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, Drawee, Drawer
Common Payment Services
• Special Checks
– Travelers check
• Requires 1st signature when check issued
• Requires 2nd 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 1st signature when check issued
• Requires 2nd signature when check used
Traveler’s Checks
Traveler’s Checks – Draft
drawn by a well-known
financial institution on itself or
its agent, used when traveling
• Go to website
•
http://www212.americanexpress.com/d
smlive/dsm/dom/us/en/personal/cardm
ember/additionalproductsandservices/
giftcardsandtravelerscheques/travelers
chequesandforeigncurrency.do?vgnext
oid=6d17fc671492a110VgnVCM10000
0defaad94RCRD
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
written by a bank for
you from your bank
account to give to
someone.
• It's guaranteed funds
that the bank
reserves from your
account.
• Go to website:
http://www.superpage
s.com/supertips/whatis-a-certifiedcheck.html
• Write Certified Check
questions 1-5 from
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
money is a money
order issued?
2. When was the
Postal Order system
established?
3. What is a concern
about using money
orders?
4. Who usually sells
money orders in the
United States?
5. Name 5 security
features of a postal
money order.
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, Drawee, 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 one 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
Number
Check
Date
Melanie Paige
Charles Paige
619 Main Street
Raleigh, NC 27601
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!
46
MICR Banking #s
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!