Financial Services
and Institutions
Name____________________
1
How to Manage Your Cash
What are your cash needs?
Banking began in 1791 – 1 central bank with 8 branches
Today –
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11,000 _________
2,000 _____________________
12,000 ____________________
Types of Financial Services
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Savings – safe storage of funds
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Time Deposit – money left in the bank for months/yrs
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Payment Services – transferring money from a personal account
to businesses or individuals for payment is a basic function of day-today financial activity at a bank.
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Certificates of Deposit (CD’s)
Checking account – ___________________– withdraw money at any
time or on demand
Types of Financial Services (cont)
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Borrowing – need to borrow money
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Short term – credit cards, personal loan
_____________–
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Other Financial Services
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mortgage – for a house
Auto loan – for a car
_____________________
Stocks, bonds, mutual funds, income tax assistance, financial planning
Electronic Banking Services
How can you use electronic banking services?
Direct Deposit – automatic deposit of net pay to an
employee’s designated bank account
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Save time money and effort
______________________
Automatic Payments – Utility companies, lenders and
other businesses allow customers to use an automatic
payment system
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____________________________
Automated Teller Machines (ATMs) – cash machine,
computer terminal that allows a withdrawal of cash from an
account…make deposits…transfer money from one acct.
to another
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Debit card…allows you to use ATM or pay for purchases from
checking/savings
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PIN – _________________– needed to access and use your debit card
Plastic Payment
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ATM Fees – convenience fee for using the card
 Lost – must notify bank ___________…most card issuers
will not hold you responsible
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Point-of-Sale Transactions – purchase by a debit card of a
good/service at a retail store, restaurant. _______________
________________________________
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Stored-Value Cards – Prepaid cards that you can use for
bus, school lunches, long-distance phone calls
 ________________________
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Electronic Cash – plan is to create electronic versions of all
existing payment systems, will no longer handle currency
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Types of Financial Institutions
Federal Deposit Insurance Corporation
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Great Depression of the 1930’s
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People lost their deposits
_______________________
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Protect deposits - $100,000 (Federally Chartered Banks)
Currently at ________________(Due to expire Dec 2013)
Deposit Institutions – deposit type institutions
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Commercial Banks ______________institution that offers a
full range of financial services…checking…savings…lending
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Individuals and businesses
Types of Financial Institutions
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Savings and Loan Associations (S&L) – traditionally specializes in
savings accounts and mortgage loans
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The Savings and Loans Crisis created the greatest banking collapse since
the Great Depression of 1929. By 1989, over half the Savings and Loans
had failed
Mutual Savings Banks
Credit Unions – non-profit financial institution that is owned by its
members and organized for their benefit
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______________________
College Alumni Assoc
Non-Deposit Institutions
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Investment Companies
______________________
Mortgage Companies
Problematic Financial Businesses
Be careful of these financial businesses
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Check Cashing Outlet
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Rent-to-Own Centers
Comparing Financial Institutions
Where can you get the highest interest rate for your
savings
________________________________
Offer of credit cards or loans
Do they offer free financial advice
____________________________
Convenient branch locations
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Savings Plans and Payment Methods
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Regular Savings Accounts
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Passbook or monthly or quarterly statements
Frequent deposits and withdrawals
______________________________
Lower interest rates
Certificates of Deposit (CD) savings alternative in which
money is left on deposit for a stated period of time to earn a
specific rate of return
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Low risk
_____________________________
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Trade-off: 1 month to 5 yrs, pay penalty for early withdrawal, minimum
deposit
Maturity date – _________________________________
Savings Plans and Payment Methods
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Money Market Accounts – savings account that requires a
minimum balance and earns interest that varies from
month to month
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Minimum balance of _____, penalty for below minimum
Write a limited amount of checks
_________________________
U.S. Savings Bonds - bonds require that you leave the
money in the account for a longer period of time. You
purchase the bond at one half its face value. If you cash in
the bond before that time, you will not receive the whole
value of the bond.
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____________________________
Evaluating Savings Plans
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Rate of Return (yield) – percentage of increase in the
value of your _____________________________
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Example – Initial deposit $75, $3 interest earned…the rate of
return is 4%
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Total interest/initial deposit (3 divided 75 = .04 (4%)
Compounding – is the process in which interest is
earned on both the principal, the original deposit, and any
previously earned interest
Truth in Savings – have to inform you of the following:
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Interest Rate
Annual percentage yield (APY)
Term and conditions of the savings plan
Evaluating Savings Plans
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Annual Percentage yield (APY) – the amount of
interest that a deposit would earn, after compounding, for
one year.
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The APY helps your determine the amount you can expect to
earn on your money
Liquidity – Check the savings plans you are considering
to determine whether they charge a penalty or pay a
lower rate if interest if you withdraw your funds early.
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Types of Checking Accounts
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Regular Checking Accounts – usually do not require a
__________________________
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Activity Accounts – write few checks, will be charged
per check and deposit
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Interest-Earning Checking Account – combination
checking/savings…pay interest if minimum balance is kept
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Evaluating Checking Accounts
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Restrictions – is there a _________ balance requirement
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Fees and Charges – monthly service charge, fees for check
printing, overdrafts, stop payment orders
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Interest – Interest rates, frequency of compounding
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Special Services –
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ATM
Electronic banking
Overdraft protection – automatic loan made to an account if the
balance will not cover checks written
Using a Checking Account
How do you open and use a checking account?
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Individual – ____________________
Joint – two or more owners
Signature Card – ________________________
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Writing Checks
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Check Register – small booklet that you use to record your
activity
Record in check register – date, number of check, name of
party who will receive payment, exact amount of check
Record all checks, deposits, ATM activity
Making a Deposit
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To add money to your checking account, fill out a deposit
slip
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Endorsements
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Signature of payee, the party to whom the check has been
written.
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Blank Endorsement – payee signature on back of check
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Restrictive Endorsement – check holder’s signature and a
restriction on how the paper may be used by the bank
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Write “For Deposit Only” and then you sign your name
Special Endorsement – allows you to transfer a check to an
organization or another person
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Sign your name
Write the words “pay to the order of” followed by the name of the
organization or person, and then you sign your name
Endorsements
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Endorsing a check:
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Do not endorse a check until you are ready to
____________________________
Write your signature on the back of the check at the top
______________________
Sign your name exactly as it appears on the front of the
check
Use a _______ so that the signature cannot be erased
If depositing, write, “For Deposit Only” above your
signature
Check Clearing – system that ensures that the money
you deposited in the acct is available for withdrawal (2-5
days)
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Keeping Track of a Checking Account
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Each month your bank will send you a statement that
shows your checking account activity for the month
 __________________
 Checks you have written (charged against your
account)
 ____________________
 Debit card charges (identified by the business to
whom you made the payment)
 ___________________
 Fees
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Reconciliation
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Balance reported on the bank statement may be different
from the balance in your check register
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Written checks that have not yet ____________________
Deposit money into your account after the bank prepared
your statement
________________________
Interest paid
Bank Reconciliation – report that accounts for the
differences between the bank statement and a checkbook
balance
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Balancing your check book: Bank statement = checkbook
Balancing your Checkbook
Compare checks written in checkbook to bank statement
(ck#-101,102,103-stmt-101,102)
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Outstanding checks – checks you have written that haven’t cleared
the bank (103)
Subtract total amount of outstanding cks from bank statement
balance
Determine whether any recent deposits are not on the bank
statement
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3.
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Add amounts of those deposits to the bank statement
Subtract fees and charges listed on the statement from your
checkbook balance
Add interest earned to your checkbook balance
Checkbook=Bank Statement
Other Payment Methods
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Certified check – personal check with a guaranteed
payment – deducts amount out of your account
immediately – fee charged
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Cashiers Check – ___________________________
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Money Order – pay the amount of the check + fee (also
can be purchased at ___________for a smaller fee)
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Travelers Check – used for traveling, can be replaced if
stolen (amount + fee)
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How Do Banks Make Money?
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Banks make money by making loans
Federal Reserve sets a reserve requirement 3%-10% for
each deposit the rest can be loaned out
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You deposit $100, the bank can loan out $90 (if reserve is 10%)