Financial Institutions Banking Basics Compare money management tools and services available from financial institutions.
THE BANKING SYSTEM • The Federal Reserve System (Fed)
TYPES OF FINANCIAL INSTITUTIONS • Deposit institutions • Commercial banks • Savings and loan associations • Mutual savings banks • Credit unions
TYPES OF FINANCIAL INSTITUTIONS (continued) • Non-deposit financial institutions • Life insurance companies • Investment companies • Consumer finance companies • Mortgage companies • Check-cashing outlets • Pawnshops
Services offered Savings accounts Checking and payment accounts Loans and other credit plans Other services, such as safe-deposit boxes Safety Convenience Fees and charges Restrictions SELECTING A FINANCIAL INSTITUTION
TYPES OF FINANCIAL SERVICES • Savings services • Payment services • Lending services • Electronic banking • Storage of valuables • Investment advice • Management of trusts
Checking Account • An account that allows depositors to write checks to make payment • a/k/a demand deposit • money can be withdrawn at any time “on demand”
Check • A written order to a bank to pay the stated amount to a person/entity (payee) named on it • Canceled check • A check that the bank has processed (cleared)
Overdraft • A check written without sufficient money in an account to cover it (bounced check) • Floating a check • The practice of writing a check on insufficient funds and hoping to make a deposit to cover the check before it is cashed
Certified check • A personal check that the bank guarantees to be good • Cashier’s check • A check written by a bank on its own funds • Stop payment order • A request that the bank not cash a specific check
581 ARDYS JOHNSON Phone: 555-0100 4250 West 18th Avenue Chicago, IL 60601-2190 2-74 710 DATE PAY TO THE ORDER OF DOLLARS SKY CENTRAL BANK Chicago, Illinois MEMO 071000741 08 40 856 0581 Parts of a Check Account Holder(s) Name and Address Check number Date May 1, 2013 ABA No. Payee 36.12 Food Mart Numeric Amount $ Thirty-six and 12/100 Written Amount Drawer/ Maker Ardys Johnson groceries Memo – Purpose Account Number Bank ID #
581 ARDYS JOHNSON Phone: 555-0100 4250 West 18th Avenue Chicago, IL 60601-2190 2-74 710 DATE PAY TO THE ORDER OF DOLLARS SKY CENTRAL BANK Chicago, Illinois MEMO 071000741 08 40 856 0581 Writing Checks May 1, 2013 36.12 Publix $ Thirty-six and 12/100 Ardys Johnson groceries
Record Checks in Checkbook Register • Checkbook register: a booklet used to record deposits to and withdrawals from a checking account 302.58 581 266.46 Publix 36 12 5/21 groceries
Endorsing Checks • Transfers ownership of check • Blank endorsement: signature of the payee written on the back • Special endorsement: transfers the right to cash to someone else • Restrictive endorsement: restricts or limits the use of the check
Sample Endorsements Restrictive Endorsement Special Endorsement Two Signatures Required
Guaranteed-payment checks Money orders Debit cards Bank credit cards Automated teller machines Online banking Telephone banking Stop payment orders Safe deposit boxes Loans and trusts Financial services Other Banking Services
Bank Fees Examples of bank fees • Loan fee • Trustee fee • Check cashing fee for non-customers • Per-check fee • Maintenance fee • Check printing fee • ATM transaction fee
THE RECONCILIATION PROCESS • Start with the bank statement's ending balance and check it against the balance in your check register. If they differ, you'll need to account for, or reconcile, the difference. Make sure your math is correct before proceeding. • Verify that you have added bank interest and bank credits, and subtracted bank charges and bank fees in your checkbook balance.
THE RECONCILIATION PROCESS Continued • Check off all checks, debit card transactions, and deposits that appear on the bank statement and be verify all check numbers and amounts agree with your checkbook record. • List any checks you have written or debit card items which do not appear on the bank statement and subtract them from the bank statement balance. These are called "outstanding items."
THE RECONCILIATION PROCESS Continued • Add any deposits to the bank statement balance which you have included in your checkbook balance after the statement's closing date and do not appear on the bank statement. These are called "outstanding deposits." • Compare the adjusted bank statement balance to your check book balance. They should now agree ~ reconcile.