit accounts. Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 39

All banks and Credit Unions Offer Checking Accounts Savings Accounts Money market Accounts Certificate of Deposits Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 40

Where to Save n Commercial banks n Savings and loan associations n Credit unions n Brokerage firms n Online accounts Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 41

Credit Unions and Banks Chapter Banks Credit Unions For-profit companies owned by shareholders Not-for-profit institutions owned and controlled by their own customers, who are known as members Managed by a paid board of directors elected by the bank’s shareholders Managed by a member and volunteer board of directors, who are elected by other members Offer their services to everyone; anyone can become a customer Offer their services to special groups of people and may be employer-, church-, community-, or alumni-sponsored (among others); customers must qualify for credit union membership through their membership with these special groups of people © 2010 Cengage Learning 1 2 South-Western, 3

Credit Unions and Banks Chapter Banks Credit Unions Owned by shareholders; customers do not have ownership or voting privileges unless they also own stock in the bank Owned by each credit union member, who has equal ownership and one vote, regardless of how much money a member has on deposit Profits benefit a small group of stockholders Profits are returned to members in the form of lower fees and loan rates and higher interest on deposits Accounts are federally insured up to $100, 000 by the Federal Deposit Insurance Corp (FDIC) Accounts are federally insured up to $100, 000 by the National Credit Union Administration (NCUA) © 2010 Cengage Learning 1 2 South-Western, 3

(continued) Online & Telephone Banking n Most banks also allow and encourage electronic transfers of money. n An electronic funds transfer (EFT) uses a computer-based system that enables you to move money from one account to another without writing a check or exchanging cash. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 44

Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 45

Direct Deposit n With direct deposit, your net pay is deposited electronically into your bank account. n You receive a nonnegotiable copy of your check and stub, notifying you of the amount deposited directly into your account n You can have your automatic deposit split between accounts, with some going into savings and some going into checking to cover your bills. Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 46

Automatic Deductions n Automatic deductions represent money you have authorized your bank or other organization to move from one account to another at regular intervals. n With a payroll savings plan, you authorize your employer to make automatic deductions from your paycheck each pay period. Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 47

Debit Cards n A debit card is a card that deducts money from a checking account almost immediately to pay for purchases. n When a debit card is used, the amount of the purchase is quickly deducted from the customer’s checking account and paid to the merchant. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 48

How to Use a Debit Card n. Swipe the debit card in the card reader n. Choose the “Debit” option. n. Enter your PIN number* n. Enter the amount of cash back, if desired. n. Money is taken directly out of your checking account, so enter the amount spent into your checking ledger and/or keep track of it through your online banking account. © 2010 South-Western, Cengage Learning

About Your PIN n PIN stands for personal identification number. This number gives you access to your account, so keeping it secret is important. n Memorize your PIN number. Do not write it down and keep it somewhere in your wallet (where someone could find and use it). © 2010 South-Western, Cengage Learning

Automated Teller Machines n An Automated Teller Machine is often called an ATM. n To use ATMs, you must n Have a card that is electronically coded (usually your debit card) n Know your personal identification number (PIN) Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 51

How to Use a Credit Card n. Swipe the credit card in the card reader or give it to the clerk to swipe. n. Choose the “Credit” option. n. Sign the receipt. n. Keep and save your copy of the receipt to record later so you can keep track of what you have spent. © 2010 South-Western, Cengage Learning

Money Orders n Banks sell money orders to people who do not wish to use cash, or do not have a checking account. Also, money order can be requested by businesses. n A money order is like a check, except that it can never bounce. n There is a charge for purchasing a money order. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 53

Stop Payment Orders n A stop-payment order is a request that the bank not honor a specific check. n The usual reason for stopping payment is that the check has been lost or stolen. n Most banks charge a fee for stopping payment on a check. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 54

Safety Deposit Boxes n Financial institutions offer customers a safe deposit box to store valuable items or documents. n They charge a yearly fee based on the size of the box. n Keeping important documents and other items in a safe deposit box ensures that the items won’t be stolen, lost, or destroyed. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 55

(continued) Safety Deposit Boxes n Examples of items commonly kept in a safe deposit box include n Birth, marriage, and death certificates n Deeds and mortgage papers n Stocks and bonds n Jewelry n Coin collections Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 56

Loans and Trusts n Financial institutions also make loans to finance the purchase of cars, home improvements, vacations, and other items. n Banks can also provide advice for estate planning and trusts. n Banks can act as trustees of estates for minors and others. n A trustee is a person or an institution that manages property for the benefit of someone else under a special agreement. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 57

Notary Public n A notary public verifies a person’s identity, witnesses the person’s signature on a legal document, and then “notarizes” the signature as valid. n Financial institutions typically have a person on their staff who is a notary public. n This person provides notary services for account holders, usually without charge. n For noncustomers, however, there is typically a small fee. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 58

Bank Fees n Banks charge fees to their customers to help cover their operating costs. n The best way to avoid fees is to choose the right kind of account. n Shop around and find the account that is right for you. n Be aware of the rules of your account, so that you don’t violate them and be required to pay high fees. Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 59

Fees and Restrictions n Different accounts and institutions have different rules. n Before you open an account, be sure to understand the withdrawal restrictions, minimum balances, service charges, fees, and any other requirements. Chapter 10 © 2010 South-Western, Cengage Learning SLIDE 60

Examples of Bank Fees n n n n Loan fees Trustee fees Check cashing fees Per-check fees Monthly service fees Overdraft fees NSF check charges ATM transaction fees n n Safe deposit box fees Teller service fees Minimum balance fees Fees for guaranteedpayment checks n Notary service fees n Online bill payment fees n Fees to return canceled checks Chapter 9 © 2010 South-Western, Cengage Learning SLIDE 61

All Financial Services All of these services can be found in most 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, Homeowners Insurance, Renters Insurance, Condo Insurance, Auto Insurance, Supplemental Income Insurance, Foreign Currency Exchange, Travelers Checks, International Wire Transfers © 2010 South-Western, Cengage Learning