CHAPTER 4
Banking Services:
Savings and Payment Services
Overdraft fees now average $34 per transaction.
That is $17.5 billion annually in the United States.
-- Center for Responsible Lending
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Types of Financial Institutions
 Deposit type financial institutions
 Commercial banks are corporations that offer a full
range of services including checking, savings, and
lending
 Insured by FDIC
 Credit unions are user-owned and nonprofit
 Hence their fees are usually lower than banks and
the rates they pay are usually higher than banks
 Insured by NCUA/NCUSIF
Discussion: Are there any significant differences between
banks and credit unions? Is your money safe?
Types of Financial Institutions
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(continued)
 Non-deposit type financial institutions
 Investment companies offer money market mutual
funds. You can write checks on your account
 (More about money markets when we get to investments)
 Post office, convenience stores offer money orders
 Check-cashing outlets charge 1% to 3% or more to
cash a check
 A bank or credit union will cash your checks for free
 Pawnshops make loans on possessions (60%?!)
 Loan-Until-Payday companies (244%?!)
Where do you see the most check-cashing outlets,
pawnshops, loan-until-payday companies, etc.?
Which type of financial institution
do you use?
A.
B.
C.
D.
Commercial bank
Credit union
Other (check cashing, post office, etc.)
I do not have any money so I do
not need one!
Discussion: Why and how do people choose one
financial institution over another?
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On-line banking
 Banking through the telephone, personal
computer, and other on-line services
 Access 24 hours a day, 7 days a week
 ATM is your teller if you need cash or want to
deposit money
 Privacy and security are concerns
 Do you allow your browser to store your
password?
Why are financial institutions pushing these services?
Some banks (example: HSBC) are attracting Internet-only
customers with very high yields on their savings accounts.
What is their motivation to do this?
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Types of Financial Accounts

Savings accounts
 Savings accounts (banks, a.k.a. passbook saving accounts)
 Share accounts (credit unions, a.k.a. savings accounts)
 Certificates of Deposit (CDs) – Shop around!

Payment accounts
 Checking accounts (banks)
 Share draft accounts (credit unions, a.k.a. checking)
 NOW accounts (Negotiable Order of Withdrawal)
 Checking account that earns interest (negligible)
 Overdraft Protection?
 For checks? Yes, get it. Link it to your savings account
 For debit cards? No way! Must now “opt-in”
 Careful – compare costs. How much is it?
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Types of Financial Accounts
(continued)

Money market
 Money market account (bank or credit union)
 Insured!
 Money market mutual fund (mutual fund company)
 Not Insured! (but still very, very safe)


Trust accounts – FBO (usually for minors or the aged)
Asset Management Accounts – Through brokerages
 Very high class! Usually around $100+ per year

Club accounts
 “Christmas Club”
 “Vacation Club”

Tanda? – Cundina? – Paluwagan?
Selecting Payment Methods

The number of electronic payments now far
exceeds the number of paper check payments
 Many Millenials don’t even have

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(or want)
a checkbook
Types of checking accounts
 Regular
 Usually have a monthly service charge
 Activity account
 Charge a fee for each check written
 Some have both types of fees!
 No-fee checking accounts have been the norm but
that is currently changing
 Banks need to make up for the fees they are losing
because of the recent changes in the banking laws
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Other Payment Methods

Certified check
 Personal check with guaranteed payment

Cashier’s check
 Check of a financial institution you get by paying
the face amount plus a fee

Money order
 Purchase at financial institution, post office, store

Traveler’s check
 Each check must be signed twice
 Electronic traveler’s checks – prepaid travel card
with ability to get local currency at an ATM
 Much less popular than they once were
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Other Payment Methods
(continued)
 Electronic cash
 ATM Point-of-sale transactions
 Stored-value cards
 For long distance, tolls, library fees
 Smart cards – not linked to your bank account
 Gift cards
 Internet payments – PayPal, Yahoo!, etc.

Credit cards
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Automated Teller Machines
 A computer terminal that allows customers to
conduct banking transactions
 Debit card or cash card activates transactions
 Linked to a bank account – Requires a PIN
 Liability if debit card is lost or stolen
 To reduce ATM fees you can...
 Compare ATM fees before opening an account
 Use your own bank’s ATM when possible
 Withdraw larger cash amounts as needed
 Use personal checks, traveler’s checks, credit
cards, and pre-paid cash cards when traveling
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Evaluating Savings Plans
 Rate of return or yield
 Percentage increase in value due to interest
 Compounding - interest on interest
 Annually, semiannually, quarterly, daily
 Annual Percentage Yield (APY)
 After-Tax Rate of Return
 (1 – Marginal-Tax-Rate) x Rate-of-Return
 (1 – 25%) x 4% = 0.75 x .04 = 0.03 = 3%
 So even if you are earning 4%, after you pay the
taxes on the interest you earned, you are actually
earning only 3%
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What is “Truth in Savings?”
 Requires disclosure of...
 Fees on deposit accounts
 The interest rate (a.k.a. the nominal rate)
 The Annual Percentage Yield (APY)
 Establishes rules for advertising accounts
 Sets formulas for computing the APY
 Interest must be compounded on the full
principal amount in the account each day
 The bank can put a hold on your money but it still
must pay you any interest you deserve
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Check Reconciliation
 More than half Americans do not reconcile
their checkbook balances
 Check Register
 Keep it current!
 Write every transaction down – Immediately!
 Keep an electronic register and a written one
 Bank Statement
 Check reconciliation forms
 Check register spreadsheet
 Quicken, etc.
Okay, ‘fess up!
Do you reconcile your checking
account balance?
A.
B.
C.
D.
I balance it to the penny
I have a pretty good idea of the accuracy
Nope – I never reconcile it
As long as there are more checks in my
checkbook, what do I have to worry about?
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Check Reconciliation
(continued)
 When you get the monthly bank statement…
 Record cleared checks
 Identify outstanding checks
 Record deposits confirmed
 Identify deposits in transit
 Look for transactions that were left out of the
check register
 Reconcile!
Let’s try an example…