Section 5.1
Jan 03, 2016
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