BANKING SERVICES

Ch. 5.1 Deposit Accounts

2 Categories of Deposit Accounts

________________An account that allows

transactions to occur without restrictions on the frequency or

the volume of transactions.

_________________Deposits accounts that

are held for or mature at a specified

time

____________________________

A type of deposit account that is payable on demand whenever the depositor chooses

Transaction Accounts

Many are demand deposits The total funds in transaction accounts affect

the money supply because of their high liquidity.

They are a large component of M1.They require banks to hold reserve fund,

because the money could be demanded by the depositor at any time

Most common form is checking accounts

Checking Accounts

Most common form of a transaction account

You withdraw money from the account by means of a check

A check is a written notice to the bank to pay a named person a specified amount from your account

Checking Accounts

Offer customers quick access to their moneyProvide a convenient way to pay billsFacilitate transferring funds to other

institutionsPrior to writing a check, customers need to

have sufficient funds in the bank to cover checks written & any fees to be deducted

There are many types of checking accounts to best fit customers’ needs

New Technology & Checking Accounts

Direct DepositAuto DebitOnline bankingElectronic bill pay

Types of Ownership of Checking Accounts

_________________owned by 1 person

________________2 or more owners, each

of whom has equal & independent access

to it

2 Types of Joint Checking Accounts

_________________Frequently used by

business partnersThe approval of all

owners is required to make withdrawals

_________________Co-owner accountEach co-owner can

make deposits & withdrawals independently

May be sued by siblings, roommates, spouses, etc.

Provides the “right of survivorship”

_________________

Federal legislation that became effective in October of 2004, that created a new category of negotiable instrument, & allows banks to process check information electronically

Types of Checking Accounts

Basic“Free”“No Service Charge”Interest-BearingExpressLifeline“No-Frills”Asset management

Basic Checking Accounts

9 characteristics of Basic Checking Accounts:1.2.3.4.5.6.7.8.9.Ideal for: _________________________________

“Free” Checking Accounts

List 3 characteristics of “Free” Checking Accounts:

1.2.3.

“No Service Charge” Checking Accounts

List 3 Characteristics:1.2.3.

Interest-Bearing Checking Accounts

List 4 Characteristics:1.2.3.4.

Express Checking Accounts

List 6 Characteristics:1.2.3.4.5.6.

Popular with: ____________________________

Lifeline Checking Account

List 3 Characteristics:1.2.3.

Attractive to: ___________________________

“No Frills” Checking Accounts

List 5 Characteristics:1.2.3.4.5.

Designed for: ___________________________

Asset Management Checking Accounts

List 5 Characteristics:1.2.3.4.5.

Online Banking Accounts

Available as either independent accounts or as an additional service to standard brick-and-mortar accounts

May offer lower minimum balances & fewer fees than traditional banks.

Offer a variety of services ranging from consolidated management of multiple accounts through automated bill payments

___________________________

Banking transactions can be performed from mobile phones such as: Balance inquiries Payment requests Paycheck deposit alerts Bounced check notification

________________________

Should be carefully assessed

Can possibly incur 2 fees when using an ATM that is not affiliated with your own bank (one from your bank, and one from the other bank)

Choose the Type of Account that is Best for

Your Needs

__________________________

Deposits that are held for or mature at a specified time

Include: Savings accounts Money market deposit accounts Certificates of deposit (CDs) Various bonds

Less liquid than checkable depositsNo reserve requirements

imposed by the Fed

__________________________

Most common type of time depositBanks may require up to a 7-day notice

before withdrawing your money (most don’t do this)

Savings accounts valued at less than $100,000 are part of the M2 money supply

Can make deposits in person, by mail, electronically, or by direct deposit

___________________________

Provide a monthly or quarterly computerized statement detailing all account activity, including interest credited & fees charged

Often, statements are combined with those of other accounts held a t the bank, providing a complete and clear picture of all banking activity

Savings Accounts

One of the safest places to put moneyAccounts are insured by the FDIC up to

$100,000 per depositor per bankIf liquidity is needed, then savings accounts

are a good option

___________________________

(MMDAs)Time deposits that offer a higher rate of

interest than savings accounts, but they usually require a higher initial deposit to open an account

Money Market Deposit Accounts

List 7 Characteristics:1.2.3.4.5.6.7.

___________________________

(CDs)Certificates issued by banks that guarantee

the payment of a fixed interest rate until the maturity date

Maturity dates may range from 7 days to 10 years

The larger the amount of the CD & the longer the term, the greater the interest rate.

CD Interest Rates

Variable rate CDs are often linked to the prime rate & may offer an interest rate at a predefined % rate less than the prime rate

Some CDs offer “bump-ups” that provide the opportunity to increase the interest rate on the CD when interest rates rise

A “callable” CD can be called in at the discretion of the issuing institution

_______________________________

Usually less than 18 monthsYou can get your money before the maturity

date, but you will pay an interest penalty, anywhere from 3 to 6 months’ worth of interest

CDs

Safe, insured by FDIC up to $100,000Not very liquidYou should consider the maturity date when

investing in CDs, because the interest rate remains the same on fixed rate CDs

If interest rates rise, the CD rate will not earn as much as other investments

If interest rates fall, fixed rate CD can be good

You must also decide how long you’re willing to tie up your money

_____________________________

These accounts usually represent shares in the credit union rather than deposits

“Share-draft account” = checking account“Share-account” = savings account“Share certificate” = CD