Chapter 5

Section 5.1

Identify types of financial services Describe the various types of financial

services.

Depository Institutions – businesses which offer multiple services in banking and finance These institutions include:

Banks Savings and Loans Credit Unions

Institutions are regulated by various state and federal agencies

WHY CONSUMERS MAY NOT USE THEM:

Fees are too high Minimum

balances required are too high

They wish to keep their financial information private

WHY CONSUMERS MAY USE THEM:

To keep money safe To receive the

advantages of interest earning accounts

To have the opportunity to receive lower cost loan

Federal Reserve Bank – is part of the central banking system in the United States Services provided to depository institutions

include: Collecting checks Electronically transferring funds Distributing and receiving cash and coin

Which federal reserve bank located in your region?

Break them up into two categories. Short – term Long - term

Short-Term Needs

•Daily purchases•Living expenses•Emergency fund

Daily Cash Needs

Savings Checking Credit Cards

•Check cashing•Automated tellers (ATM’s)•Prepaid cards

•Regular Savings•Money Market Savings

•Regular Checking•Online Payments•Payment by phone•Cashier’s checks•Money orders

Savings Time Deposit – when someone puts money

into the bank for a period of time. Payment Services

Checking Account Borrowing

Short-term Long-term

Direct Deposit An automated deposit system where money is

automatically put into your account without you having to cash the check.

Automatic Payments Auto-Pay – Each month a certain amount is

deducted from your account and sent to where you ask it to go.

ATM’s Automated Teller Machines Debit Cards

Some banks say that if you loose your card you should contact them immediately. If you do not you may be liable for $500 or more

Point-of-Sale Transactions Is a purchase by a debit card of a good or

service at a retail store. ON-line – having a PIN number to authorize a

payment. Works very much like a ATM card. OFF-LINE – a certain amount will be deducted

from your account within a few day.

Store-Valued Cards School lunch cards, long-distance phone

cards. Only good for a specific action. Often rechargeable or reloadable.

Electronic Cash The thought process of getting rid of actual

money. The idea is that no one will need to carry

money with them. Even credit cards. It will be scanned by finger print or some other form of identification.

Is a higher interest rate on a certificate of deposit worth giving up liquidity?

Would you trade the convenience of getting cash from the ATM near you or getting lower fees to travel farther…

Federal Deposit Insurance Corporation (FDIC) This is the insurance company that covers

your money in case something were to happen to it.

Up to $250,000 per account. Savings Association Insurance Fund

(SAIF) This is still run by the FDIC but is for Savings

and Loans.

National Credit Union Administration (NCUA) Provides insurance for credit unions

Insurance protection Each depositor is insured up to $100,000 for

money deposited in a regular account Each depositor is insured up to $250,000 for

qualified retirement deposits The same protection is available from both FDIC

and NCUA Insurance is important because the risk of

loss. Risk of Loss is used to determine which

party should be responsible for damage occurring to products after a service transaction has been completed but prior to delivery.

Deposit You are putting your money in the bank for

you Non-Deposit

Mainly profit driven. Use your money for you but also use it to drive

the amount of money that they make.

Commercial Bank Is a FOR-PROFIT institution

Offers a large variety of financial services Checking Savings Lending

Authorized to do business either through federal or state governments

Savings and Loan Associations Is a financial institution that traditionally

specialized in savings accounts and mortgages.

Have a federal or state charter. Mutual Savings Banks

Specialize in savings accounts and mortgage loans.

Pay usually lower interest rates than most commercial banks charge and higher interest rates on savings accounts.

Credit Unions Is a nonprofit financial institution that is

owned by its members and organized for their benefit.

Offer a large range of many services.

Life insurance companies Though we you have probably heard that

companies like this cover you incase of an accident.

However some of these companies do much more: Some offer long-range investment opportunities Some offer retirement plans.

Investment Companies These companies get together and invest your

money along with many others into stocks, bonds and other securities.

When they do this it is called a mutual fund.

Finance Company Make higher-interest loans to consumers and

small business that cannot borrow else-where because of below average credit rating.

Mortgage company Specifically used to borrow money for the

purchase of a home.

Money management is part of everyday life!

Depository institutions offer multiple services – shop around for the one which best fits your needs!

Ensure the depository institution is insured by the FDIC or NCUA

Comparison shop the financial services and interest rates offered before choosing a depository institution