CHAPTER 17: BANKING AND FINANCIAL SERVICES

WHAT TO EXPECT:

• In this chapter, there are three sections on banking and other financial institutions, financial services and electronic banking, and checks and payment methods.

BANKS AND OTHER FINANCIAL INSTITUTIONS:

SECTION ONE

In real life, the bank is both the customer and the business you turn to. A bank has many employees who sell you service like checking accounts, savings accounts, loans and even investments. Banks are much more strictly watched over than most business though because if the bank is having troubles- so is everyone of their customers.

WHAT SHOULD I LEARN FROM THIS SECTION?

• Key terms• The purpose of the Federal Reserve System• Types of financial institutions

TERMS IN THIS SECTION:

• Federal Reserve System (Fed)• Commercial Bank• Credit Union• Federal Deposit Insurance

Corporation (FDIC)

• The Federal Reserve system- One bank that doesn’t allow you to make deposits.• Set up to supervise and to regulate

member banks and serve the public efficiently.• Reserved only for banks “The bank of

banks.”• The U.S. is split into 12 Fed. districts

with a central bank in each district.

THE FEDERAL RESERVE SYSTEM:

• The Fed has reserves that hold money for additional customer demand.• Its also clears checks from different

cities in different districts.

FEDERAL RESERVE ACTIVITIES:

• Banking Services

• Building homes• Starting new businesses

• Planting crops• Financing educations

• Buying goods• Paving streets

• Retirement investing• Building hospitals

• Buying new business equipment

Banking and the Economy:

When depositing

money in the bank, a

portion of it goes towards helping grow

your communities’

economy.

But don’t worry…you will get

all your money back.

• Commercial Banks • Commercial Bank-The most common way for a bank to be

organized.• Offer a wide range of services- checking accounts,

savings accounts, and loans.

• Savings and Loan Associations• Savings and loans for homes.

• Mutual Savings Banks• Owned and operated by its contributors, saving and

loans.

• Credit Unions• Credit Unions- User owned (non-profit)• When depositing you have partial ownership of the

Union

Deposit Institutions: (depository intermediaries):

*They earn money by selling services• Life Insurance Companies

• Provides financial security for families when deceased• Investment Companies

• These help companies start up and stay invested• Consumer Finance Companies

• Loans for long-lasting goods• Don’t accept savings deposits

• Mortgage Companies• Provides loans for buying homes and real-estate

• Check-Cashing Outlets• Services such as electronic tax filing, money orders, postal

boxes, utility bill payment and bus/subway tokens• Pawn Shops

• Loans based on value of tangible objects

Non-Deposit Financial Institutions:

• Services offered• Savings accounts, checking/payment accounts, loans and

other credit plans, and other services such as safety deposit boxes, trusts and investment advice

• Safety• Federal Deposit Insurance Corporation (FDIC)

• The FDIC, Federal Deposit Insurance corporation- Protects depositors money in case of failure of the bank

• Insures all accounts up to $100,000• Convenience• Online banking, 24 hour banking services such as ATMs

• Fees/Charges• ATMs have charges unless you are a member of that bank

• Restrictions• If you money is in a free checking account, you may not be

gaining interest.• If you are not satisfied, shop around for a new bank

Selecting a Financial Institution:

FINANCIAL SERVICES AND ELECTRONIC BANKING: SECTION TWO

FINANCIAL SERVICES AND ELECTRONIC BANKING: SECTION TWO

• With any of your financial needs a financial institution can provide services for various personal and business activities.

WHAT SHOULD I LEARN FROM THIS SECTION?

• Identify the financial services used by consumers • Explain types of checking accounts• Describe electronic banking activities

KEY TERMS IN THIS SECTION:

Safe-Deposit Box

Debit Card

Service Charge

TYPES OF FINANCIAL SERVICES:

• Savings services• Financial institutions will accept money for safe keeping

• Payment services• Checking accounts, debit cards, online payments and

automatic with drawls.

• Lending services• Banks provide loans to get the money back and interest.• Auto loans, business loans, mortgages, and even credit

cards.

• Electronic banking• Electronic funds transfer (EFT)- refers to the use of

technology for banking.• Automatic teller machines (ATM), point of sale

transactions, direct deposit, and automatic bill payment.

TYPES OF FINANCIAL SERVICES: (CONT’D)

• Storage of valuables• Safe-deposit boxes- for storage of valuables like jewelry,

coins, certifications, birth records, and other valuable documents.

• Unless ordered by a court only you and who you allow are allowed to open the box, not even the bank can open the safety-deposit box.

• Investment advice• Advisors will help you on how to manage your money

through savings like bonds, stocks, and mutual funds.

• Management of trusts• Many banks manage investments for customers- money

or property is then turned over to the bank and is now called a trust. Trusts are used for people of all age but they are generally used more for the elderly who are ill and want to make sure their money is managed the right way.

TYPES OF CHECKING ACCOUNTS:

• Regular checking accounts• A service charge is a fee a bank charges for handleing a

checking account. • With most banks there is no service charge as long as you

maintain the minimum balance or above.

• Interest-earning checking accounts• These may require a higher monthly balance and if the

balance of your account falls below the minimum you are not paid interest and you might have to pay a service charge.

• Special checking accounts• Also called activity accounts, these are for customers

that write 20 or less checks a month.

CHECKING ACCOUNTS IN OUR COMMUNITY:

• http://www.mnb1.com/2578/mirror/personal.htm#pchecking• http://www.firstcentral.com/checking-services.ht

ml• https://www.wellsfargo.com/checking/• http://www.amfirstbank.com/ne_p_checking.htm

TYPES OF CHECKING ACCOUNTS: (CONT’D)

• Comparing checking accounts• When finding a checking account, compare:• Minimum balances• Interest rate• Service charges• Fees• Restrictions

ELECTRONIC BANKING:

• E-banking services• Obtain cash• View history and balances• Transfer funds• Direct deposit• Paying bills online

• Automatic teller machines• (ATM’s) allow debit cards or cash cards to be used in atm

transactions.• A debit card is different from a credit card because you

are using your money- not the credit card companies.• Some banks charge atm fees so shop around and look for

the best deal first.

ELECTRONIC BANKING: (CONT’D)

• Payments at the point-of-sale• A merchant accepts a debit card to pay for purchases.

Most all gas stations, stores and restaurants accept debit cards.

• Direct deposit• Funds are deposited electronically for you to use

instantly.

• Automatic bill payments• This works for car, home, and sometimes utility

payments.• A bank pre-authorizes you to have money deposited every

month to an appropriate company.

ELECTRONIC BANKING: (CONT’D)

• Electronic Payment Options• Debit card transactions• Debit cards work in two ways

• Signing a receipt • Or providing a Personal Identification Number (PIN)

• Online payments• This works for online sellers and buyers using a credit or

debit card number

• Stored-value cards• These are pre-paid cards that you re-load with money when

needed

• Smart cards• Similar to atm cards, smart cards have a microchip that will

show balance, transaction records, and sometimes a medical and insurance history.

BANKING IN THE FUTURE:

• Banking in the future will continue to change. Electronic transactions will be easier and quicker with more information on financial activities, health, education and career, travel and even recreation.

CHECKS AND PAYMENT METHODS: SECTION THREE

WHAT SHOULD I LEARN FROM THIS SECTION?

• Describing the three main types of endorsements• Check writing procedures• Bank reconciliation process• Other payment methods

KEY TERMS FOR THIS SECTION:

• Endorsement• Check register• Stop payment order• Bank statement• Bank reconciliation• Outstanding checks

OPENING A CHECKING ACCOUNT:

• Opening a checking account• Convenience and ease of making payments• Safety to make payments with less risk than using cash• Proof of payment• Record of finances for managing money

• The First Deposit• Opening a checking account starts with signing a signature

card. This is to verify your signature. Sometimes two or more people open an account. This is called a Joint Account.

• When you deposit money into a checking account, you fill out a deposit slip. This shows your name, account number, date and items deposited.

• Types of Endorsements• An endorsement is written evidence that you’ve received

payment or you’ve transferred your right to receiving payment to someone else.

• As an endorser you are making this promise that if a check is not paid you will be responsible to pay it.

• Your endorsement is made in the ½ inch space on the left side on the back of the check.

OPENING A CHECKING ACCOUNT (cont’d):

• Blank Endorsement• If the name on the check is different than your

signature, you will need to endorse the check twice by first using your name and then your account number.

• Full Endorsement• This is also called a special endorsement. It allows

transfer from one person to another. You write “paid to the order of” followed by the name of the person or business to which the check is transferred.

• This is then followed by your signature.

• Restrictive Endorsement• This limits the use of the check to the purpose given in

an endorsement (i.e.; “for deposit only”).

HOW TO ENDORSE A CHECK:

• http://www.youtube.com/watch?v=834DEKVqXcw

USING A CHECKING ACCOUNT:

• Check Writing Procedures• Elements of a Check• The drawer is the owner of the check who signs the check.• The payee is the person to whom the check is written.• The drawee is the bank or other financial institution that pays the

check.• The Check Register• A check register is a separate book usually the same size as the

check book. • A duplicate copy of the check may also be automatically created

when you write a check.• Writing a Check• Write checks in order by number.• Write the date in proper space.• Write the payees name on the line following “pay to the order of”.• Write amount of check in figures after the printed dollar sign ($).• Write amount of check in words in line below payees name.• Write cents in figures as a fraction behind amount written in words

followed by a line.• Write purpose of payment in “memo” line.• Sign your checks the same signature you wrote on the signature

card.

WRITING A CHECK:

• http://www.youtube.com/watch?v=S3SKXfEMSYY&feature=related

USING A CHECKING ACCOUNT (cont’d):

• Proper Check Writing• Write checks only on the forms provided by your bank.• Write checks in ink only.• Only write checks if money is available in the account.• Use the current date.• Avoid making checks payable to cash or bearer. These checks can

be cashed by anyone.• Always fill in the amount.• Void checks on which you make errors.• Record every payment.

• Stopping Payment• To stop a check you have written, you have to fill out a stop

payment order at your bank. A written notice that tells the bank not to pay a certain check.

• Banks charge a high fee for stopping checks.• Before writing a new check, you should stop payment on a check

that was lost or stolen.

THE RECONCILIATION PROCESS:

• Bank Statement Information• The bank will send you a report on your account known

as the bank statement.• This includes

• The balance at the beginning of the month;• The deposits made during the month;• The checks paid by the bank;• ATM transactions;• EFT transfers;• Special charges for the month;• Interest on the account; and• Final balance.

THE RECONCILIATION PROCESS (cont’d):

• Finding Differences• The document created to show how two balances were

brought into agreement is call bank reconciliation.• Outstanding checks are checks that haven’t been deducted

from the balance on the statement.• The service charge may appear on the bank statement. • Interest may have been added.• You may have recorded the amount of a check incorrectly in

the check register.

• Calculated Adjusted Balance• Determine your true balance in your account, take the

following steps.• Subtract total of outstanding checks, add deposits in transit,

subtract services and fees, subtract automatic payments from your balance, and add interest to your balance.

• If the balances do not agree, either you or your bank has made an error. If you did not make the mistake, contact your bank.

OTHER TYPES OF PAYMENTS:

• Certified Checks• Personal check for which a check has

guaranteed payment.• Cashier’s Checks• This is a check that a bank draws on its

own funds.• Traveler’s Checks• Special forms designed for making

payments when traveling away from home. A fee may be charged.

• Money Orders• A form of payment that orders the issuing

agency to pay the amount printed on the form to another party.• A bank money order is sold by a bank stating

money is to be paid to a specific business or person.

• A postal money order is purchased at a post office sent through the mail.

• An express money order is issued by organizations like traveler’s check companies, super markets, pharmacies and convenience stores.

• A telegraphic money order is used to pay a sum of money through a telegraph office.

THE END