Unit 4Banking Services

Unit 4 Vocabulary

Bank Statement Blank Endorsements Canceled Check Cashier’s CheckCertificate of

Deposit (CD) Certified Check Checkbook register Checking Account Compound Interest Demand Deposit Deposit Slip

Drafts Floating A Check Liquidity Maturity Date Money Market Fund Overdraft Penalty Reconciliation Restrictive

Endorsement Special Endorsements Stop Payment Order

Unit 4 Essential Question

What checking and banking services are available to you?

What is the purpose, use, and advantages of a personal checking account?

Essential Question 1

Banking ServicesBanking Services

Checking AccountsChecking Account: A banking service

wherein money is deposited into an account, and checks are written to withdraw money as needed. Drafts: Checks used to withdraw money from an

account. Demand Deposit: An account that lets you demand

portions of your deposited funds at will. Deposit Slip: A form used to record money put into a

checking account.

Cancelled Checks: Checks the bank has processed.

Overdraft: A check written without sufficient money (funds) in an account to cover it.

NSF: Non-sufficient funds.Floating A Check: The practice of writing a

check on insufficient funds and hoping to make a deposit to cover the check before it is cashed.

This is illegal!

Checking Accounts

Checking accounts are convenient and safer than cash.Canceled checks serve as receipts.Budgeting is made easier because

check records are kept.

Checking Accounts

Opening a checking account is quick and easy.A signature card is prepared.Two pieces of identification are needed.

Checking Accounts

How do you maintain and reconcile a checkbook?

Essential Question 2

Banking ServicesBanking Services

Rules for Writing Checks

Checks are used to withdraw money from the account.

Deposit Slips are used to add money to an account.

Rules for Writing Checks

The checkbook register should be kept accurate and a new balance calculated after every entry.

The checkbook should be reconciled immediately when the bank statement is received.

Rules for Writing Checks

Use good penmanship when writing checks.Separate dollars and cents with a decimal.

Do not write cents as a fraction.Avoid “flagging” numbers such as 1,2,and 7.Avoid curvy and curly-que writing especially

with 3s and 5s.No European 4s or 7s.Close all loops with 6,8,9,and 0.

Rules for Writing Checks

Rules for Writing Checks

Checks cannot be cashed until they have been endorsed.Blank Endorsement: The signature of the

payee written exactly as his or her name appears on the front of the check.

Rules for Writing Checks

Checks cannot be cashed until they have been endorsed.Restrictive Endorsement: Restricts or limits

the use of a check.

Rules for Writing Checks

Checks cannot be cashed until they have been endorsed.Special Endorsement: Also known as an

endorsement in full, is written when the payee signs over a check to a third person.

Parts of a Check Check number is located in the upper right

corner. American Bankers Association (ABA):

located under the check number.Location and district of bank.

Routs the check to the specific bank and area.

Date is located near the ABA.

710

742

Pay to the Order of use to identify the payee. $ used to indicate the numerical dollar and cents

value of the check. Dollars used to indicate the value of the check in

writing. The $ and Dollars must match.

For used to indicate the reason for writing the check.

Signature line used to authorize payment.

Parts of a Check

Parts of a Check

Write check for $59.28 to Landowner’s Inc. for rent.

Write check for $133.86 to Publix for groceries.

Parts of a Check

Deposit $22.30 cash, checks # 212 for $28.00 and # 315 for $55.00.

Parts of a Check

Deposit checks # 154 for $118.00 and # 351 for $85.00, keep $25.00 cash.

Parts of a Check

Checkbook Register: A record of deposits to and withdrawals from a checking account.

Parts of a Check

Parts of a Check Reconciliation:

The monthly process of matching the bank statement with the checking account balance.

Bank Statement: A monthly statement from the bank that lists all changes in a checking account.

What are the different types of checking accounts available?

Essential Question 3

Banking ServicesBanking Services

Types of Checking Accounts

There are four types of checking accounts.Special Accounts:

Offered to customers who write a small number of checks each month.

Normally only charged a service fee and check charge if the customer exceeds their check limit during that month.

Types of Checking Accounts

There are four types of checking accounts.Standard Accounts:

Usually has a monthly service fee but no per-check fee.

Service fees can be avoided by maintaining an average minimum balance.

May also include other benefits: Free Traveler’s Checks Free Safe-Deposit Box Reduced interest on Credit Card Balance

Types of Checking Accounts

There are four types of checking accounts. Interest-Bearing Accounts:

Interest is paid daily on the account if an average minimum daily balance is maintained.

If the account falls below the minimum daily balance then fees and check charges would apply.

Share Draft Accounts: Offered by most Credit Unions. These accounts have no minimums, user fees, or

check charges.

What are the various banking services available?

Essential Question 4

Banking ServicesBanking Services

Baking Services(FDIC) Federal Deposit Insurance

Corporation Insures each depositors’ accounts up to

$100,000 per account holder.Special Checking Services

Traveler’s ChecksTraveler’s Checks Insured against loss or theftGuaranteed paymentSafer than cashWill not bounce

Baking ServicesSpecial Checking Services

Certified ChecksCertified ChecksYour own check guaranteed by the bankMoney is taken out of your account to pay for the

checkWill not bounce

Cashier’s ChecksCashier’s ChecksA check drawn on the banks own fundsMoney is taken out of your account to pay for the

check or you must pay cash for itWill not bounce

Baking ServicesSpecial Checking Services

Money OrdersMoney OrdersCan be purchased at banks, post offices, and other

businessesMust pay cash – checks will not be acceptedWill not bounce

Debit CardsDiscount Brokerage ServicesTrusts

Baking ServicesStop Payment Orders: A request

that the bank not cash or process a specific check.

Saving AccountsBank Credit CardsSafe-Deposit BoxesLoansAutomatic Tellers

Why should you save?

Essential Question 5

Banking ServicesBanking Services

Saving

• The purpose of saving is to postpone spending until someday in the future.

• Reasons for saving:– Expected and unexpected needs– Financial Security

• Provides peace of mind that short term needs can be met without financial difficulty.

• Disposable Income: Income available after mandatory and optional deductions are made from gross pay. Also known as net pay.

• Discretionary Income: Income available after the bills have been paid. This money is what is available for saving.

Saving

• Reasons for saving:– Meet short-term goals

• Emergencies – Unemployment, sickness, accident, death in family, etc.

• Vacations and Leisure – Short weekend trips, family vacations, ball games, concerts, etc.

• Social Events – Weddings, proms, family reunions, retirement and graduation parties, etc.

• Major Purchases – Car, remodeling, large appliances, etc.

• Reasons for saving:– Meet long-term goals

• Home Ownership – The larger the down payment the lower the mortgage payment.

• Education– The cost of postsecondary education (college,

technical school, apprenticeships, advanced and skill training, etc.) is continually increasing.

– Start a savings plan for children now.• Retirement – Social Security will not be

sufficient to support you when you are older.• Investments

– Provides a hedge against inflation.– Done in addition to saving NOT in lieu of saving.

Saving

How does money grow?

Essential Question 6

Banking ServicesBanking Services

Interest:Interest: Cost of money.Simple Interest: Simple Interest: Interest computed

on the amount borrowed or saved only.Computed using the formula I = PRT.

I - InterestP - PrincipalR - RateT - Time

Interest

Principal: The amount saved, borrowed or the original amount of debt.

Rate: The interest rate expressed as a percentage.

Time: The length of time the borrower has to repay the loan expressed in years or as a fraction of a year.

Interest

%

Examples:Find the interest earned in 5 months

on $500 deposited in a savings account the earns 4% simple interest per year.

What is the simple interest earned on a money market account with $1800 that yields 6% interest over 4 years?

You earned a $1.75 on $400 in 3 months. What is the interest rate?

Interest

Compound Interest: Interest calculated by periodically adding earned interest to an account.By adding the interest to the principal a new

principal results.Compounded interest will grow savings

faster than simple interest.The Annual Percentage Rate (APR) is

divided by the number of compounding periods in a year to determine the interest rate per period.

Interest

Find the interest earned in one year on $500 deposited in a savings account that yields 4% interest per year compounded quarterly.

What is the interest earned on a money market account with $1500 that yields 6% APR compounded semiannually over 5 years?

Interest

What decisions need to be made when selecting a savings plan?

Essential Question 7

Banking ServicesBanking Services

Saving

• Where You Can SaveWhere You Can Save– Commercial Banks– Savings Banks– Savings and Loan Associations– Brokerage Firms– Credit Unions

Saving

• Savings AccountsSavings Accounts– Savings should grow to provide for future

needs by:• Taking advantage of compound interest• Setting aside money at regular intervals

– Typical savings plans include:• Savings Accounts• Certificates of Deposit (CDs): Represents a sum of

money deposited for set length of time.– Maturity Date: The day the account comes due. If the CD

is not withdrawn in specified period of time, it will automatically rollover.

– Early Withdrawal Penalty: A charge for withdrawing money before maturity.

Saving

• Savings AccountsSavings Accounts• Money Market Funds: A combination of

savings and investing where the money deposited is used to purchase low risk securities.

– The best savings option has all of these features:

• Liquidity: Refers to how easily assets can be converted to cash without penalty.

What are the advantages to saving regularly?

Essential Question 8

Banking ServicesBanking Services

Saving

• Savings AccountsSavings Accounts• Safety: Safety: You cannot lose your money because it

is insured.• Convenience: Convenience: There is a bank branch located

close to your home and your work.• High Return: High Return: Your money earns a competitive

rate of interest.• No Early Withdrawal Penalties: No Early Withdrawal Penalties: You can access

your account anytime without penalties.

–Regular savings will greatly increase your earnings.• Creates a habit in the culture of saving• Compound interest helps regular

investments grow faster.

Saving

Saving

Saving