Chapter 7
Banking
Essential Questions
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How does a bank benefit you now?
How do you think you will use a bank
in the future?
If banks didn’t exist, how do you
think your life would be different?
The Role Banks Play
Banks are profit driven private
businesses
 They work to earn a profit by
selling financial services
 Loans – make profit on interest
 Deposits – invest in open market
 Investment services
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How Do Banks Make $$$$?
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Most income that banks earn comes from
the interest they charge when they lend
money
Example: Suppose you deposit $100 in your
bank account. The bank pays you 2% interest to
use your money. The bank lends your $100 to a
business and charges 6% interest. The banks
income is the 4% difference.
Banks Provide Security
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Purchasing power – interest received from
savings offset inflation
Bank Regulation – Banks are subject to a
very high level of government regulation
(must maintain certain level of cash)
Deposits are Insured – Federal Deposit
Insurance Corporation (FDIC) a federal
government agency that insures deposits
up to $250,000)
Banks Simplify Borrowing
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Banks help people pay for their most
important possessions.
House / Cars / Education.
Businesses borrow for equipment /
expansion & start-up costs.
Homework
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Chapter 10 Review Questions (1-17)
Types of Banks
1.
2.
3.
Commercial Banks
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Provide many services (FDIC)
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Focus on savings accounts and loans on property
(Home Equity Loan)
Savings Banks
Savings and Loan Associations
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4.
Primarily set up to lend money for home
mortgages but do offer other services – checking
/ credit cards / etc.
Credit Unions
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Not-for-Profit for union members – owned by
members
Higher interest rates on deposits & lower on
loans
Checking Accounts
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Checking accounts allow depositors to
write checks to make payments
A check is a written order to pay a
specific payee
Checking accounts may also be called
a demand deposit account (DDA)
Once you write a check and the payee
cashes it is “cleared”
Until it is cashed it is considered
“outstanding”
Checking Account Types:
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Interest-Bearing Checking Accounts
– usually large minimums for
balance. You can collect interest on
your checking account.
Noninterest-Bearing Checking – most
checking accounts that you do not
have to keep a large balance.
Why Use A Checking Account?
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Safety – greatest advantage only the person who
the check is made out to can cash it
Convenience –large payments – no need to carry
around large sums of cash – access to ATM’s
Budgeting – Records of your transaction – checks
& statements automatically serve as records
Credit rating – the first way to establish credit
Establish banking relationship – easier to obtain
loans, and other services
Checking Account Responsibilities
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Maintain sufficient funds – no overdrafts
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Keep careful / accurate records (register)
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Reconcile your account each month
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Never “postdate” or “float” checks
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Purposely writing a bad check is a felony
Famous Felons
TERMINOLOGY
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Account Balance – the total amount in the
account at a specific date
Overdrawing – writing a check for more
than you have in your account. (NSF Fee)
Third Party Check – when you receive a
check made out to you, you sign it over to
someone else
Opening a Checking Account
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Very Easy – must be 18 years old
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2 forms of identification needed
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Signature Authorization (signature card)
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Sign your check the same way that you
sign signature card
Checks can be purchased at bank
Check Writing / Parts of a Check
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Always use Ink
Write Legibly
Sign exactly as signature card
If you make a mistake – “Void” the check
& keep it for your records
Make sure there is $$ in the account
Deposits
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A Deposit Form must be completed
(forms in checkbook or at bank)
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Endorse checks before depositing them
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Record the deposit promptly in register
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Money may not be available until it “clears
the bank”
Endorsing Checks
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Signing the back of a check acknowledging you
have received the money
Checks must be endorsed to be cashed / deposited
or transferred
Blank Endorsement – just signature
Endorsement in Full or Special
Endorsement – “Pay to the Order of ___”
Restrictive Endorsement – “For Deposit
Only”
Check Register
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Booklet provided by your bank for recording all
checking account transactions
Record all transactions promptly:
Deposits
Interest
Checks (record check numbers)
Debits
Withdrawals
Bank Fees
Keep a running account balance at all times
Reconciling (Balancing) A
Checking Account
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Bank Statement – at the end of the
month the bank will send a
statement showing all transactions
for the month
Balancing (reconciling) a checking
account – comparing a check register
with the bank statement
Statements & Checkbooks
Statement Column
 Balance from
statement
 List deposits not on
statement
 Total statement
balance and deposits
 List checks not on
statement
 Statement balance
Checkbook Column
 Balance from
checkbook
 List deposits not in
checkbook
 Total checkbook
balance and deposits
 List fees not in
checkbook
 Enter interest
payment
 Total fees and interest
 Checkbook balance
Errors & Cancelled checks
Any error should be verified with
bank & corrected as necessary
 Cancelled checks – The actual check
written and deposited may be
returned with statement
 Most banks keep these now
(Truncated)
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CHECKING ACCOUNT FEES
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Monthly maintenance fee – flat fee no
matter how many checks you write.
Service Charge – a special charge for each
check you write or other special services
ATM Fees
Electronic Banking
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Electronic Funds Transfer (EFT) – move money
from one account to another automatically
Example: Checking into Savings
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Automatic Bills Payments – pay bills by phone
after bank notification (possible banks fee)
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Direct Deposit – paychecks deposited directly
into your checking account (you get stub)
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Debit Cards – cards are used like credit cards
but money spent is automatically deducted from
checking account
Automatic Withdrawals – bank removes money
from the account at a specified time and sends it
to a company to pay bill
(Example: mortgage or insurance payments)
Automated Teller Machines
(ATM)
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Automated Teller Machines (ATM)
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make deposits
withdraw cash
transfer money between accounts
check your balance
pay some bills
Personal Identification Number (PIN) –
Secret number that identifies you to the
ATM as the owner of the card
Choose a bank with locations you will use
to avoid service fees
Online Banking
Complete transactions online
 Register through your bank to do this
 There is often a monthly service fee
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Electronic Fund Transfer Act – (EFTA)
requires banks to inform the
customers of fees and supply
receipts for electronic transactions.
Guaranteed Payment Checks
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Certified Checks – Personal check stamped
and signed by a bank officer - stamp
guarantees that account has the funds to
cover the check
Cashier’s Check – Bank’s own personal
check signed by bank cashier - $25 fee
Money Order – Check that draws on the
money of the bank or other financial
company that issue it - Buy one from a
bank , post office, currency exchange
Traveler’s Check
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Check that you pay for in advance,
and if they are stolen or lost, the
company you bought them from
replaces them
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Purchase at banks, travel agency, etc
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There is usually a small fee.
Safe Deposit Boxes
Boxes with individual locks that you
may rent from a bank
 Located in the vault
 Cost of a small box is usually $30 –
40 a year
 Important papers - birth certificates
 Small valuable items - Jewelry
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Wire Transfers
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Electronic communication moving
money from one account to another
Usually $20-$40 fee through banks
Other financial organizations may
also provide this service
Homework