Why is it important to balance a checking account?

Why should the Federal Reserve oversee financial institutions and the money circulation of the economy?

What are the benefits to comparing financial institutions and the services they provide?

BankingEssential Questions

Journal: 7 Dangers of using a debit card ◦ Available on the share drive

Cash flow and personal balance sheet activity

Banking Notes / PowerPoint 1-17 Homework

◦ JA Workbooks page 4-5 ◦ JA Workbooks page 55-57

Friday February 2nd Personal Finance Agenda

Depository Institutions: Businesses which accept deposits and offer multiple services in banking and finance.

Bank: A for-profit financial institution owned by investors in its stock that provides financial services to any customers.

Credit Union: A not-for-profit financial institution owned by its members that provides services to its members at low fees.

Financial Institutions

Why consumers might use them? ◦Safety ◦Interest◦Cheap loans

Depository Institutions•Why consumers might not use them?• Fees•Required minimum balance •Privacy

Commercial Bank ◦ Largest financial institutions◦ Services include checking/savings accounts, credit cards,

safe deposit boxes, CDs, loans, debit cards, investments◦ Bank of America, U.S. Bank, Commerce Bank are all

examples Credit Union

◦ Not-for-profit and member owned◦ Services include share account, share draft account, safe

deposit box, share draft certificate, credit card, loans, investing, insurance

◦ NCUA insured◦ Usually lower fees and loan rates and higher interest rates◦ First Community, American Eagle, Vantage are all examples

Commercial Bank Vs Credit Union

Credit Unions• Not-for-profit institutions• Offer their services to a special group of people• Profits returned to members in the form of lower fees and loan

rates and higher interest on deposits

Banks• For-profit companies owned by shareholders• Offer their services to everyone, anyone can be a

customer• Profits benefit a small group of stockholders

Compare and Contrast

Credit Union ◦ Accounts are federally insured up to $250,000 by

the National Credit Union Administration (NCUA) Banks

◦ Accounts are federally insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC)

Credit Unions and Banks

Loans and mortgages to customers w/ savings account

Generally higher interest rate than commercial banks

Offer interest-earning checking accounts Also insured Example: Pioneer Federal Savings & Loan Services: Checking/savings/retirement accounts,

CDs, loans, investing

Savings and Loan Associations

Online Banking, Online Brokerage, Checking Accounts, Savings Accounts, Certificates of Deposit (CDs), Individual Retirement Accounts (IRAs), Savings Bonds, Credit Cards, Check Cards, Gift Cards, Payroll Cards, Commercial Prepaid Cards, Auto Loans, Boat Loans, RV Loans, Student

Loans, Other Loans, Home Mortgages, Mortgage Refinance Loans, Home Equity Loans, Military Bank, Student

Centers, Accessible Banking, Small Business Banking Services, Merchant Services , Home Buying, Investment Services, IRAs, Mutual Funds, 529 College Savings Plans, Life Insurance (various types), Long-Term Care Insurance, Homeowner’s Insurance, Renter’s Insurance, Condo Insurance, Auto Insurance, Supplemental

Income Insurance, Foreign Currency Exchange, Traveler’s Checks, International Wire Transfers, and More

Financial Services Most of these services are offered at banks or credit unions

1. Savings Account: An account that helps you save money and earn a small amount of interest at the same time (Share Account @ Credit Union)

2. Checking Account (sometimes): An account that allows withdrawals by means of check, debit card, etc. (Share draft account @ Credit Union)

3. Certificate of deposit (also known as a Share Certificate account at a credit union) - CD◦ Insured interest-earning savings account w/ restricted access to

the funds

4. Money market account: A deposit account, which has a relatively high rate of interest, typically requires a higher minimum balance to earn interest or avoid monthly fees, and has a restricted # of transactions◦ Higher interest rates than savings, may have limited check

writing

Interest Earning Accounts

Credit Cards Home Loans Car Loans Personal Loans School Loans

Interest Paying Accounts

An account that allows withdrawals by means of check, debit card, etc.

May or may not earn interest Features

◦ Minimum balance◦ Possible fees◦ Small amount of interest◦ Very liquid

Checking Account

An account that helps you save money and earn a small amount of interest at the same time

Low interest bearing Money can be accessed or transferred many

ways ◦ ATM◦ Telephone◦ Internet ◦ Bank

Savings account

Deposit account with a relatively high interest rate

Higher minimum balance to avoid monthly fees

Restrictions on the number of transactions Features

◦ Minimum balance - $1000◦ Government insured account◦ Limited accessibility◦ Tiered interest rates

Money market account

Time deposit paying a specific rate of interest for a specified period of time, with a penalty imposed for premature withdrawal of the deposited funds

Features◦ Time: 7 days to 8 years◦ Deposits: $100 - $100,000◦ Low risk

Low liquidity Low interest rate Guaranteed interest

Certificate of Deposit (CD)

A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing

Face Value: How much it is worth Coupon Rate: Interest rate Maturity Date: Time at which bond can be

collected Types include government, municipal,

corporate, convertible

Bonds

Types of Accounts Benefits DrawbacksRegular Savings Accounts

•Low minimum balance•Ease of withdrawal•Insured

•Low rate of return

Certificate of Deposit •Guaranteed rate of return for time of CD•Insured

•Possible penalty for early withdrawal•Minimum deposit

Money Market Account •Good rate of return•Some check writing•Insured

•Minimum balance•No interest and possible service charge if below certain balance

US Savings Bond •Low minimum deposit•Guaranteed by the government•Free from state and local taxes

•Lower rate of return when cashed in before bond reaches maturity date

Liquidity Most Least LiquidInterest

LeastMost LiquidInterest

Checking Account

Savings Account

Money Market Deposit Account

Certificate of Deposit

Savings Bond

Federal Deposit Insurance Corporation (FDIC)◦ Protects depository institution accounts◦ Insures commercial banks and savings and loan

National Credit Union Administration (NCUA)◦ Provides insurance for credit unions

Federal Savings and Loan Insurance Corporation (FSLIC)

◦ Provides insurance for savings and loan

Types of Insurance

The Fed The Banker’s Bank The goal of the Fed is to keep unemployment low, prices

stable, and interest rates at a moderate level Conduct monetary policy Regulating and supervising the banking industry Providing financial services to banks There are twelve reserve banks across the country

The Federal Reserve Bank

Structure ◦ Board of Governors (7 members)◦ 12 Regional Reserve Banks ◦ Federal Open Market Committee (FOMC)

Tools of monetary control◦ Reserve Ratio: % of deposits kept on-hand◦ Discount Rate: Interest rate Fed charges banks on

loans◦ Open-Market Operations: Buy/Sell gov. bonds

FED structure and tools

Cash: Money in the form of paper currency or coin

Personal Check: Written order to a financial institution directing the financial institution to pay stated amount of money, from the customer’s account.

Credit Card: Specially coded plastic card issued by banks & businesses authorizing the holder to purchase goods & services on credit.

Debit Card: Specially coded plastic card issued by a financial institution that allows the cardholder to transfer funds electronically and immediately from his/her checking account. As if were paying w/ check

Methods of Payment

Point-of-sale (POS) terminals: are located at stores and allows the consumer to use a debit card to make purchases.

Personal Identification Number: Pass-code # you use to get access to your savings and/or checking account

Money Order: A written order for the payment of a sum to a named individual; obtainable and payable at a bank, post office, or convenient store. For a fee usually $.99-$5 Usually smaller amounts of $. Less than $1,000

Methods of Payment

Cashier’s Check: A check drawn by a bank (for a fee) on its own funds and signed by the bank's cashier. Guaranteed funds (larger amounts)

Traveler’s Check: An internationally redeemable draft (check) purchased in various denominations from a bank or traveler's aid company and payable only upon the purchaser's endorsement against the original signature on the draft.

Smart Card: A prepaid smart card contains stored value which the person holding it can spend at retailers. As well as personal info and other data

Contactless Payment: Swiping in front of sensor, (RF). May require signature if purchase is over $25.

Methods of Payment

Pre-approved credit Charged to an individuals account and they

may pay later Interest is charged

◦ Money is being borrowed from the credit card company

Credit Cards

A card (looks similar to a credit card) that is linked to an individuals bank account

Money is immediately deducted from the bank

No interest charged

Debit Cards

Photo Id: driver’s license, passport, etc… Social Security Number Signature Card Deposit May be charged for checks

Opening an Account

Deposit Slip

Today’s date goes herePrint Your Name HerePrint Your Address HereSign Your Name Here

33 3 3 3 3 3

x

4 7 5 2 5

5 0 0 04 2 5 2 5

5-E-1

4 7 5 2 5

Click the numbers

Completing a Deposit Slip

Checks If more checks are

being deposited than number of spaces on the front, use the back

List each check Add the total, enter

it on the front

http://www.google.com/imgres?q=parts+of+a+check&hl=en&gbv=2&biw=1366&bih=629&tbm=isch&tbnid=KAk5_qzEivM2wM:&imgrefurl=http://www.gcflearnfree.org/moneybasics/6.5&docid=t9pT9UVgPmmeJM&w=550&h=300&ei=YlyTqmvIOKKsgKtpZnXCQ&zoom=1&iact=hc&vpx=706&vpy=323&dur=4578&hovh=166&hovw=304&tx=117&ty=87&page=1&tbnh=101&tbnw=172&start=0&ndsp=23&ved=1t:429,r:13,s:0

Endorsements

Blank Endorsement: Signature of payeeRestrictive Endorsement: Signature of payee w/ words “For Deposit Only” & account number

Student NameX

Endorse Here

XFor Deposit Only—Acct. #

987654321

Students Name

Endorse Here

Endorse: To sign the back of a check to make it payable to the specified payee.

Special Endorsement: Forwarding a check to someone by writing “pay to the order of” + their name and then putting your blank endorsement

Pay to the Order of Jonathon Smith

Student NameX

Endorse Here

John DoeJane DoeX

Endorse Here

Endorsements

Joint Endorsement: Multiple payeesendorsing the same check

Prior to Check 21 Paper checks physically moved from customer to

business to various banks and the transfer of money from customer’s bank to business’ bank took days

After Check 21 Paper checks are scanned into a computer system at

the place of business and immediately returned to the customer. This electronic copy of the check is called a substitute check. The substitute check is then transferred electronically to various banks and the transfer of money customer’s bank to business’ bank takes hours

How Check 21 Works

Overdraft: A deficit in a bank account caused by drawing more money than the account holds(debit card, ATM withdrawal, or check) Overdraft charge typically between $20-$35 Over 50 million Americans overdraw annually costing 24 billion in overdraft fees

Overdraft protection: which draws from a savings account, credit card, or another checking account This usually costs $5-$10 New regulation will decline transaction unless specified otherwise

Stop payment order: request to not fulfill payment on a check you have written. Typically costs between $20-$30

Overdraft

Reading a Bank Statement

Teens – Lesson 6 - Slide 6-H

Date◦ The date the check was written or transaction was

made(B&PF p.142)

Check Register

Check Number◦ The number of the written check; if a debit

card or ATM was used, write DC or ATM

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

Check Register

Payment/Debit(-)◦ Amount of the transaction◦ Deducted from the balance

Check Register

Deposit/Credit(+)◦ Amount of the transaction◦ Added to the balance

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

Check Register

Fee (if any)◦ Any extra fees charged to the account◦ Listed on the bank statement

Check Register

Balance◦ The running total of the checking account◦ Calculated by adding or subtracting each transaction◦ Keep this updated

Check Register

Reconcile: Comparing the bank statement to your checkbook register and accounting for any differences.

Step 1: Obtain the current balance from your bank statement.Step 2: Add any deposits that you have recorded in your

check register but that are not on this statement.Step 3: Subtract any outstanding checks (checks you have

written but that have not yet cleared the banking system).step 4: Compare result with the current balance in your check

register

* Helps you avoid bouncing checks* Lets you know how much is in your account• Keeps you in control of your finances

Reconciling a Checking Account

View the monthly bank statement and check register

Steps for Reconciling

$275.00

$275.00

$74.94

√ √ √ √ √ √ √ 

Place a check mark in the √ T column for all transactions that have been cleared and are shown on the bank statement $275.

00

Determine the current account balance from the bank statement

$275.00

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

Subtotal

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.