Copyright 2007 Thomson South-Western

Chapter 5Banking Procedures

Slide 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 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 feefor each check written

5-1 Checking Accounts

Slide 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 5

Sample Checkbook Register

5-1 Checking Accounts

Slide 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 7

Sample Check

5-1 Checking Accounts

Slide 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 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

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Slide 10

Making Deposits

• Endorse checks to be deposited

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Slide 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 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 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

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Slide 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 15

Computing Interest

• Money deposited in a savings account typically earns a set rate of interest– Simple interest

5-2 Savings Accounts

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 0.5

Slide 16

Computing Interest

– Compound interest

5-2 Savings Accounts

$119.57$1.77$1.74$1.72$1.690.015$112.653

$112.65$1.66$1.64$1.62$1.590.015$106.142

$106.14$1.57$1.55$1.52$1.500.015$100.001

Ending Balance4321Rate

Beginning BalanceYear

Quarterly Interest

QUARTERLY COMPOUNDINGAnnual Interest Rate 6%

Slide 17

Savings Options

• Certificates of deposit• Money market accounts• Individual retirement arrangements (IRAs) • U.S. savings

bonds

5-2 Savings Accounts

The TreasuryDirect Web site provides information on savings bonds.

Source: TreasuryDirect, http://www.treasurydirect.gov (accessed April 27, 2006).

Slide 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

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Slide 19

Bank Services

• Safe deposit box• Overdraft protection• Cashier’s checks and money orders• Stop payment• Bank cards • Bank loans

5-2 Savings Accounts

Banks offer home mortgages and other types of loans.

Slide 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 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 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

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Slide 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

5-3 The Federal Reserve System

Source: The Federal Reserve Board, http://www.federalreserve.gov/consumers.htm(accessed October 20, 2006).

Slide 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 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 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