BankingBanking

How banks work How banks work along with checking along with checking

accountsaccounts

BankingBanking• The term bank refers to any type of

financial institution where you may deposit your money.

• When you deposit funds, what do banks do with your deposits?

• Interest-a fee paid for the opportunity to use someone else’s money over a period of time

BankingBanking• Types of financial institutions:• Commercial banks- financial

institutions owned by shareholders and operated for profit

• Mutual Savings banks- state-chartered institutions operated by trustees

• Savings and Loans- originally specialized in providing funds to home buyers. Now provide a variety of services

BankingBanking• Credit Unions- a nonprofit institution

owned by members. The members have a common bond, such as working for a certain employer or belonging to a labor union

• Internet banking-exclusive online banking, No tellers, offices etc.

• Benefits/Problems of this type of banking?

BankingBanking• Financial Services Modernization

Act: Eliminated restrictions among companies in securities, banking, and insurance industries

• This made it possible for financial institutions to consolidate the financial services they offer

BankingBanking• FDIC- Federal Deposit Insurance

Corporation: a federal agency that insures savings, checking, and other deposit accounts in most banks.

• Insures depositors up to a maximum of $250,000

BankingBanking• EFT-Electronic Funds Transfer:

the movement of funds by electronic means Can be done by internet, telephone etc.

• Reduces cost for banks, convenient for customers

BankingBanking• ATM-Automated Teller Machine:

computer terminal that gives customers electronic access to their accounts

• By law the fee charged for these transactions must be disclosed before you complete the transaction

BankingBanking• PIN-Personal identification number

which protects the security of your accounts

• ATM Guidelines

• 1. Know where your ATM card is at all times

• 2.Memorize your pin number

BankingBanking• 3. When entering your PIN, shield your

screen or keypad from the view of others

• 4. Be aware of your surroundings, notice suspicious behavior

• 5. Pocket cash immediately, count later in a secure place

BankingBanking• Point of Sale Transaction-Paying for

an item by making an electronic funds transfer at the place of purchase (Ex: gas pump)

• Debit card: a card that allows the user to subtract money from a bank account in order to obtain cash or make a purchase

• Also known as check cards

Banking• Two types of point of sale transactions

can be made with a debit card

• 1. Online, which requires you to enter a PIN number. Your money is deducted immediately from your account

• 2. Offline, if your card carries the logo of a credit card which requires a signature, money is not taken out immediately

BankingBanking• The quick subtraction of your

money from your account is the main difference between using a debit card and writing a check

• Electronic Funds Transfer Act: protects consumers using forms of electronic transfer.

BankingBanking• The Act says that

• 1. Banks must offer consumers a record or receipt for all computer transactions

• 2. Banks must investigate errors and report back to the customer within 10 days of being told

BankingBanking• 3. If you debit card is lost or stolen

and you report it within two day, you may be liable for no more than $50

• 4. If you wait longer it could go up to $500

• 5. If you wait longer than two months you could be liable for the entire amount

BankingBanking• Terms to Know:• Payee: the one to whom the check is

made out • Canceled check: a check that is

stamped and perforated to show it has been paid

• Overdraft: “bounced check” insufficient funds in the account to cover the check

BankingBanking• Advantages of checks

• 1. More secure than cash

• 2. Canceled checks provide legal proof of payment

• Choosing a checking account, things to look for: minimum balance, fees, overdraft protection, interest account (usually has more restrictions)

BankingBanking• Endorsing a check:• Endorsement: a signature on the back

of the check that allows the payee to either receive payment or transfer it to someone else

• Sign all check in ink and exactly as it appears on the front. If name is spelled wrong, sign it a second time correctly

BankingBanking• Three types of endorsements we will

talk about

• 1. Blank endorsement-consist of only the endorsers name

• 2. Special endorsement- limits payment to a particular person ex.Pay to the order of Rita Smith

• Also known as a third party check

BankingBanking• 3. Restrictive endorsement: limits

the use of the check Ex. For Deposit Only above your signature

• The check can only be deposited into your account

ChecksChecks• Checkbook register: the most

common method used for keeping records of the checks you have written, deposits, ATM use etc.

• If a check is lost or stolen you will ask your bank to stop payment on the check There usually a sizeable fee for this service

ChecksChecks• Reconcile: means to bring the bank

statement and your own record into agreement

• Outstanding checks: Checks that have been written but not been processed by the bank.

• The checks may have also come in to late to make that months statement

ChecksChecks• Terms:• Certified checks: a personal check

that has been stamped and guaranteed by the bank

• Cashiers check: a check issued that is guaranteed by the bank. You pay for the check with cash or credit

ChecksChecks• Money order: Purchased certificate

to pay a specified amount

• Postal money order: can be domestic or international

• Travelers checks: function as cash but can be replaced if lost or stolen

ChecksChecks• Wire transfer: electronically

moving funds from one location to another

• Prepaid cards: cards sold in specified dollar amounts that can be used to purchase products or services ex: phone cards, gift cards