unit 3a: banking
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Notes for Introduction to Finance - Banking UnitTRANSCRIPT
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Unit 3: Banking Accounts & Services
Mr. ElsesserIntroduction to
Financial Management
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Where Can You Bank?There are many types of financial institutions that offer banking services:
Commercial Banks: A for-profit institution that offers a full
range of financial services, including checking, savings, and lending.
Serves both individuals and businesses. Examples: Chase, Bank of America, Citi
Bank, TD North, Capital One, People’s Choice.
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Where Can You Bank?There are many types of financial institutions that offer banking services:
Credit Unions: A nonprofit financial institution that is owned by its
members and organized for their benefit. Members may be linked by same union, employer,
group. Offers full range of services (like commercial banks)
but with lower fees and loan rates. Required to report deposits of $10,000 or more to IRS.
Examples: Teachers Federal Credit Union, NEFCU
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Banks vs. Credit UnionsBANKS
As a depositor, you are a customer.
Open to the general public.
Earnings are paid directly to stockholders. Rates and fees are higher than credit unions.
Focus is on commercial loans and accounts that generate most income.
Competition between banks prohibit sharing of resources (ATM’s, service centers).
CREDIT UNIONSAs a depositor, you are a member (owner).
Serve the interests of its membership.
Earnings are paid back to members in the form of higher savings rates and lower loan rates.
Focus is on consumer accounts & member savings.
Credit unions cooperate wit other unions to share ATM’s and service centers.
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Opening a Savings AccountWhy Open a Savings Account?
Savings accounts are a useful tool to help you save to meet your short-term, intermediate and long-term goals.
Requires low (or no) minimum balance and allows you to withdraw money quickly.
Savings accounts pay interest on the money you deposit, which increases the amount of money in your account over time. Called the TIME VALUE OF MONEY.
“A dollar today is worth more than a dollar tomorrow!” “A penny saved, is a penny earned.”
All savings accounts may require you to pay taxes on any interest earned.
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Types of Savings AccountsThere are several different types of savings accounts:
Regular Savings Accounts: Allow you to make frequent deposits and
withdrawals, and requires little or no balance restrictions. Convenience of access trades off with low paying interest rates.
Online Regular Savings Accounts: Same as a regular savings account, only
you “bank” online only. Deposits are made with EFT’s, ATM deposits, or mail in payments. Will pay higher interest rates than regular savings accounts.
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Types of Savings AccountsThere are several different types of savings accounts:
Money Market Accounts: Usually a checking or savings account that
earns a higher interest rate than regular accounts, but requires you to keep high minimum balances ($2500 - $5000). Has restrictions on the monthly number of transactions.
Certificate of Deposit (CDs) Accounts: Savings account that requires you to keep a
certain amount of money in the bank for a fixed period of time. You are paid a higher rate to keep money deposited longer. You pay a penalty to withdraw money earlier.
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How to Choose a BankThere are many factors to consider to help you choose a bank:
Interest Rates and Fees: What will they pay your accounts in interest? What are the
fees for making transactions, failing to keep any required balance or any other service charges?
Credit Unions will usually charge lower interest rates on loans, pay higher on savings account interest.
Availability of Products and Services: Free checking or savings (without minimum balances),
online banking and bill pay, ATM availability, daily/weekend/night bank hours, safe deposit boxes, drive-up window, mobile apps, interest rate on CD’s, mortgages, personal loans.
What Questions should you Ask? What type of accounts pay interest? How long does it take
for a check deposited to clear to have access to the money?
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How to Open an AccountYou will need some identification and information to open an account:
Valid photo ID, proof of age and identity: Ex: Driver’s license/permit, utility bill,
passport, birth certificate.
Most banks require a Social Security (FICA) #:
Do you need a co-signor? Some banks will only let you open an account if
you have a parent or guardian co-sign the account.
Some kind of opening deposit: Banks – approx $20 min. Credit Unions - $1
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Safety In Banking…When searching for a bank, ensure your deposits will be secure:
Federal Deposit Insurance Fund (FDIC) - for banks
National Credit Union Admin. (NCUA) – for credit unions
The nation’s bank, The Federal Reserve Bank (The FED)insures each account at a federally chartered bank up to $250,000.
The FED pay depositors this amount of money if the bank was to suddenly close or go out of business.
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Banking Services & ProductsATM Cards:
Cards that allow you to withdraw cash from your account or make other banking transactions; wherever ATM’s are located.
Your bank may issue you a Cash Card or Debit Card:
Cash Card: Card that allows you to withdraw cash from your
account at an ATM.
Debit Card: Card that allows you to pay for a purchase directly
at the point of sale using money from your account. Card is backed by VISA or MASTERCARD and can be
used wherever these types of cards are accepted. Can get “Cash Back” Protected against fraudulent charges.
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Banking Services & ProductsATM Cards:
How does its work? Money is accessed using a PIN Number:
4 to 6 digit code that gives you access to your account in stores and at ATMs.
PIN should be kept secret.
ATM Card users can be charged fees: When cash is drawn or a purchase is made that
is more than the current account balance. When you use an out-of-network ATM machine.
ATM at another bank or establishment.
AVOID THIS! PLAN AHEAD! DO YOUR RESEARCH BEFORE OPENING AN ACCOUNT!!
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Banking Services & ProductsOther products that act like Cash:
Will vary from bank to bank. Use of services could also incur fees.
Fees may be able to be waived if certain account types and/balances are met.
Cashier/Bank Checks: Checks guaranteed by the bank. Will not “bounce” (insufficient funds).
Certified Check: Personal check stamped because funds
are set aside to pay this form of check Travelers Checks
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Banking Services & ProductsElectronic Transfers (Online Banking): Over the past 10 years, the United States has adopted more of
an “online” form of banking. Services include:
Automatic Transfers: Allows you to move money between your
accounts and also build savings. Follow your budget plan!
Online Bill and Credit Payments: Yields the ability to directly wire money to
bill collectors and have the bank send checks on your behalf.
Ex: Online Bill Pay, “POP Cash”—only need name/email
Allows for faster and more efficient payments.
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Banking Services & ProductsElectronic Transfers (continued):
• Deposit Checks using cell phones• Takes a picture
of front/back of check and deposits.
• You hold the actual check for 14 days until it clears (money available) in your account.
• Need to get bank’s app
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Banking Services & ProductsDirect Deposit (Online Banking): System where employers deposit your paycheck
directly into your account on payday, using your bank account information.
Advantages: Employee has availability of their
money on payday. Most checking accounts are free when
you use this service.
Disadvantage: Employee’s responsibility to verify
check was deposited and correct.
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Examining Online BankingADVANTAGESConvenienceUpdated Account BalancesEasy to Maintain and get accurate informationFriendlier RatesNo Fee Services
Capital One 360 Banking
Transfer ServicesEasy TransactionsEasy Monitoring
DISADVANTAGES
Loss of Banking Relationship
Personal Customer Service
Security Matters Not always insured
Complex Encryption SoftwareBig Learning CurvesTransaction problems
Do not forget to notify your bank when your email address or other information
changes!
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Banking Services & ProductsLoans & Credit:
Banks offer loans and other types of credit lending to customers. They make their money through the interest rates and other fees.
Banks issue loans because they know Americans like to spend and don’t mind making monthly payments to have the things they like.
Common Loans Offered: Student loans, car loans,
mortgages, home equity loans
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SECURED vs. UNSECURED Loans:
Secured Loans: Lower Rates, higher borrowing limits, longer
repayment terms. Loans protected by an asset or collateral. A lien
is placed on the title. Don’t pay, lose property. Ex: Car, boat, mortgage, home equity loan, etc.
Unsecured Loans: Higher Rates, variable borrowing limits and
repayment terms. Ex: Credit Cards, Educational Loan, Personal Loan
Repayment determined on your financial resources.
5c’s of Credit: Character, Capacity, Capital, Collateral,
Conditions
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Banking Services & ProductsOther Banking Services/Products:
College Savings Plans Income Producing Products: Certificates of Deposits High paying interest rates &
predictable income. Less liquidity & more penalties
Safe Deposit Boxes: Safe place to keep irreplaceable
items
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Banking Services & ProductsChecking Accounts: Banks offer a variety of checking accounts all with unique features
and options. Some accounts are free and some charge fees.
Types of Checking Accounts: Student (High School or College) Accounts:
No balance requirement, fees or monthly charge.
Regular Checking: Generally a free account as long as you make some
kind of direct deposit monthly. Using Direct Deposit can also avoid balance
requirements.
High Yield Checking: Requires you to maintain a balance of $2500 -$5000
and pays a higher interest rate to depositors. Usually makes all of bank services that you would
normally be charged for or incur fees on absolutely FREE.
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Banking Services & ProductsChecking Accounts FEES & CHARGES: Accounts will be charged fees for these common occurrences:
Inability to meet account requirements: Balance requirements, transaction allotments,
insufficient funds, withdrawals made at out-of-network ATMs.
Stop Payment Order: Account holder asks the bank to put a stop
payment on a written check. Will incur a fee (approx. $25) Reasons why: Check is lost, transaction/purchase
issues.
Other Privileges of Account Holders: FREE Services:
Cashing Checks & Money Orders