BankingBanking

Chapter 5 – Selecting Financial Services & Institutions

Chapter 5 – Selecting Financial Services & Institutions

Chapter Objectives:Chapter Objectives: To indentify available financial services To distinguish among various types of financial

institutions Understand how to compare the costs and

benefits of different checking and savings accounts

To evaluate different savings plans To understand the role of the Federal Reserve

System

To indentify available financial services To distinguish among various types of financial

institutions Understand how to compare the costs and

benefits of different checking and savings accounts

To evaluate different savings plans To understand the role of the Federal Reserve

System

Types of Financial ServicesTypes of Financial Services

Banks: Lend money Savings plans Payment services (checking account, etc) Direct Deposit Automatic Payments ATM’s Debit Cards

Banks: Lend money Savings plans Payment services (checking account, etc) Direct Deposit Automatic Payments ATM’s Debit Cards

Types of Financial InstitutionsTypes of Financial Institutions*Commercial Banks: for profit; offers a variety

of services: checking, investing, savings & mortgages (and other loans)

*Credit Union: nonprofit bank owned by members (labor union, employment union)

Federal Deposit Insurance Corporation: FDIC: 1933 Government created to protect

deposits in banks up to $100,000 per account. (Stay tuned, more to come next class)

*Commercial Banks: for profit; offers a variety of services: checking, investing, savings & mortgages (and other loans)

*Credit Union: nonprofit bank owned by members (labor union, employment union)

Federal Deposit Insurance Corporation: FDIC: 1933 Government created to protect

deposits in banks up to $100,000 per account. (Stay tuned, more to come next class)

Types of Financial Institutions Continued…..

Types of Financial Institutions Continued…..

Savings and Loans (S&L): same as a commercial bank, however they specialize in savings accounts & loans.

Life Insurance CompaniesInvestment CompaniesMortgage Companies

Savings and Loans (S&L): same as a commercial bank, however they specialize in savings accounts & loans.

Life Insurance CompaniesInvestment CompaniesMortgage Companies

Types of Savings PlansTypes of Savings Plans Savings Account – frequent deposits &

withdrawals (research the highest rate) Certificate of Deposit (CD)

Leave $ in account to gain more interest Must leave $ in account for a specific period of time

Money Market: interest rate varies from month to month. Higher interest than a regular savings acct.

U.S. Savings Bond: pay 1/2 of value of bond, interest goes up over time.

Savings Account – frequent deposits & withdrawals (research the highest rate)

Certificate of Deposit (CD) Leave $ in account to gain more interest

Must leave $ in account for a specific period of time Money Market: interest rate varies from month

to month. Higher interest than a regular savings acct.

U.S. Savings Bond: pay 1/2 of value of bond, interest goes up over time.

So, why save? Rate of Return!So, why save? Rate of Return!

The % of increase in the value of your savings from interest earned: Ex: Maggie earned $50.00 baby-sitting and

put in an account earning $1.50 ~ Her rate of return was 3%. How did I get this? Divide the total interest earned by the amount

deposited ($1.50 divided by $50.00= 3%) Please look at page 139 for more great

examples!

The % of increase in the value of your savings from interest earned: Ex: Maggie earned $50.00 baby-sitting and

put in an account earning $1.50 ~ Her rate of return was 3%. How did I get this? Divide the total interest earned by the amount

deposited ($1.50 divided by $50.00= 3%) Please look at page 139 for more great

examples!

Compounding InterestCompounding Interest

Process where interest is earned on both the principal (the amount you deposit) and the interest earned. Page 138 has a great example!

Compounding interest is GOOD! :)

Process where interest is earned on both the principal (the amount you deposit) and the interest earned. Page 138 has a great example!

Compounding interest is GOOD! :)

Checking AccountsChecking Accounts

What to look for: Low fees (ATM, check fee’s etc) Location of Bank: convenience Overdraft Protection: automatic loan in

case you don’t have enough $ in your account.

Interest rates: high rates so you can earn $

What to look for: Low fees (ATM, check fee’s etc) Location of Bank: convenience Overdraft Protection: automatic loan in

case you don’t have enough $ in your account.

Interest rates: high rates so you can earn $