1.7.3.g1 depository institutions take charge of your finances 1.7.3

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Depository Institutions

Take Charge of Your Finances 1.7.3

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© Family Economics & Financial Education – Revised May 2010 – Depository Institutions Unit – Depository Institutions – Slide 2

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


Depository Institutions – businesses which offer multiple services in banking and finance These institutions include:

Banks Savings and Loans Credit Unions

They are regulated by various state and federal agencies

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Why consumers may use them:

Why consumers may not use

them:

Fees are too high

Minimum balances

required are too high

They wish to keep their financial

information private

To keep money safe

To receive the advantages of

interest earning accounts

To have the opportunity to

receive lower cost loan

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Services include:

Federal Reserve BankFederal Reserve Bank – is part of the

central banking

system in the United

States

Collecting checks

Electronically

transferring funds

Distributing and

receiving cash and

coin

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Federal Reserve Bank

Which federal reserve bank is located in your region?

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Life of a Deposited CheckStep 1: A check is

deposited…

Step 2: The depositor’s bank

encodes, endorses, and sends the check to

the reserve bank in the region or to a

private clearing house Step 3: Then the check makes its way to

the regional reserve bank, or the

clearinghouse for the region where the check originated

Step 4: From here it goes to the check

writer’s bank

Step 5: The check writer’s bank deducts the amount from the

account

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Commercial Bank

Credit Union Savings and

Loan Association

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Commercial Bank

Commercial Banks Usually the largest depository

institutions Considered full-service depository

institutions Available to a variety of consumers

Examples – Wells Fargo, US Bank, Chase Bank

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Credit Union

Credit Unions Non-profit cooperative depository

institution Owned by members who share a

common bond Examples – Rocky Mountain Credit

Union, Teachers Federal Credit Union

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Savings and Loan Association (S&Ls)

Savings and Loan AssociationFocus on providing loans and mortgages

Customers must have a savings account with them

Examples – American Federal Savings Bank, Pioneer Federal Savings & Loan.

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Types of Insurance

Federal Deposit Insurance Corporation (FDIC) Federal government agency which

protects depository institution accounts Insures commercial banks and savings

and loan associations National Credit Union

Administration (NCUA) Provides insurance for credit unions

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Insurance Protection

Insurance protection Each depositor is insured up to $250,000 for

money deposited in a regular account and $250,000 for retirement deposits

Available from both FDIC and NCUA Insurance is important because of the risk

of loss Risk of Loss is used to determine which

party should be responsible for damage or loss of products after a service transaction has been completed but prior to delivery

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Interest Interest - the amount of money that is either gained or lost

when accessing services offered by a depository institution Interest rate - the percentage used annually to calculate

the total interest either gained or lost

Type of account Interest rate Impact on the consumer

Interest bearing - money earned from an investment instrument

HighMore money earned by the consumer

LowLess money earned

Interest bearing - the charge for money that a consumer borrows from a depository institution

HighMore money paid by the consumer

Low Less money paid

Credit unions typically offer rates which have the most positive impact on the consumer

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Depository Institution Services

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Common Services OfferedChecking account

Also known as a Share Draft Account at a credit union

Paper checks or debit cards that

are used to withdraw money

May or may not be interest

earning

Savings account

Also known as a Share Account at

a credit union

An account in which money is

typically deposited to earn

interest

Interest earning

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Interest Bearing Accounts• Ownership, represented by shares in a

corporationStock

• Share certificate account at a credit union

• An insured interest – earning savings instrument with restricted access to the funds

Certificate of Deposit

• An account which offers higher interest rates than a savings account and may offer limited check writing privileges

Money Market Account

• A debt instrument issued by an organization such as a business or the government

• Designed as an investment for the purchasers to earn interest

Bond

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Interest Bearing Accounts Credit Card

A card used to make a purchase now and repay later

If the balance is paid before the grace period ends, interest is not added

If the balance is paid after the grace period, the payment of interest is required

Loan Money borrowed and paid back with interest

Mortgage – loan for a home Personal – interest rates vary depending upon type of

loan Loan types can include vehicle, school, etc.

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Additional Services Which May Be Offered

Safe-Deposit Box A secured box in a bank to be used for valuable

and important personal items.

Financial Counseling Information and advice is given to customers

to help make financial decisions.

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Conclusion& Review

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ReviewMoney management is part of everyday life!

Depository institutions offer multiple services – shop around for the one which best fits your needs!

Ensure the depository institution is insured by the FDIC or NCUA

Comparison shop the financial services and interest rates offered before choosing

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