Chapter 5 Banking Procedures. Copyright 2007 Thomson South-Western

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2 Introduction to Checking Accounts A check is a written order to pay a stated amount to a person or business Checking account Is a demand deposit in a bank or other financial institution Provides a safe place to keep money Provides easy access to the money The FDIC insures accounts for up to $100,000 per depositor per bank 5-1 Checking Accounts Slide 2

3 Opening an Account To open an account, you will need to Provide personal data and identification Complete a signature card Deposit money Some banks charge monthly fees or a fee for each check written 5-1 Checking Accounts Slide 3

4 Keeping a Checkbook Register Checks and a checkbook register are received when you open an account A checkbook register Can be used to track checking account transactions Can provide a record of payments made for bills or purchases Shows how much money is in the account 5-1 Checking Accounts Slide 4

5 Sample Checkbook Register 5-1 Checking Accounts Slide 5

6 Writing Checks Use ink to write the data on checks The current date The name of the payee The amount in numbers and words Your signature A note on the Memo line If you make a mistake Write VOID on the check and in the register Begin a new check 5-1 Checking Accounts Slide 6

7 Sample Check 5-1 Checking Accounts Slide 7

8 Using Debit and ATM Cards Debit card Allows the account holder to withdraw cash at an ATM Can be used to make purchases The withdrawal is made electronically ATM card Allows the account holder to withdraw cash or make deposits at an ATM 5-1 Checking Accounts Slide 8

9 Protecting Account Data Crimes can be committed using account and personal data Check fraud and forgery Identity theft To help prevent crime Keep cards and account information in a safe place Protect your PIN or password when using cards 5-1 Checking Accounts Slide 9

10 Making Deposits Endorse checks to be deposited 5-1 Checking Accounts Slide 10

11 Making Deposits Complete a deposit slip, including Current date Amount of cash (bills and coins) Check numbers and amounts Total amount of cash and checks Cash amount received, if any, and your signature Net deposit amount Record the deposit in the check register 5-1 Checking Accounts Slide 11

12 Reconciling a Bank Statement Bank statements Come in paper or electronic form Show the checks, other withdrawals, and deposits made to an account Purpose of a bank reconciliation To review the bank statement To update the checkbook register To bring the statement and register balances into agreement 5-1 Checking Accounts Slide 12

13 Focus on... Check Cashing Services Are businesses that charge a fee to cash a check Charge fees that vary by state and by the type of check being cashed May also make payday loans 5-1 Checking Accounts Slide 13

14 The Purpose of Savings Saving means accumulating money to use for future needs A savings account Is a demand deposit in a bank or other financial institution Is a safe way to set aside money Typically pays interest May have some restrictions on how quickly or easily the money can be withdrawn 5-2 Savings Accounts Slide 14

15 Computing Interest Money deposited in a savings account typically earns a set rate of interest Simple interest SIMPLE INTEREST Interest (I) = Principal (P) x Rate (R) x Time (T) Interest = $1,000 x 6% annual rate x 6 months $30 = $1,000 x 0.06 x Savings Accounts Slide 15

16 Computing Interest Compound interest QUARTERLY COMPOUNDING Annual Interest Rate 6% Quarterly Interest Year Beginning Balance Rate Ending Balance 1 $ $1.50 $1.52 $1.55 $1.57 $ $ $1.59 $1.62 $1.64 $1.66 $ $ $1.69 $1.72 $1.74 $1.77 $ Savings Accounts Slide 16

Savings Options Certificates of deposit Money market accounts Individual retirement arrangements (IRAs) U.S. savings bonds The TreasuryDirect Web site provides information on savings bonds.

17 Savings Options Certificates of deposit Money market accounts Individual retirement arrangements (IRAs) U.S. savings bonds The TreasuryDirect Web site provides information on savings bonds. 5-2 Savings Accounts Source: TreasuryDirect, (accessed April 27, 2006). Slide 17

18 Meeting Financial Goals When choosing a savings option, consider The amount to save The length of time you will save The interest you can earn Use the Rule of 72 to estimate how long it will take the money to double at a certain interest rate 5-2 Savings Accounts Slide 18

19 Bank Services Safe deposit box Overdraft protection Cashier s checks and money orders Stop payment Bank cards Bank loans Banks offer home mortgages and other types of loans. 5-2 Savings Accounts Slide 19

20 Success Skills Negotiating Means working to reach an agreement that benefits you Understand your position (what you want) Understand the other party s position Create a proposed solution Be willing to compromise when appropriate 5-2 Savings Accounts Slide 20

21 Ethics Writing Bad Checks A bad check is one you write but do not have money in the account to pay Monitor your account carefully to avoid writing a bad check by mistake Show ethical behavior by not writing a bad check intentionally 5-2 Savings Accounts Slide 21

22 Technology Corner Internet Banking Involves banking using phone or Internet access to bank accounts Offers various services Electronic payment of bills Transfer of money between accounts Checking that deposits are posted Seeing which checks have been processed Seeing interest or fees that have been posted 5-2 Savings Accounts Slide 22

Federal Reserve System Is the central bank of the United States Seeks to provide the nation with safe, flexible, and stable monetary and financial

23 Federal Reserve System Is the central bank of the United States Seeks to provide the nation with safe, flexible, and stable monetary and financial systems Source: The Federal Reserve Board, (accessed October 20, 2006). 5-3 The Federal Reserve System Slide 23

24 Monetary Policy Key interest rates are controlled by the Fed Discount rate Federal funds rate Prime rate The Fed sells and buys U.S. government securities in open-market transactions Government bills (Treasury bills) Treasury notes Treasury bonds 5-3 The Federal Reserve System Slide 24

25 Monetary Policy The Fed plays a major role in operating the country s payment systems Reserve banks act as a clearinghouse for checks Checks may be deducted from your account in a single business day The Fed regulates the banking industry All interstate banks must be Fed members Intrastate banks are also subject to Fed rules 5-3 The Federal Reserve System Slide 25

26 Building Communications Skills Reading Comprehension Is the ability to understand what is read Can be improved with practice Read slowly and think about the material Note the paragraph structure and topic sentences Underline key points Read the material a second time, focusing on vocabulary and details 5-3 The Federal Reserve System Slide 26

PFIN 5: Banking Procedures 24

PFIN 5: Banking Procedures 24 5 1 Checking Accounts OBJECTIVES Explain the purpose and use of a checking account. Prepare a checkbook register. Write a check and prepare a deposit slip. Prepare a bank