Banks and Profit
Banking and Financial Services
“Copyright and Terms of Service
Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as
the property of the Texas Education Agency and may not be reproduced without the express written permission of the
Texas Education Agency, except under the following conditions:
1) Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of
the Materials and Related Materials for the districts’ and schools’ educational use without obtaining permission
from the Texas Education Agency;
2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual
personal use only without obtaining written permission of the Texas Education Agency;
3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any
way;
4) No monetary charge can be made for the reproduced materials or any document containing them; however, a
reasonable charge to cover only the cost of reproduction and distribution may be charged.
Private entities or persons located in Texas that are not Texas public school districts or Texas charter schools or any
entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain
written approval from the Texas Education Agency and will be required to enter into a license agreement that may
involve the payment of a licensing fee or a royalty fee.
Call TEA Copyrights with any questions you have.
Copyright © Texas Education Agency, 2014. All rights reserved.
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How Banks Make Money
Loans
Investments
Fees
Credit cards
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Loans
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Interest – a fee paid for the use of money
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Largest amount of income for banks
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Amount of interest determined by:
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Borrower credit
Market rates
The higher the credit rating . . .
the lower the interest rate
The lower the credit rating . . .
the higher the interest rate
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Investments
Short-termone year or
less
Longtermlonger than
ten years
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Medium
term-from
one to ten
years
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Short-term Investments
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Mature in less than one year
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Treasury bills most common
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Issued by the United States Treasury
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Very low risk
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Typically issued in terms such as one-, three-, and six-month terms as well as one
year
Copyright © Texas Education Agency, 2014. All rights reserved.
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Medium-term Investments
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Can be one to ten years
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Treasury notes are most common
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Interest typically paid every six months
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Long-term Investments
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Held for at least ten years
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Bonds are most common
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Savings bonds
Earn interest up to thirty years
• May not be transferred to another person
• Interest paid at maturity
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Treasury bonds
Pays interest every six months
• Can be up to thirty years as well
• May be transferred
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Income from Fees
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Checking Account Fees
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Monthly maintenance, or service, fees
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NSF (Insufficient funds) fees for checks and debit cards
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Stop payment fees
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ATM Fees
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ATM = Automated Teller Machine – a machine that computerizes and
provides self-service banking
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Fees for using another bank’s ATM
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Fees for some basic banking services
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Safe Deposit Box Fees
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Fees to lease a box
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Fee for lost keys
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Fee for late box rental payments
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Credit Card Fees
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Can be annual fee to have the card
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Fee for late payments
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Fees for going over your credit limit
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Cash advance fees
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Other Bank Fees
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Wire transfer fees
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Online banking fees
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Fees for money orders
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Notary fees
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Income from Insurance Services
Premiums – amounts
paid on a regular basis
to ‘purchase’ insurance
Gramm-Leach-Bliley Act of 1999 – allows banks to
sell insurance as well as investment products
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Life Insurance
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Insurance protects against risk – the possibility of loss
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Beneficiary – someone who receives a financial benefit from a life
insurance policy upon the death of the insured person
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Types of life insurance:
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Credit life – insurance that pays off loan balances upon the death of the insured
person
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Mortgage life – similar to credit life but applies to paying off a mortgage loan as
opposed to other loans
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Property and Liability Insurance
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Property (and casualty) insurance – insurance that covers the cost of
property that may be lost or damaged
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Liability insurance – insurance that covers expenses incurred as the
result of a loss such as medical (for an injured person) and legal
expenses
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Two most popular types:
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Automobile
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Homeowner’s
Copyright © Texas Education Agency, 2014. All rights reserved.
Liability – covers property and injuries of
another person if there is an accident
Collision – damage to your own vehicle
Comprehensive – covers other losses such as
theft, tree falling on your car, etc.
Covers loss or damage to home
and contents, could be from hail,
fire, flood and other perils
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Property and Liability Insurance
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For businesses:
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Property covers damage or loss to property of a business especially property that
can affect the income of a business
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Liability again covers expenses that are related to legal issues of a loss such as a
lawsuit, which can affect the value of a business
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Medical Insurance
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Two most common types offered by banks:
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Health – costs covered as a result of an accident or illness
Disability – replaces a portion of someone’s income if they are unable
to work as a result of accident, illness, or injury. Cost depends upon:
•
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the percentage of income will be replaced, for example, the higher the % the
higher the premium
How long after the accident, illness, or injury the replacement income begins, for
example, the sooner the payments start, the higher the premium
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Trust Services
Investment
Banking
Services
Individuals
Businesses
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International
Banking
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What are Trust Services?
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Trust – legal documents stating how a client’s assets are to be handled
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Trustee – the person who receives fees for managing a client’s assets
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Provided mostly by larger banks due to the expertise required
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Individuals
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Retirement planning
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401 (k) – a retirement plan that is employer-sponsored but can be rolled over into a
retirement plan offered by a bank
Estate management:
•
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Estate – the assets (property and possessions) of an individual
Planning an estate:
Preparing wills
• Determining how assets will be transferred upon a client’s death
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Settling an estate:
Determining value of assets
• Paying taxes and other debts of an estate
• Distributing assets
•
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Businesses
Accounting
Capital
Credit Card
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Collections
Information
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Description of Business Services
Type of Service
Examples
Accounting
Payroll, accounts payables and receivables, cash management
services
Capital
Purchases of major capital assets, financing of those assets
Collections
Armored car services, deposits, electronic funds transfers
Credit Card
Issuing credit cards, conducting credit services
Information
Wire tranfers, data and reports necessary for businesses
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Investment Banking Services
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Underwriting services
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Investment underwriting – when a bank acts as an intermediary between a
company issuing new stock and the public who may want to buy shares
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Spread – the difference between what the bank pays for the company’s shares and
what they sell the shares for to the public
Mergers and Acquisitions
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Professionals assist in negotiating terms and determining value of businesses for a
fee
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Merger – when two or more companies combine to form a new company
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Acquisition – when a company purchases or takes control of another company,
usually through purchasing the stock in the company
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International Banking
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Services of banks that do business internationally
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Services of foreign banks that conduct business in the U. S.
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Edge Act corporations – investment banks chartered by the Federal
Reserve to perform certain international banking activities
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Correspondent banks – an agent of a U. S. bank operating in another
country
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Independent Practice Assignments
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Bank Fees Comparison Diagram Assignment #1 – Students will research, either online, or by
checking with local banks in their area, all of the fees that at least 3 banks charge their customers.
They will then create a Venn diagram where each of the banks are in a circle, the fees that are the
exact same for all three banks are in the middle overlapping section, any fees that are the same
between two banks are in the overlapping section for the two banks, and fees that are not the same
for any of the banks will remain in that particular bank’s circle.
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International Banking Services Assignment #2 – Students will research, either online, or by
checking with local banks, to see what international banking services they offer. They will create a
flyer that displays all of the services offered, for example, currency conversion, traveler’s checks, and
other services. Include appropriate graphics. They should include this information for one bank as
well as the costs for the services.
Student Account Assignment #3 – Using the following web site,
http://www.consumerfinance.gov/blog/student-banking-101/ or they can go to any bank’s web
site and locate information for student accounts. In pairs students will review the different banking
services available to students. They will then create a ‘commercial’ (either a skit or video), intended
to market student accounts to the class, that states at least 5 features of the accounts in a creative
way.
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Copyright
© Texas Education Agency, 2014. All rights reserved.
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