BankingBanking

Ms. NwaoluMs. Nwaolu

Intro to Bus. And MKTGIntro to Bus. And MKTG

2/20/132/20/13

ObjectivesObjectives

Students willStudents will Understand and discuss the different types of Understand and discuss the different types of

financial institutionsfinancial institutions Explain the role of banks and banking systemExplain the role of banks and banking system Discuss regulation of the banking system and Discuss regulation of the banking system and

its importanceits importance Review things to consider when deciding Review things to consider when deciding

where to bankwhere to bank Define and discuss common bank feesDefine and discuss common bank fees

Types of Financial Types of Financial InstitutionsInstitutions

Deposit Institutions-Deposit Institutions- a financial institution that a financial institution that accepts deposits and channels the money into accepts deposits and channels the money into lending activities.lending activities. Ex. Commercial Banks, Credit Ex. Commercial Banks, Credit Unions, Savings and Loans, and Mutual Savings BanksUnions, Savings and Loans, and Mutual Savings Banks

Non-Deposit Institutions-Non-Deposit Institutions- government or private government or private organization that serves as an intermediary organization that serves as an intermediary between savers and borrowers, but does not accept between savers and borrowers, but does not accept deposits.deposits. Ex. Life Ins. Co., Investment Co., Consumer Ex. Life Ins. Co., Investment Co., Consumer Finance Co., Mortgage Co., Check Cashing Outlets, & Finance Co., Mortgage Co., Check Cashing Outlets, & Pawnshops.Pawnshops.

Deposit InstitutionsDeposit Institutions Commercial Banks are banks that offers Commercial Banks are banks that offers

full services to the general public and to full services to the general public and to companies like checking accounts, companies like checking accounts, savings accounts, loans, CD’s, IRAs, etcsavings accounts, loans, CD’s, IRAs, etc

Credit Unions are user owned, not-for-Credit Unions are user owned, not-for-profit cooperative financial institutions. profit cooperative financial institutions. Users are called members and they own Users are called members and they own shares in a CU. shares in a CU.

Deposit InstitutionsDeposit Institutions Savings and Loan Associations specialize Savings and Loan Associations specialize

in savings accounts and mortgage loans. in savings accounts and mortgage loans. However they also offer checking accounts, However they also offer checking accounts, business loans, & investment services. business loans, & investment services. They usually have a Fed. Or state charter.They usually have a Fed. Or state charter.

Mutual Savings banks specialize in savings Mutual Savings banks specialize in savings accounts and mortgage loans. Some offer accounts and mortgage loans. Some offer personal and auto loans. personal and auto loans.

Usually cheaper than commercial banks.Usually cheaper than commercial banks.

The Banking SystemThe Banking System

The Federal Reserve System (Fed), set up by The Federal Reserve System (Fed), set up by the US gov, supervises and regulates the US gov, supervises and regulates members banks.members banks. US divided into 12 Federal reserve districts w/ a US divided into 12 Federal reserve districts w/ a

central Federal bank in each district.central Federal bank in each district. The Fed has a few main functions: hold bank The Fed has a few main functions: hold bank

reserves & clear checks.reserves & clear checks. Banks can not lend all of the money they receive Banks can not lend all of the money they receive

from customers. Why?from customers. Why? Clearing of checks refers to paying checks among Clearing of checks refers to paying checks among

different banks in different cities. different banks in different cities.

Regulation of Banking Regulation of Banking SystemSystem Federal Deposit Insurance Corp.-Independent Gov. Federal Deposit Insurance Corp.-Independent Gov.

Agency that insures up to 250,000 of deposits per Agency that insures up to 250,000 of deposits per member per bank. (est. by Glass-Steagall Act of 1933) member per bank. (est. by Glass-Steagall Act of 1933)

Anti-laundering & Anti-terrorism Anti-laundering & Anti-terrorism Bank Secrecy Act (BSA) of 1970- prevent against Bank Secrecy Act (BSA) of 1970- prevent against

concealing the source of money obtained illegallyconcealing the source of money obtained illegally Patriot Act of 2001 –US Treasury Secretary has Patriot Act of 2001 –US Treasury Secretary has

authority to regulate financial transactions, authority to regulate financial transactions, particularly those involving foreign individuals and particularly those involving foreign individuals and entities.entities.

Truth in Lending Act of 1968Truth in Lending Act of 1968 promote the informed use of consumer credit. promote the informed use of consumer credit. UsuryUsury- The illegal action or practice of lending - The illegal action or practice of lending

money at unreasonably high rates of interest.money at unreasonably high rates of interest.

How Do You Decide Where How Do You Decide Where to Bank?to Bank?

Highest rate of interest?Highest rate of interest? Checking account with low or no fees?Checking account with low or no fees? Credit card interest?Credit card interest? Free financial advice?Free financial advice? Convenient locations?Convenient locations? Online banking services?Online banking services? FDIC insured?FDIC insured?

Bank FeesBank Fees Minimum balance or account maintenance fee-must Minimum balance or account maintenance fee-must

keep a certain amount in the account at all timeskeep a certain amount in the account at all times Overdraft & Insufficient funds fee-A deficit in a bank Overdraft & Insufficient funds fee-A deficit in a bank

account caused by drawing more money than the account caused by drawing more money than the account holds. account holds.

Stop payment fee-a depositor's order to a bank to refuse Stop payment fee-a depositor's order to a bank to refuse payment on a check. payment on a check.

ATM fee-fee for using an ATM that does not belong to ATM fee-fee for using an ATM that does not belong to your financial institution.your financial institution.

Online banking fee-nominal fee to manage your online Online banking fee-nominal fee to manage your online bank account.bank account.

ClosureClosure

What are the two major types of financial institutions?What are the two major types of financial institutions? Give examples of the two types of financial institutions?Give examples of the two types of financial institutions? What is the difference between a commercial bank and What is the difference between a commercial bank and

a credit union?a credit union? What is the FDIC? How and when was it established?What is the FDIC? How and when was it established? Explain usury and why bank regulation is so important.Explain usury and why bank regulation is so important. What are some things to consider when choosing What are some things to consider when choosing

where to bank?where to bank? List and describe some common bank fees.List and describe some common bank fees.

Types of Financial Types of Financial ServicesServices

Savings ServicesSavings Services Payment ServicesPayment Services Lending ServicesLending Services Electronic bankingElectronic banking Storage of valuablesStorage of valuables Investment adviceInvestment advice Management of TrustManagement of Trust

Financial ServicesFinancial Services Savings Services-One of the main functions of Savings Services-One of the main functions of

a financial institution is to safe keep the money a financial institution is to safe keep the money of their customers.of their customers.

Payment Services-The ability to transfer money Payment Services-The ability to transfer money to others is necessary for daily business to others is necessary for daily business activities. Types of payments include checking activities. Types of payments include checking accounts, debit cards, online payments and accounts, debit cards, online payments and automatic withdrawals. automatic withdrawals.

Financial ServicesFinancial Services Lending Services-Most people, businesses, Lending Services-Most people, businesses,

and governments borrow money at some time. and governments borrow money at some time. Lending is one of the ways in which banks get Lending is one of the ways in which banks get income. Lending services include car loans, income. Lending services include car loans, home loans, personal loans, college loans, etchome loans, personal loans, college loans, etc

Electronic Banking-Electronic banking is the Electronic Banking-Electronic banking is the using of computers and other technology to using of computers and other technology to conduct various banking activitiesconduct various banking activities

Financial ServicesFinancial Services Storage of Valuables- banks offer safe-Storage of Valuables- banks offer safe-

deposit boxes for the storage of items deposit boxes for the storage of items such as birth records, jewelry, insurance such as birth records, jewelry, insurance polices, & investment certificates.polices, & investment certificates.

Investment Advice- there is usually a Investment Advice- there is usually a financial counselor on hand to help people financial counselor on hand to help people with realty purchases, investments, and with realty purchases, investments, and money management.money management.

Financial Services Financial Services Management of trust-Trust are property or Management of trust-Trust are property or

money that banks manage on behalf of it money that banks manage on behalf of it customers. Trust are usually good for the customers. Trust are usually good for the elderly or young people who do not have elderly or young people who do not have experience or time to manage their trust.experience or time to manage their trust.

Financial Services-Financial Services-Savings AcctsSavings Accts

Savings PlansSavings Plans Savings Accounts-low or zero min. balance. Ease of Savings Accounts-low or zero min. balance. Ease of

withdrawal. Pays interest while keeping your money withdrawal. Pays interest while keeping your money safe.safe.

Certificate of Deposit-earn high interest rate than Certificate of Deposit-earn high interest rate than regular savings. Requires a min. deposit. Guaranteed regular savings. Requires a min. deposit. Guaranteed rate of returnrate of return

Money Market-have large min. balance requirements Money Market-have large min. balance requirements and pays interest based on current rates of government and pays interest based on current rates of government and corporate securities. Some check writing.and corporate securities. Some check writing.

Financial Services- Financial Services- Checking Accts Checking Accts

There are 3 main types of checking There are 3 main types of checking accounts- Regular checking Accounts, accounts- Regular checking Accounts, Interest-Earning Checking Accounts, an Interest-Earning Checking Accounts, an Special Checking AccountsSpecial Checking Accounts

Regular checking accounts are good for Regular checking accounts are good for people who write lots of checks. Also there is people who write lots of checks. Also there is no service charge for regular checking no service charge for regular checking accounts as long as there is a minimum accounts as long as there is a minimum balance in the account.balance in the account.

Financial Services- Financial Services- Checking Accts Checking Accts

Interest-Earning Accounts- banks may offer Interest-Earning Accounts- banks may offer accounts that earn interest, however these accounts that earn interest, however these accounts usually require a higher monthly accounts usually require a higher monthly balance and if the balance falls under a minimum balance and if the balance falls under a minimum may pay no interest an charge a service fee.may pay no interest an charge a service fee.

Special Checking Accounts- Special checking Special Checking Accounts- Special checking accounts are usually for people who do not write accounts are usually for people who do not write a lot of checks. They may also charge a fee. a lot of checks. They may also charge a fee.

Financial Services- Financial Services- Checking Accts Checking Accts

When comparing checking accounts When comparing checking accounts there are a few things to consider : there are a few things to consider : minimum balance, Interest-rate earned if minimum balance, Interest-rate earned if any, monthly service charge, fees for any, monthly service charge, fees for services like printing or stop payment on services like printing or stop payment on checks, any other restrictions.checks, any other restrictions.

Financial ServicesFinancial Services Electronic banking- allows you to have 24 Electronic banking- allows you to have 24

hour access to various banking activities hour access to various banking activities using technology.using technology.

Electronic banking activities incl. Electronic banking activities incl. Automatic Teller Machines (ATMs) Automatic Teller Machines (ATMs) Payments at Point of Sale (POS) direct Payments at Point of Sale (POS) direct deposit, and Automatic Bill Payments deposit, and Automatic Bill Payments

Financial ServicesFinancial Services

ATMS- commonly called a cash machine, ATMS- commonly called a cash machine, ATMs allow for many banking services. ATMs allow for many banking services. Some of these services include, depositing Some of these services include, depositing cash and checks, withdrawing money from cash and checks, withdrawing money from various accounts, & checking account various accounts, & checking account balances.balances.

Access to these banking services usually Access to these banking services usually come in the form of debit cards. Debit cards come in the form of debit cards. Debit cards allow you to have access to your money.allow you to have access to your money.

ClosureClosure

List and describe the 7 types of financial List and describe the 7 types of financial services?services?

List and describe the different types of savings List and describe the different types of savings accounts.accounts.

What are the different types of checking What are the different types of checking accounts?accounts?

What should you consider when comparing What should you consider when comparing checking accounts?checking accounts?

Describe electronic banking and electronic Describe electronic banking and electronic banking services.banking services.

Debit cardsDebit cardsAdvantagesAdvantages

Convenience – easier Convenience – easier than writing a checkthan writing a check

Replaces checkbook & Replaces checkbook & cashcash

Accepted where Accepted where checks might notchecks might not

Reduces risk of theftReduces risk of theft

Disadvantages Disadvantages

Account must have Account must have sufficient funds at sufficient funds at time of transactiontime of transaction

Interchange fee Interchange fee charged on sellercharged on seller

Funds removed from Funds removed from account immediately account immediately – no more interest– no more interest

Checks and Payment Checks and Payment MethodsMethods

There are a few benefits to having a There are a few benefits to having a checking account.checking account.

Convenience and ease of making Convenience and ease of making paymentspayments

Safety with less risk than cashSafety with less risk than cash Proof of paymentProof of payment A record of finances for good money A record of finances for good money

managementmanagement

Anatomy of a checkAnatomy of a check

ChecksChecks Before you can deposit a check it must Before you can deposit a check it must

be endorsed. An endorsement is written be endorsed. An endorsement is written evidence that you received payment or evidence that you received payment or transferred payment to someone else.transferred payment to someone else.

There are three types of endorsements: There are three types of endorsements: Blank Endorsements, Full endorsements, Blank Endorsements, Full endorsements, and Restrictive Endorsements.and Restrictive Endorsements.

Check endorsementCheck endorsement Blank endorsement-an endorsement that only consist of Blank endorsement-an endorsement that only consist of

the endorsers name.the endorsers name.

John Q. SmithJohn Q. Smith Restrictive endorsement-limits the use of the check for the Restrictive endorsement-limits the use of the check for the

purpose given.purpose given.

For deposit onlyFor deposit only

John Q. SmithJohn Q. Smith Special or third party endorsement-allows you to transfer Special or third party endorsement-allows you to transfer

the check to another person. the check to another person.

Payable to Jane DoePayable to Jane Doe

John Q. SmithJohn Q. Smith

ChecksChecksCompleting a check properly is very important.Completing a check properly is very important. Write checks only on the form provided by your bank.Write checks only on the form provided by your bank. Write checks in ink.Write checks in ink. Only write checks if money is available.Only write checks if money is available. Use the current date (avoid postdating)Use the current date (avoid postdating) Avoid making checks payable to cash.Avoid making checks payable to cash. Always write out the amount.Always write out the amount. Void checks that have errors.Void checks that have errors. Record every payment from your checking account in your Record every payment from your checking account in your

check register.check register. The check register is a separate book used for recording The check register is a separate book used for recording

transactions.transactions.

ChecksChecks At the end of the month, financial institutions At the end of the month, financial institutions

will send you a bank statement ( banks record will send you a bank statement ( banks record on the status of your account)on the status of your account)

However you should also keep a record using However you should also keep a record using your check register.your check register.

When you compare the banks record to your When you compare the banks record to your record you should make sure that the totals record you should make sure that the totals match. This is called bank reconciliation. match. This is called bank reconciliation.

ChecksChecks There are other types of checks that There are other types of checks that

financial institutions offer. These checks financial institutions offer. These checks are: certified checks, cashiers checks, are: certified checks, cashiers checks, travelers checks, and money orders. travelers checks, and money orders.

A certified or bank check is a check in A certified or bank check is a check in which the bank certifies payment. The which the bank certifies payment. The money comes directly from the account money comes directly from the account and acts like a debit card.and acts like a debit card.

ChecksChecks Cashiers check are checks that the bank Cashiers check are checks that the bank

writes from its own funds. Usually cashiers writes from its own funds. Usually cashiers check cost a minimal fee if the check is written check cost a minimal fee if the check is written to someone other than an account holder. to someone other than an account holder.

Travelers checks are special forms designed Travelers checks are special forms designed for making payments when you are away from for making payments when you are away from home. They are safer than carrying cash and home. They are safer than carrying cash and may have a minimal fee attached. You can may have a minimal fee attached. You can usually buy them at banks, credit unions, and usually buy them at banks, credit unions, and travel bureaus. travel bureaus.

ChecksChecks Money orders are for people who do not have Money orders are for people who do not have

checking accounts and that want to send checking accounts and that want to send payment through the mail. payment through the mail.

The issuing agency is then ordered to pay the The issuing agency is then ordered to pay the amount printed on the form to another party. amount printed on the form to another party.

There is usually a small fee for money orders There is usually a small fee for money orders and if you lose them or they are stolen you and if you lose them or they are stolen you may use the receipt to make a claim.may use the receipt to make a claim.

ClosureClosure

What are some advantages and disadvantages of What are some advantages and disadvantages of debit cards?debit cards?

What are some benefits of having a checking account?What are some benefits of having a checking account? On a check, what is a routing number? Who is the On a check, what is a routing number? Who is the

payee? Who is the drawee? Drawer?payee? Who is the drawee? Drawer? What are some tips for completing a check properly?What are some tips for completing a check properly? What is a bank reconciliation?What is a bank reconciliation? List and describe the different types of bank checks.List and describe the different types of bank checks.

CreditCredit

IBM IBM

ObjectivesObjectives

Students willStudents will Learn about the fundamentals of creditLearn about the fundamentals of credit Review the different types of loans availableReview the different types of loans available Define some key terms associated with creditDefine some key terms associated with credit Describe the 5 C’s of creditDescribe the 5 C’s of credit Learn about credit scoresLearn about credit scores Review benefits and concerns of using creditReview benefits and concerns of using credit

Fundamentals of CreditFundamentals of Credit Credit is the privilege of using someone Credit is the privilege of using someone

else’s money for a period of time. else’s money for a period of time. The idea is that the person borrowing the The idea is that the person borrowing the

money will pay the money back at a later money will pay the money back at a later date with interest. date with interest. Interest is the cost of borrowing money.Interest is the cost of borrowing money.

The person who receives credit is called The person who receives credit is called the debtor. The person who gives credit the debtor. The person who gives credit is called the creditoris called the creditor

Know your loansKnow your loans Car loanCar loan

Home mortgage Home mortgage

Personal LoanPersonal Loan

Credit cardsCredit cards

Pawn shopsPawn shops

Instant tax refundInstant tax refund

Payday loanPayday loan

Differences inDifferences in Interest ratesInterest rates TermTerm Security Security

Credit Card Key TermsCredit Card Key Terms

Annual percentage rate (APR) – interest on credit, Annual percentage rate (APR) – interest on credit, converted to annual rateconverted to annual rate

Grace period – period during which interest does Grace period – period during which interest does not accrue on credit card purchasenot accrue on credit card purchase

Minimum payment – minimum amount that must Minimum payment – minimum amount that must be repaid each monthbe repaid each month

Promissory note-written promise to repayPromissory note-written promise to repay Collateral-Property used for securityCollateral-Property used for security

Credit Card Key Terms Credit Card Key Terms Cont.Cont.

Cosigner-person responsible for the note Cosigner-person responsible for the note if you do not payif you do not pay

Down Payment-payment of part of the Down Payment-payment of part of the purchase pricepurchase price

Installment loan-monthly payments in Installment loan-monthly payments in specific amounts over a period of time.specific amounts over a period of time.

Finance charge is the total dollar cost Finance charge is the total dollar cost (incl. interest) and all other charges.(incl. interest) and all other charges.

The 5 C’s of credit The 5 C’s of credit Capacity – how much of a loan can you repayCapacity – how much of a loan can you repay

Monthly incomeMonthly income Existing debtExisting debt

Capital – assets you already haveCapital – assets you already have Collateral – specific assets for use in securing Collateral – specific assets for use in securing

the loanthe loan Character – how likely you are to repay the loanCharacter – how likely you are to repay the loan Credit history-a record of an individual's or Credit history-a record of an individual's or

company's past borrowing and repaying of company's past borrowing and repaying of money money

Credit history Credit history CharacterCharacter

Promptness of bill Promptness of bill paymentpayment

Checking account Checking account and check bouncingand check bouncing

Credit card or car Credit card or car loan and timeliness loan and timeliness of paymentsof payments

Job tenure – how Job tenure – how long have you held long have you held your current job?your current job?

Have you used credit Have you used credit beforebefore

Housing tenure – Housing tenure – how long have you how long have you lived at your current lived at your current address?address?

Credit scoreCredit score FICO score – your credit history reduced FICO score – your credit history reduced

to a numberto a number Between 300 – 850Between 300 – 850 Most scores between 650 – 799Most scores between 650 – 799

Experian, Equifax, TransunionExperian, Equifax, Transunion Each has own scoreEach has own score

Easy to get history, harder to get good Easy to get history, harder to get good scorescore

Credit scoreCredit score

Credit score reflects Credit score reflects your lifeyour life Missed paymentsMissed payments Number of cardsNumber of cards Amount of creditAmount of credit

Credit score affects Credit score affects your lifeyour life Ability to get creditAbility to get credit Interest rate chargedInterest rate charged Employment Employment InsuranceInsurance Housing Housing

Credit historyCredit history

Identifying informationIdentifying information Prior credit transactionsPrior credit transactions Correction Correction

Incorrect informationIncorrect information FraudFraud

Annualcreditreport.comAnnualcreditreport.com

Part of history, Part of history, not part of scorenot part of score Marital statusMarital status ResidenceResidence AgeAge

Take quiz at www.creditscorequiz.org

Print results

Take quiz at www.creditscorequiz.org

Print results

Take quiz at www.creditscorequiz.org

Print results

Take quiz at www.creditscorequiz.org Take quiz at www.creditscorequiz.org

Credit Benefits and Credit Benefits and ConcernsConcerns

Convenience- credit can Convenience- credit can make it easy for you to buymake it easy for you to buy

Immediate possession-Immediate possession-credit allows you to have credit allows you to have the item nowthe item now

Savings-sometimes you Savings-sometimes you can buy an item on sale or can buy an item on sale or for a discount when you for a discount when you use credituse credit

Credit rating-if you use Credit rating-if you use credit and pay your bills in credit and pay your bills in full and on time this can full and on time this can help increase your credit help increase your credit scorescore

Overbuying-people may buy Overbuying-people may buy everything on credit simply everything on credit simply because they canbecause they can

Careless buying- credit can Careless buying- credit can tempt you to not buy on sale or tempt you to not buy on sale or discount because you get lazy discount because you get lazy in your shoppingin your shopping

Stores that offer credit may sell Stores that offer credit may sell items at a higher price than items at a higher price than stores that only accept cash. It stores that only accept cash. It is expensive to extend credit. is expensive to extend credit. You risk non-payment by the You risk non-payment by the debtordebtor

Overuse of Credit- people may Overuse of Credit- people may overuse credit because it is overuse credit because it is tempting to buy everything on tempting to buy everything on credit. credit.

Closure Quiz What is Credit?What is Credit? The person who receives credit is called the _? The person who The person who receives credit is called the _? The person who

gives credit is the _____?gives credit is the _____? Define Interest? APR? Collateral? Cosigner?Define Interest? APR? Collateral? Cosigner? Give two examples of Installment Loans?Give two examples of Installment Loans? What are the 5 C’s of Credit?What are the 5 C’s of Credit? What are the three credit bureaus? What range are most scores What are the three credit bureaus? What range are most scores

between?between? The credit score reflects ___? What does it affect?The credit score reflects ___? What does it affect? List some pieces of information that is apart of your credit history, List some pieces of information that is apart of your credit history,

but not your credit score.but not your credit score. Name 2 benefits and 2 concerns of using credit?Name 2 benefits and 2 concerns of using credit?