Topics Classification of financial institutions Depository Nondepository Common

Topics • Classification of financial institutions – Depository – Non-depository • Common payment services – Electronic Funds Transfers – Online Bill Pay – Checking Accounts – Specialty checks – Money Orders

Classification of Financial Institutions • Depository – Earns money to finance their business by accepting deposits from customers – Types include: • Commercial banks- full service - offer many different services, including savings, loans, and checking accounts. • Savings and Loan associations (S&Ls) traditionally specialize in savings and home loans, but now are very similar to commercial banks. • Mutual savings banks- owned by the depositors and specialize in savings and home loans. • Credit unions- not-for profit, serve their members only, and are owned by their depositors.

Classification of Financial Institutions • Non-depository – Earns money to finance their business by selling specific services such as policies, investments, and loans – Types include: • Life insurance companies -term, whole, universal • Investment companies - stocks, bonds, mutual funds • Consumer finance companies – higher rates if bad credit • Mortgage companies – loan $ for land, buildings, homes • Check-cashing outlets –fee based if do not have bank acct • Pawnshops –loan $ based on value of item pawned

Can you answer this question? • Jack is skeptical about allowing other people to keep his money. He will use a local check cashing outlet to cash his checks. • This is an example of which type of financial Institution? • Non-Depository

Can you answer this question? • First Bank, a commercial bank, makes it money to finance its business by accepting deposits from people. This is an example of which type of financial institution? • Depository • Non-Depository

Can you answer this question? • Home Finance Company’s main function is to use its own money instead of customers’ savings to provide loans to other businesses. • This is an example of which type of financial Institution? • Non-Depository

How To Compare Financial Institutions • Which characteristics of financial institutions are of interest? – – – Services offered Safety Convenience Fees and charges Restrictions • What kinds of questions may be asked about each characteristic?

Comparative Questions • Services – Does the institution offer needed services? – Savings – Depository for payroll taxes – Checking • Various options to meet customer needs – Loans • Short term - working capital • Long term - mortgage – Credit cards – Debit cards – Safe deposit boxes – Trust management

Safe Deposit Boxes • Banks have them for storage of valuables, such as fine jewelry, birth records, old coins, insurance policies and other valuable documents.

Trust Management • Many banks will manage investments on behalf of its customers. The money that is turned over is said to be held in “TRUST” • Trust are especially useful for very young people or very old. These people may not have the skill to manage there money properly.

Can you answer this question? • RBC Centura Bank invests over 1 million dollars for a young boy named Todd. Which type of financial service is being provided? • Lending services • Storing valuables • Trust Management

Comparative Questions • Safety – Is the institution insured against losses? – Federal Deposit Insurance Corporation (FDIC) Created by Congress to maintain stability and public confidence in the nation’s financial system: insures deposits, supervises financial institutions – National Credit Union Administration

Comparative Questions • Convenience – Does the institution offer the access desired? – Physical locations available – Online services • Easy to access & use – ATM machines

Comparative Questions • Restrictions – Are there minimum balances that must be kept, or other restrictions? • Minimum balance- $ amount required to stay in account at all times – If account keeps minimum balance, fees are often waived (eliminated)

Comparative Questions • Fees and Charges – What are the short and long-term costs of the services? – Flat monthly fees – Fees per transaction • NSF (Non-sufficient funds) fees • Checks written • Debit transactions – # of transactions allowed before fees begin – Minimum balance required to eliminate fees

Can you answer this question? • An investor prefers a financial instituion that offers safe deposit boxes, trusts, and loans. Which characteristic(s) of financial institutions does the investor prefer? • Fees and charges • Restrictions • Services • Safety

Common Payment Services • Electronic Funds Transfers • Online Bill Pay • Checking Accounts – Personal, business • Specialty checks – Certified, Cashier’s, Traveler’s • Money Orders – Postal, Express, Telegraphic

Online Bill Pay • Use the web to make payments • Often fee based • Privacy can be issue – Change PIN frequently – Use only “safe” sites

Online Bill Pay Questions 1. What are the two types of online bill pay? 2. What is automatic bill pay? 3. Choose link Banking 101 Choose link 3 reasons to avoid online banking. List 3 reasons given.

Common Payment Services - EFT Electronic Funds Transfer (EFT) Banking method in which computers and electronic technology is used as a substitute for checks and other paper forms of banking Electronic Funds Transfer Options: » Automated Teller Machines (ATM’S) » Pay-By-Phone Systems » Direct Deposit or Withdrawals Paychecks, automated bill payment » Point-of-Sale Transfers Debit Cards » Automatic Deposits and Payments 20

Checking Accounts • Used by business and individuals to manage cash transactions • Check– A preprinted form issued by the financial institution – Account holder directs withdrawals by writing checks – Parties to a Check • Payee, Drawer

Common Payment Services • Special Checks – Travelers check • Requires 1 st signature when check issued • Requires 2 nd signature when check used Go to link below and read about traveler’s checks and how they work. http: //usa. visa. com/download/merchants/visa_travelers_cheques_acceptance. pdf

Common Payment Services • Special Checks – Travelers check • Requires 1 st signature when check issued • Requires 2 nd signature when check used

Traveler’s Checks – Draft drawn by a well-known financial institution on itself or its agent, used when traveling • Go to website • http: //www 212. americanexpress. com/d smlive/dsm/dom/us/en/personal/cardm ember/additionalproductsandservices/ giftcardsandtravelerscheques/travelers chequesandforeigncurrency. do? vgnext oid=6 d 17 fc 671492 a 110 Vgn. VCM 10000 0 defaad 94 RCRD Write questions 1 -3 on notebook paper. Use the website to answer the questions. Click on Learn More about Travelers Checks. 1. List the 4 steps in how to use travelers checks. 2. List 5 ways Travelers Checks mean Peace of Mind. 3. What is the benefit of Cheques for Two?

Certified Check • A certified check is • Go to website: written by a bank for http: //www. superpage you from your bank s. com/supertips/whataccount to give to is-a-certifiedsomeone. check. html • It's guaranteed funds • Write Certified Check that the bank reserves questions 1 -5 from your account. next slide on notebook paper. Use the website to answer the questions.

Certified Check • A certified check is written by a bank for you from your bank account to give to someone. It is a personal check. • It's guaranteed funds that the bank reserves from your account.

Certified Check Questions 1. Who issues a certified check? 2. Give two examples of when you might need a certified check? 3. Why can’t a certified check bounce? 4. Why does a creditor require a certified check? 5. Do banks charge a fee for a certified check?

Cashier’s Check • A cashier's check is a draft drawn by a Bank on itself, which the Bank agrees to honor when properly presented for payment. The Bank, not its customer, signs the check. • It is guaranteed funds from the BANK!

Cashier’s Check Sample Cashier’s Check – A check the bank draws on itself

Common Payment Services • Money Order • Draft issued by a post office, bank, express company, or telegraph company for use in paying or transferring funds for the purchaser • Orders issuing agency to pay amount printed on form to another party

Can you answer this question? • Sara authorizes her bank to pay her bills directly from her checking account. What type of payment service is this? • Money Order • Cashier’s Check • E-Banking or Electronic

Can you answer this question? • Geovany gave Market Furniture company a personal check for which his bank guaranteed payment. This is an example of which type of payment service? • Money Order • Electronic Banking • Certified Check

Common Payment Services • Money Order • Draft issued by a post office, bank, express company, or telegraph company for use in paying or transferring funds for the purchaser • Orders issuing agency to pay amount printed on form to another party • Types of Money Orders: – Postal money order – Express money order – Telegraphic money order • Go to website http: //en. wikipedia. org/wiki/Money _order Write questions 1 -5 from next slide on notebook paper. Use the website to answer the questions.

Money Order Questions 1. For what amount of 4. Who usually sells money is a money orders in the order issued? United States? 2. When was the Postal 5. Name 5 security Order system features of a postal established? money order. 3. What is a concern about using money orders?

Checking Accounts • Used by business and individuals to manage cash transactions • Check– A preprinted form issued by the financial institution – Account holder directs withdrawals by writing checks – Parties to a Check • Payee, Drawer

The First Deposit • Opening a checking account – Signing a signature card is the first step – This document is used to verify your signature on check to the on the signature card. – Joint checking account – Two or more people on the account

Endorsments Definition: Signature on the back of a check What does an endorsement do? • Endorsing a check for deposit – An endorsement allows the payee to cash the check, deposit the check or transfer payment of the check to someone else. – Different types of endorsements: • Blank • Full • Restrictive

Check Endorsements Definition: Signature on the back of a check What does an endorsement do? • Allows payee to cash, deposit or transfer payment of the check to someone else • Provides proof that the payee cashed or transferred payment of the check to someone else How should a check be endorsed? • Endorser (payee who is signing) should sign the check the way it is on the front of the check and if the name is misspelled, correct the signature directly up under the first endorsement 38

Blank Endorsements • Signed with endorser’s name only (endorser is payee from front of check) • Can be cashed by anyone who holds the check with a blank endorsement! X • Don’t use blank endorsement before you are ready to cash or deposit! Should match payee’s name Jane Doe DO NOT WRITE BELOW THIS LINE 39

Full Endorsement • Transfers payment of a check to someone else. • Payee signs check , then writes “pay to the order of” another person • Can be used to make payment on a debt – Juan is payee on check – Juan owes Maria money – Juan transfers payment to Maria. Debt = money owed Might also endorse: Juan Delgado pay over to Maria Fernandez

Full Endorsement Example • Transfers payment to someone else • Payee signs the check over to another person to receive payment X Pay to the order of Jane Doe John Doe • Who was payee on check? John DO NOT WRITE BELOW THIS LINE 41

Restrictive Endorsement • Limits use of the check so it can be deposited only to endorser’s account. • Safest type of endorsement • Cannot be cashed by a thief or someone who finds the check • Best to use when mailing a check for deposit or when using the ATM for deposit.

Check Writing Procedures 1. Write information in the check register first, (ensure checks are written in numerical order) 2. Write the date the check is written. 3. Write the payee’s name. 4. Write in the numerical amount of the check. 5. Write in the amount of the check in words. 6. Write in the purpose of the check. 7. Sign the check.

Can you label the parts of check?

Drawer ~ person writing check Drawee ~ Bank Write information in the check register first, (ensure checks are written in numerical order). Drawee Signature Amount of check in words Payee’s name Date Numerical Amount Purpose Check number Name and address Banks Routing number Drawer’s Account number

Parties to a Check Drawer’s Name & Address Joint Account Payee ABA # Check Date Melanie Paige Charles Paige 619 Main Street Raleigh, NC 27601 Check Number 319 2 -131/1034 July 16, 2010 Pay To the Order of _____Donnie Tatum___________$100. 50 _One hundred and 50/100 --------------------------DOLLARS State Credit Union For ________ Charles Paige 2131/1034: 78434 234320 100. 50 07 -18 -2010 2251 Memo Bank Name - Drawee Drawer’s Signature Last item completed on check! MICR Banking #s 46

Record Keeping • IMPORTANT: Keep a current balance in check register or on check stub by: • Recording deposits • Recording withdrawals – Checks written – EFTs – Bank Fees

How Do I Know the Amount in my Checking Account? Keep a Check Register or Check Stub Balance a. Subtract checks written (or debit card transactions) from balance b. Add deposits to balance c. Keep a running balance after writing checks or making deposits • Check Register is YOUR documentation of how much money is in your account? • What if mistakes are made? • You will make corrections when you reconcile (balance) bank statement

Bank Reconciliation • What is a bank reconciliation? • Document that shows two equal balances – Your record of your checking account – The bank’s record of your account • Do they have the same $ balance? – Yes, or reconciliation is not complete! – Reconciliation helps to find/correct any mistakes in your register!

Outstanding Checks • What is an outstanding check? • Outstanding checks are checks that have not cleared (been deducted from) the bank statement balance. • Need to know items outstanding in order to reconcile statement • How to know if checks are outstanding: – Find out which checks /deposits are outstanding by comparing the bank statement with the checkbook register

Reconciling a Checkbook Makes sure the bank’s records agree with your records 1. Check for outstanding checks and deposits 2. Check the checks, deposits, ATM activity on the bank statement to make sure that your records are correct 3. Make adjustments to the bank statement and your records to ensure that you and the bank have the same amount of money 4. Reconcile every statement upon receipt 51

Steps in a Bank Reconciliation 1. Obtain the monthly bank statement. 2. Determine checks paid. 3. Find differences between the monthly bank statement and monthly check register. 4. Calculate the adjusted balance. 5. If the balances do not agree, check the steps again and recalculate. 6. Account balances must be equal!