Chapter 9 Checking Accounts and Banking Services 9

Chapter 9 Checking Accounts and Banking Services 9. 1 Checking Accounts 9. 2 Banking Services and Fees © 2010 South-Western, Cengage Learning

Lesson 9. 1 Checking Accounts GOALS n Describe the purpose of a checking account and the forms associated with it. n Explain how to use a checking account. n Discuss the types of checking accounts. Chapter 9 © 2010 South-Western, Cengage Learning 2

Checking Account Basics n A checking account allows you to write checks to make payments. n A check is a written order to a bank to pay the amount stated to the person or business named on it. n A checking account is also called a demand deposit, because the money may be withdrawn at any time—that is, “on demand. ” Chapter 9 © 2010 South-Western, Cengage Learning 3

(continued) 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. n A canceled check is a check that has cleared your account. Chapter 9 © 2010 South-Western, Cengage Learning 4

(continued) Checking Account Basics n Many banks no longer send paper checks to other banks for processing. n To make processing faster and more efficient, they exchange check information electronically by transmitting an image of the check, called a substitute check. n A substitute check can be used in the same way as an original check. Chapter 9 © 2010 South-Western, Cengage Learning 5

(continued) Checking Account Basics 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 will charge you a fee for each NSF check processed. Chapter 9 © 2010 South-Western, Cengage Learning 6

(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. n Floating a check is illegal in most states. Chapter 9 © 2010 South-Western, Cengage Learning 7

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 8

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

Parts of a Check Number Name and Address of Maker Date Payee ABA Number Numeric Amount Written Amount Memo Signature Account and Routing Numbers Chapter 9 © 2010 South-Western, Cengage Learning 10

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 11

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 12

Reconciling Your Checking Account 1. Write ending balance from bank statement. 2. Add credits or deposits not on statement. 3. Total lines 1 and 2. 4. List checks, withdrawals, and debits made but not shown on statement. 5. Total outstanding checks/debit transactions. 6. Subtract line 5 from line 3. (Result should match checkbook balance) Chapter 9 © 2010 South-Western, Cengage Learning 13

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 14

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 15

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 16

Restrictive Endorsement n A restrictive endorsement restricts or limits the use of a check. Chapter 9 © 2010 South-Western, Cengage Learning 17

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 18

Lesson 9. 2 Banking Services and Fees GOALS n Describe banking services available at most financial institutions. n List and explain fees charged by financial institutions for their services. Chapter 9 © 2010 South-Western, Cengage Learning 19

Banking Services n A full-service bank is one that offers every possible kind of service, from savings and checking accounts to credit cards, safe deposit boxes, loans, and ATMs. n Other services commonly offered are online banking, telephone banking, certified checks, cashier’s checks, money orders, and debit cards. n Most banks offer FDIC (Federal Deposit Insurance Corporation) insurance, which protects the deposits of customers against loss up to $250, 000 per account. Chapter 9 © 2010 South-Western, Cengage Learning 20

Guaranteed-payment Checks n A certified check is a personal check that the bank guarantees or certifies to be good. n A cashier’s check, also called a bank draft, is a check written by a bank on its own funds. n Traveler’s checks are check forms in specific denominations that are used instead of cash while traveling. Chapter 9 © 2010 South-Western, Cengage Learning 21

Money Orders n Banks sell money orders to people who do not wish to use cash or do not have a checking account. n A money order is like a check, except that it can never bounce. n There is a charge for purchasing a money order. n You also can purchase money orders through the post office and local merchants. Chapter 9 © 2010 South-Western, Cengage Learning 22

Debit Cards n A debit card is a plastic card that deducts money from a checking account almost immediately to pay for purchases. n The debit card is presented at the time of purchase. 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 23

Bank Credit Cards n You can apply to a full-service bank for a bank credit card, such as a Visa or Master. Card. n If you meet the requirements and are issued a card, you can use it instead of cash at any business that accepts credit cards. n Banks offering national credit cards usually charge both an annual fee for use of the card and interest on the unpaid account balance. Chapter 9 © 2010 South-Western, Cengage Learning 24

Overdraft Protection n Overdraft protection allows you to cover checks or withdrawals up to a specified amount, usually between $100 and $1, 000, depending on the typical balance in your account. n With overdraft protection, your checks will be covered even if you have insufficient funds in your checking account. Chapter 9 © 2010 South-Western, Cengage Learning 25

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 n Know your personal identification number (PIN) n Getting cash is a common ATM transaction. n Using a debit card you can withdraw cash from your checking or savings account. n Using a Visa or Master. Card, you can receive a cash advance electronically. Chapter 9 © 2010 South-Western, Cengage Learning 26

Online and Telephone Banking n Online and telephone banking services give you the ability to access your accounts from a computer or telephone anytime, day or night. n Services include: n Transferring money from one account to another n Paying bills by authorizing the bank to disburse money n Getting account balances n Seeing which checks have cleared and which deposits have been entered Chapter 9 © 2010 South-Western, Cengage Learning 27

(continued) Online and 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 28

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 29

Safe 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 30

(continued) Safe 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 31

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 32

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 33

Financial Services n Purchasing or selling savings bonds n Investment brokerage services Chapter 9 © 2010 South-Western, Cengage Learning 34

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 35

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 36