Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill0

Chapter 5BankingWhat You’ll Learn Section 5.1 Identify types of financial services. Describe the various types of financial institutions. Section 5.2 Compare the costs and benefits of different savingsplans. Explain features of different savings plans. Compare the costs and benefits of different types ofchecking accounts. Explain how to use a checking account effectively.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill1

Savings Account Q: I make only 75 a week at my part-time job and usemost of it for movies, food, and CDs. Because I make solittle, do I really need to put my money in a bank? A: Since you have a small amount of money to take careof, you may not need a bank. However, 75 a week is alarge sum to spend on entertainment. You should open asavings account and try to save at least 10 a week. Afterthree months you would have 130, and after a year youwould have more than 500.Go to to complete the Standard &Poor’s Financial Focus activity.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill22

Section 5.1Financial Services and InstitutionsMain IdeaWhat might be thedifferencesbetweencommercialbanks, savingsand loans, andcredit unions?Understanding the features of financial services andinstitutions will help you choose options that bestmeet your needs.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill33

Section 5.1Financial Services and InstitutionsHow to Manage Your CashToday, with more than 11,000 banks, 2,000savings and loan associations, and 12,000credit unions in the United States, you have awide array of financial services from which tochoose.Your choice of financial services will depend onyour: Daily cash needs Savings goalsPersonal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill4

Section 5.1Financial Services and InstitutionsDaily Cash NeedsYour daily cash needs may include: Buying lunch Going to the movies with friends Filling the car with gasoline Paying for other routine activitiesConsider the pros and cons of each method youcan use for your everyday cash needs.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill5

Section 5.1Financial Services and InstitutionsSources of Quick CashRegardless of how well you plan, you maysometimes need more cash than you haveavailable. You have two options: Use your savings. Borrow the money.Remember that either choice requires a tradeoff. Although you will have immediate access tothe funds you need, long-term financial goalsmay be delayed.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill6

Section 5.1Financial Services and InstitutionsTypes of Financial ServicesIn order to stay competitive in today’smarketplace, banks and other financialinstitutions have expanded the range of servicesthat they offer.These services can be divided into three maincategories: Savings Payment services BorrowingPersonal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill7

Section 5.1Financial Services and InstitutionsSavingsSafe storage of funds for future use is a basicneed for everyone.Some examples of time deposit funds include: Money that you keep in any type ofsavings account Certificates of deposit or CDsHaving a savings account is essential for anypersonal finance plan.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill8

Section 5.1Financial Services and InstitutionsPayment ServicesTransferring money from a personal account tobusinesses or individuals for payments is abasic function of day-to-day financial activity at abank.The most commonly used payment service is achecking account. Money that you place in achecking account is: Called a demand deposit Able to be withdrawn at any time, or ondemandPersonal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill9

Section 5.1Financial Services and InstitutionsBorrowingMost people use credit at some time during theirlives. If you need to borrow money, financialinstitutions allow you to: Borrow money for a short term by using acredit card or taking out a personal cashloan. Borrow money for a longer term byapplying for a mortgage or auto loan.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill10

Section 5.1Financial Services and InstitutionsOther Financial ServicesFinancial institutions may also offer a variety ofservices, such as: Insurance protection Stock, bond, and mutual fund investmentaccounts Income tax assistance Financial planning servicesPersonal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill11

Section 5.1Financial Services and InstitutionsElectronic Banking ServicesYour bank’s electronic services allow you to: Check the status of your account. Make a transaction from an ATM, bytelephone, or online. Get up-to-date information with personalfinancial management software.Security is the number one issue for onlinecustomers. The way to ensure online security isto: Use a security code, or password. Use a customer identification name ornumber.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill12

CASH AT HAND Follow simple rules of ATM etiquette when usingthis banking convenience. If you are in line, stand at least a fewfeet away from the person who is using the machine. When youare at the machine, protect the screen as you enter your PIN andother information. Why are these practices important?Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill13

Section 5.1Financial Services and Institutionsdirect depositan automaticdeposit of net payto an employee’sdesignated bankaccountDirect DepositMany businesses offer their employees directdeposit. Instead of a paper paycheck,employees receive a printed statement that lists: Deductions Other information about their earningsDirect deposit offers a save way to transferfunds and saves: Time Money EffortPersonal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill14

Section 5.1Financial Services and InstitutionsAutomatic PaymentsWith your authorization, your bank can withdrawthe amount of your monthly payments or billsfrom your bank account.In order to use automatic payments, you willneed to: Make sure you always have enoughmoney in your account for the payment. Arrange your payments according towhen you receive your paycheck. Check your bank statements each monthto make sure that the payments weremade correctly.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill15

Section 5.1Financial Services and Institutionsautomated tellermachine (ATM)a computerterminal thatallows awithdrawal ofcash from anaccountdebit carda cash card thatallows you towithdraw moneyor pay forpurchases fromyour checking orsavings accountAutomated Teller Machines (ATMs)A cash machine, or automated teller machine(ATM), allows you to: Withdraw cash from an account Make deposits Transfer money from one account toanotherTo use an ATM for banking, you must apply fora debit card from your financial institution.Unlike a credit card, a debit card enables you tospend only the money that you have in youraccount.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill16

Section 5.1Financial Services and InstitutionsATM FeesThe fees that some financial institutions chargefor the convenience of using an ATM can addup over time. You might consider thesesuggestions: Compare ATM fees before opening anaccount. Use your bank’s ATM machines to avoidthe additional fees that other bankscharge when you use their machines. Consider using traveler’s checks, creditcards, personal checks, and prepaid cashcards when you are away from home.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill17

Section 5.1Financial Services and Institutionspoint-of-saletransactiona purchase by adebit card of agood or service ata retail store, arestaurant, orelsewherePlastic PaymentsAlthough cash and checks are very commonmethods of paying for goods and services,various access cards are also available. Theseinclude: Point-of-sale transactions Store-value cards Electronic cashPersonal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill18

Section 5.1Financial Services and InstitutionsOpportunity Costs of FinancialServicesWhen you are making decisions about savingand spending: Try to find a balance between your shortterm needs and your future financialsecurity. Consider the opportunity costs, or tradeoffs, of each choice you make as youselect financial services.Remember to consider the value of your time inaddition to the money you are saving.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill19

Section 5.1Financial Services and InstitutionsTypes of Financial InstitutionsAfter you have identified the services you want,you can choose from among many types offinancial institutions.You may select an institution that: Offers a wide range of services Specializes in certain services Provides the option of cyber-banking, orbanking via the Internet Operates exclusively on the InternetPersonal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill20

Section 5.1Financial Services and InstitutionsFederal Deposit Insurance CorporationThe Federal Deposit Insurance Corporation(FDIC): Protects deposits in banks Insures each account in a federallychartered bank up to 100,000 peraccount Administers the Savings AssociationInsurance Fund (SAIF) for savings andloan associationsAll federally chartered banks must participate inthe FDIC program.Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill21

Section 5.1Financial Services and Institutionscommercial banka for-profitinstitution thatoffers a full rangeof financialservices, includingchecking, savings,and lendingcredit uniona nonprofitfinancial institutionthat is owned byits members andorganized for theirbenefitDeposit InstitutionsMost people use deposit-type institutions tohandle their banking needs. These institutionsinclude: Commercial banks Savings and loan associations Mutual savings banks Credit unionsPersonal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill22

Section 5.1Financial Services and InstitutionsNon-Deposit InstitutionsFinancial services are also available atinstitutions such as: Life insurance companies Investment companies Finance companies Mortgage companiesPersonal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill23

Section 5.1Financial Services and InstitutionsComparing Financial InstitutionsWhen you compare banks and other financialinstitutions, you should ask these questions tohelp choose the best one: Where can you get the highest rate ofinterest on your savings? Where can you obtain a checkingaccount with low (or no) fees? Will you be able to borrow money fromthe institution when you need it? Does it have online banking services? Does it have convenient locations?Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill24

Personal Finance Unit 2 Chapter 5 2007 Glencoe/McGraw-Hill 2 Savings Account Q: I make only 75 a week at