banking

1. banking Chapter 5

2. OBJECTIVES • Identify types of financial institutions. • Compare the costs and benefits of different types of checking and savings accounts. • Apply skills to using a checking account effectively. • Reconcile a bank statement. • Identify financial institution insurance coverage.

3. Types of Financial Institutions • Commercial Banks – for-profit institution that offers a full range of financial services, including checking, savings, and lending (Ex. SunTrust) • Savings and Loan – traditionally specialized in savings and mortgages • Credit Union – nonprofit owned by its members (have some common bond)

4. Advantages of Credit Unions • Lower fees on services • Specials on loans and interest rates • Usually have higher savings rates • Buying power in areas such as automobiles and insurance • Less expensive mortgages

5. Services Offered by Financial Institutions • Checking and Savings Accounts • Direct Deposit • ATM • Debit Cards • Credit Cards • Electronic Banking • Line of Credit • Loans – Automobile, Boat, Mortgages, etc. • Safety Deposit Boxes • Traveler’s Checks

6. Types of Checking Accounts • Regular Checking Account – no minimum balance or very low • Interest-Bearing Checking Account – receive interest based on minimum monthly balance • Student Checking Account – special accounts offered to students with no or very low fees and special ATM services

7. Special Services for Checking Accounts • Overdraft Protection – automatic loan mad to an account if the balance will not cover checks written (usually linked to a savings account) • Stop-Payment Order – a request that a bank not cash a particular check – usually fee of $20-$30

8. Savings Accounts • Regular Savings (Passbook Accounts) – require minimum balance and allows money withdrawal on demand. • Certificate of Deposit – savings in which money is left on deposit for a specified period of time to earn a specific rate of return. • Money Market – savings that requires a larger minimum balance and earns interest that varies from month to month – limited check-writing privileges.

9. Insurance Coverage • FDIC – Federal Deposit Insurance Corporation • Protects accounts in commercial banks up to $250,000 • NCUA – National Credit Union Administration • Protects accounts in credit unions • SAIF – Savings Association Insurance Fund • Protects accounts in savings & loans

10. Hands-On Checking Account Work • Endorsements • Signature Cards • Writing a Check • Bank Reconciliations

11. Writing a Check • Personal Information • Account holder’s name and address • May include a phone number, not required • DO NOT list a social security number for safety reasons

12. Writing a Check • Check Number • Numbers used to identify checks • Printed chronologically

13. Writing a Check • Date • The date the check is written

14. Writing a Check • Pay to the Order of • The name of the person or business to whom the check is being written

15. Writing a Check • Amount of the Check in Numerals • The amount of the check written numerically in the box • Write the cents smaller and underline • Write the numbers directly next the dollar sign to prevent someone else from adding numbers to change the amount

16. Writing a Check • Amount of the Check in Words • The amount of the check written in words on the second line • Start at the far left of the line, write the amount in words, followed by ‘and’, and the amount of cents over 100; draw a line from the end of the words to the word ‘dollars’

17. Writing a Check • Memo • Space used to identify the reason for writing a check; optional • Good place to write information requested by a company when paying a bill, generally the account number

18. Writing a Check • Signature • The account holder’s signature agreeing to the transaction

19. Writing a Check • Identification Numbers • First - routing numbers to identify the account’s financial institution • Second - account number • Third - check number

20. Checking Account Register • Place to record all monetary transactions for a checking account • Deposits, checks, ATM use, debit card purchases, additional bank fees • Used to keep a running balance of the account • Remember • Record every transaction!

21. Check Register • Date • The date the check was written or transaction was made

22. Check Register • Number • The number of the written check; if a debit card or ATM was used, write DC or ATM

23. Check Register • Description of Transaction • The person/business the check was written to or where the debit card was used • Gray line can be used to write the memo

24. Check Register • Payment/Debit(-) • Amount of the transaction • Deducted from the balance

25. Check Register • Deposit/Credit(+) • Amount of the transaction • Added to the balance

26. Check Register • √ T • A box used to track whether the check has cleared on the monthly bank statement when reconciling at the end of each month

27. Check Register • Fee (if any) • Any extra fees charged to the account • Listed on the bank statement

28. Check Register • Balance • The running total of the checking account • Calculated by adding or subtracting each transaction • Keep this updated

29. Monthly Bank Statement • Lists each transaction and current account balance • Deposits • Checks • Debit Card transactions • ATM transactions • Additional fees

30. Reconciling a Checking Account • Reconcile • Balance the checkbook register each month to the balance shown on the statement • Do this every month to ensure the correct balance in the checkbook • Knowing the correct balance can help to avoid bouncing checks

31. Steps for Reconciling • View the monthly bank statement and check register

32. √ √ √ √ √ √ √ Place a check mark in the √ T column for all transactions that have been cleared and are shown on the bank statement

33. Determine the current account balance from the bank statement

34. Add any outstanding deposits – transactions that have not cleared the bank Calculate the Subtotal

35. Subtract any outstanding withdrawals and calculate Compare the total with the checkbook register. If the totals are different, double check the math and make sure all service fees and bank charges are recorded in the check register.

36. CASHIER’S CHECK/MONEY ORDER/ TRAVELER’S CHECKS CASHIER’S CHECK – type of check written to a specific payee but charged against the bank instead of your account – provides piece of mind to a business that your check is good. MONEY ORDER – purchased for cash so that the recipient can trust that they are worth what they say they are. TRAVELER’S CHECK – checks written by a large financial institution with no payee specified – used for safe travel – can be replaced if lost or stolen

37. ELECTRONIC FUNDS TRANSFER (EFT) Authorization to access your bank account for payment or for deposit electronically – Examples: • Direct Deposit of paycheck • Auto pay on utility bills • Internal Revenue Service – tax refunds • Child Support

38. FEDERAL RESERVE SYSTEM Serves as central bank of the United States Private business – not part of government Roles of Fed: • Supervises and regulates banks • Process financial transactions for depository institutions, federal government, and foreign official institutions • Conducts the nation’s monetary policy – sets interest rates • Maintain stability of financial institutions