BANKING

TYPES OF FINANCIAL SERVICES

In order to stay competitive in today’s marketplace, banks and other financial institutions have expanded the range of services that they offer.

Four main categories: Savings Payment services Borrowing Other Financial Services

SAVINGS

Safe storage of funds for future use is a basic need for everyone.

Money that is going to be left in a financial institution for months or years is called a time deposit. Money kept in savings Certificates of Deposit

Selection of a savings plan is commonly based on interest rate, liquidity, safety, and convenience.

PAYMENT SERVICES

Transferring money from a personal account to businesses or individuals for payments is a basic function of day-to-day financial activity at a bank.

Checking Accounts are the most commonly used payment service.

Money that you place in a checking account is called a demand deposit because you can withdraw the money at any time, or on demand.

BORROWING

Most people use credit at some time during their lives.

Options for borrowing money: Short term by using a credit card or taking

out a personal cash loan. Longer term borrowing may include car or

mortgage loans.

OTHER FINANCIAL SERVICES

Insurance protection Stocks Bonds Mutual Fund Investment accounts Income Tax Assistance Financial Planning Services

ELECTRONIC BANKING SERVICES

Obtain cash; check account balance Transfer funds:

From savings to checking From savings to loan From checking to loan From checking to savings

Direct Deposit of paychecks, government payments Preauthorized payments for insurance, mortgage, utilities,

and other bills Automated Teller Machines – Obtain cash; check account

balances Access “e-banks” with a complete range of financial services Debit card retail purchases

DIRECT DEPOSIT

Many businesses offer their employees direct deposit, an automatic deposit of net pay to an employee’s designated bank account.

Direct Deposit saves time, money, and effort – and offers a safe way to transfer funds.

AUTOMATIC PAYMENTS

Utility companies, lenders, and other businesses allow customers to use an automatic payment system.

With your authorization, or permission, your bank will withdraw the amount of your monthly payment or bill from your bank account.

It is very important when using Automatic payments that you have enough money in your account for the payment.

Arrange payments with when you receive your paycheck.

Check monthly statements to make sure payments were made correctly.

AUTOMATED TELLER MACHINES(ATMS)

A cash machine, or automated teller machine(ATM), is a computer terminal that allows a withdrawal of cash from an account.

ATMs are located in banks, shopping malls, grocery stores, and even sports arenas.

To use an ATM for banking, you must apply for a debit card, which is a cash card that allows you to withdraw money or pay for purchases from your checking or saving account.

Some financial institutions may charge a small fee for the use of the card.

A debit card is in contrast to a credit card since you are spending your own money instead of borrowing additional money.

When using your debit card the computer will ask you to enter your personal identification number(PIN).

Never give this number to anyone!

PLASTIC PAYMENTS

Although cash and checks are very common methods of paying for goods and services, various access cards are also available. Electronic Payments Online Payments Stored-Value Cards Smart Cards

DEPOSIT INSTITUTIONS

Commercial Banks: a for-profit institution that offers a full range of financial services, including checking, savings and lending.

Serve both individuals and businesses. Organized as corporations with

individual investors, or stockholders, contributing the capital the bank needs to operate.

DEPOSIT INSTITUTIONS

Savings and Loan Associations is a financial institution that traditionally specialized in savings accounts and mortgage loans but now offers many of the same services as commercial banks.

Services include checking accounts, business loans, and investment services.

DEPOSIT INSTITUTIONS

Mutual Savings Bonds: Owned by depositors and specialize in savings accounts and mortgage loans.

Some offer personal and automobile loans as well.

The interest rate on loans from a mutual savings bank may be lower than those that a commercial bank charges.

Sometimes pay a higher interest rate on savings accounts.

CREDIT UNIONS

A credit union is a non-profit financial institution that is owned by its members and organized for their benefit.

Most credit unions offer a full range of services

NON-DEPOSITORY INSTITUTIONS

Life Insurance Companies Investment Companies Finance Companies

PROBLEMATIC FINANCIAL BUSINESSES

Would you pay $20.00 to borrow $100 for two weeks?

Most people without access to financial services use pawnshops, check-cashing outlets, loan stores, and rent-to-own centers.

Pawnshops Make loans based on the value of tangible possessions

such as jewelry or other valuable items Usually small loans usually around $75 to be repaid in

30-45 days. State regulate rates, but 3% interest per month or

higher is common

Check Cashing Outlets Charge anywhere from one to twenty

percent of the face value of a check; the average cost is two to three percent.

Sometimes called currency exchanges, also offer services, including electronic tax filing, money orders, private postal boxes, utility bill payment, and the sale of transit tokens.

Payday Loans: Desperate borrowers pay annual interest rates

of as much as 780 percent and more to obtain needed cash from payday loan companies.

In a typical payday loan, a consumer writes a personal check for $115 to borrow $100 for fourteen days.

The payday lender agrees to hold the check unitl the next payday. This $15 for the $100 loan for the next fourteen days translates into an annual percentage rate of 391%. Some consumers “roll-over” their loans. Paying another $15 for the $100. After a few roll-overs, the finance charge can exceed the amount borrowed

Rent-to-Own centers: Defined as stores that lease products to

consumers who can own the item if they complete a certain number of monthly or weekly payments