TYPES OF FINANCIAL INSTITUTIONS

CH 7: 7.1Standard 061

Financial Institutions

DEPOSIT (BANKS)NON DEPOSIT (NON BANKS)

Commercial banks Savings and loan Credit unions Internet banks

Mutual fund companies

Brokerage firms Payday loan Check cashing

outlets Pawnshop

DEPOSIT:commercial banks• Run for profit•Usually offer a wide variety of services• do not always have the best interest rates (on both investments or loans)• offers traditional banking services like checking, savings, mortgage and other loans (both secured and unsecured)•

DEPOSIT:savings and loans• specializes in savings deposits and loans (especially mortgages)• may offer other traditional banking services, but majority of lending must come from the above mentioned items • may offer better interest rates (on both investments and loans)• depositors are “mutually invested,” meaning they can vote about the goals of the organization• usually locally owned

DEPOSIT:credit union• non profit• member owned• typically have better interest rates than other deposit institutions• offer many of the same traditional banking services (like checking and savings accounts)• often members share something in common (ie. Occupation, etc.)

DEPOSIT:internet banks• no traditional “brick-and-mortar” branch• lower overhead costs allow for better interest rates•

NON-DEPOSIT:Mutual Fund Company(investment companies)

• may offer ability to write checks against investments (usually limited amount), often called a money market account (MMA/MMDA)• required deposit amount is typically higher than a standard checking account• not covered by FDIC• often has higher interest rate on investments made

NON-DEPOSIT:Brokerage Firms• Used to invest in stocks and securities

NON-DEPOSIT:Payday Loans &Check Cashing Outlets

• short term, SUPER high interest loans (can be up to 390%!!)• some are fee based• try to avoid these at all costs!

Check Cashing:• can often be done at convenience stores, post office• may also find this service offered at payday loan locations• 1%-3% fee for cashing• you are better off opening a checking account and cashing your check for free

NON-DEPOSIT:Pawnshops• will make a loan on your possession, charging an equivalent interest rate of up to 60%

Banks are for bucks

Banks want to earn a profit

Benefit of banks?1) Your money is safer there than in your

mattress2) Potential increase in purchasing power3) Regulation (which offers you greater

protection)4) FDIC

Benefits of banks (cont’d)

Borrowing is easier (you don’t have to know a “saver” to get a loan)

Transactions are smoother (it’s tough to barter your way to what you want)

A word about money and checks

Here in the U.S. we use currency, checks, and electronic transfers to make purchases.

Checks are:1) Safer than currency2) Convenient 3) Offers you a record of your transaction

(think of your bank statement)