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. 2 How Banks Make Money Loans Investments Fees Credit cards Copyright © Texas Education Agency, 2014. All rights reserved. 3 Loans • Interest – a fee paid for the use of money • Largest amount of income for banks • Amount of interest determined by: • • Borrower credit Market rates The higher the credit rating . . . the lower the interest rate The lower the credit rating . . . the higher the interest rate Copyright © Texas Education Agency, 2014. All rights reserved. 4 Investments Short-termone year or less Longtermlonger than ten years Copyright © Texas Education Agency, 2014. All rights reserved. Medium term-from one to ten years 5 Short-term Investments • Mature in less than one year • Treasury bills most common • Issued by the United States Treasury • Very low risk • 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. 6 Medium-term Investments • Can be one to ten years • Treasury notes are most common • Interest typically paid every six months Copyright © Texas Education Agency, 2014. All rights reserved. 7 Long-term Investments • Held for at least ten years • Bonds are most common • Savings bonds Earn interest up to thirty years • May not be transferred to another person • Interest paid at maturity • • Treasury bonds Pays interest every six months • Can be up to thirty years as well • May be transferred • Copyright © Texas Education Agency, 2014. All rights reserved. 8 Income from Fees Copyright © Texas Education Agency, 2014. All rights reserved. 9 Checking Account Fees • Monthly maintenance, or service, fees • NSF (Insufficient funds) fees for checks and debit cards • Stop payment fees Copyright © Texas Education Agency, 2014. All rights reserved. 10 ATM Fees • ATM = Automated Teller Machine – a machine that computerizes and provides self-service banking • Fees for using another bank’s ATM • Fees for some basic banking services Copyright © Texas Education Agency, 2014. All rights reserved. 11 Safe Deposit Box Fees • Fees to lease a box • Fee for lost keys • Fee for late box rental payments Copyright © Texas Education Agency, 2014. All rights reserved. 12 Credit Card Fees • Can be annual fee to have the card • Fee for late payments • Fees for going over your credit limit • Cash advance fees Copyright © Texas Education Agency, 2014. All rights reserved. 13 Other Bank Fees Copyright © Texas Education Agency, 2014. All rights reserved. • Wire transfer fees • Online banking fees • Fees for money orders • Notary fees 14 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 Copyright © Texas Education Agency, 2014. All rights reserved. 15 Life Insurance • Insurance protects against risk – the possibility of loss • Beneficiary – someone who receives a financial benefit from a life insurance policy upon the death of the insured person • Types of life insurance: • Credit life – insurance that pays off loan balances upon the death of the insured person • Mortgage life – similar to credit life but applies to paying off a mortgage loan as opposed to other loans Copyright © Texas Education Agency, 2014. All rights reserved. 16 Property and Liability Insurance • Property (and casualty) insurance – insurance that covers the cost of property that may be lost or damaged • Liability insurance – insurance that covers expenses incurred as the result of a loss such as medical (for an injured person) and legal expenses • Two most popular types: • Automobile • 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 17 Property and Liability Insurance • For businesses: • Property covers damage or loss to property of a business especially property that can affect the income of a business • 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 Copyright © Texas Education Agency, 2014. All rights reserved. 18 Medical Insurance • Two most common types offered by banks: • • 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: • • 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 Copyright © Texas Education Agency, 2014. All rights reserved. 19 Trust Services Investment Banking Services Individuals Businesses Copyright © Texas Education Agency, 2014. All rights reserved. International Banking 20 What are Trust Services? • Trust – legal documents stating how a client’s assets are to be handled • Trustee – the person who receives fees for managing a client’s assets • Provided mostly by larger banks due to the expertise required Copyright © Texas Education Agency, 2014. All rights reserved. 21 Individuals • Retirement planning • • 401 (k) – a retirement plan that is employer-sponsored but can be rolled over into a retirement plan offered by a bank Estate management: • • 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 • • Settling an estate: Determining value of assets • Paying taxes and other debts of an estate • Distributing assets • Copyright © Texas Education Agency, 2014. All rights reserved. 22 Businesses Accounting Capital Credit Card Copyright © Texas Education Agency, 2014. All rights reserved. Collections Information 23 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 Copyright © Texas Education Agency, 2014. All rights reserved. 24 Investment Banking Services • • Underwriting services • Investment underwriting – when a bank acts as an intermediary between a company issuing new stock and the public who may want to buy shares • 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 • Professionals assist in negotiating terms and determining value of businesses for a fee • Merger – when two or more companies combine to form a new company • Acquisition – when a company purchases or takes control of another company, usually through purchasing the stock in the company Copyright © Texas Education Agency, 2014. All rights reserved. 25 International Banking • Services of banks that do business internationally • Services of foreign banks that conduct business in the U. S. • Edge Act corporations – investment banks chartered by the Federal Reserve to perform certain international banking activities • Correspondent banks – an agent of a U. S. bank operating in another country Copyright © Texas Education Agency, 2014. All rights reserved. 26 Independent Practice Assignments • 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. • 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. 27 Copyright © Texas Education Agency, 2014. All rights reserved. •