Banking

Keep your money safe!

 Banking
• You started your business, now what do
you do with your money? Where do you
get that loan to expand your business?
Where do you save for college or
retirement?

• Banks of Course!
 Commercial Banks
• Def. Businesses which make money by
charging interest on loans as well as other
fees for services. They are for profit
businesses.

• Ex. Citi Bank, Chase, Bank of America,

Fleet Bank
 Advantages of Commercial Banks
1. Many well located branches
2. Offer a full range of banking services
3. Deposits insured by FDIC for up to
$250,000.
4. FDIC: Federal Deposit Insurance
Corporation (If the bank goes bankrupt,
the government will pay you all the
money you lose up to $250,000).
 Disadvantages of Commercial
Banks
1. Banking fees usually the highest
2. Impersonal service- a multinational
corporation doesn’t care about your
personal problems!
 Savings and Loans Banks (S&L)
• Banks that specialize in offering long term
financing for homes and small businesses.
 Advantages of S&L
1. Lower fees than Commercial Banks
2. More personal service
3. Open longer hours and weekends
 Disadvantages of S&L
1. May require you to notify them before
withdrawing from an account
2. Only a few branches
3. Using an ATM card may be difficult
4. May not offer some banking services
 Credit Unions
• Nonprofit banks owned by members, who
are often from a single organization or
trade union.

• Ex. Advantage Federal Credit Union

(teachers)
• Eastman Savings and Loan (Kodak
employees)
 Advantages of Credit Unions
1. Fees and loan rates are lower than
commercial banks
2. Not for profit, so any earnings are paid to
member accounts.
Disadvantages of Credit Unions
1. Most are not insured by FDIC
2. Only a few branches
3. ATM less convenient
 Services offered by Banks
1. Direct Deposit: money from paycheck or
govt. check is put directly into your
account.
2. ATM Cards: allow you to access
accounts at bank machines
3. Debit Cards: bank card used like a credit
card; money is debited from your
account to pay for a sale.
 Bank Services cont.
4. Stored Value Cards: cards for specific
dollar amounts for specific products or
stores (gift cards, phone cards, etc.)
5. Overdraft Privileges: bank pays amount
of a check even if there is not enough
money in the account
6. Online Banking: ability to check
accounts, transfer money and pay bills
over internet
7. Safe Deposit Box: in bank vault to for
important papers and valuable items
 Banking Fees
1. ATM fees
2. Debit Card fees (few still charge)
3. Check printing fees
4. Stop payment fees
5. Bounced check fees
6. Checking fees
 Types of Accounts
• Checking Accounts
• Savings Accounts
• Certificate off Deposits (CDs)
• Money Market Accounts
 Checking Accounts
• Bank holds on to your money for you to
access by writing a check. Checks tell the
bank it is okay to transfer that amount of
money to another person.

• Stop Payment: if you contact your bank

before the check is paid, they can stop the
payment on the check and the person will
not get the money.
 Advantages/Disadvantages of
Checking Accounts
• Adv.
1. Easy access to money via. Check or
ATM/Debit card
2. Money is safe, no need to carry large
sums of cash
• Dis.
– Most checking accounts do not earn
interest. As inflation increases, the
value of your money decreases.
 Bounced Check
• If there is not enough money in your
account, the bank can refuse to honor the
check. Your bank will charge a fee and the
person who you wrote the check to may
charge a fee. Overdraft privileges with
your bank prevents bouncing checks.
 Special Checks
• Cashier’s check: guarantee that the check
is good because it is drawn from a bank’s
account
• Certified Check: personal check
guaranteed by the bank
• Traveler’s Check: issued by travel
companies and can be used where
personal checks will not be accepted
• Money Order: pay teller amount and they
create a check for you.
 Savings or Deposit Accounts
• Bank account where money earns interest
but less accessible than checking
accounts.
 Advantages/Disadvantages of
Savings Accounts
• Adv.
1. Deposited money earns interest (1-
2%)
2. Money is safe and relatively easy to
access
• Dis.
1. Interest earned is low, often lower than
inflation.
2. Cannot access with checks
 Certificate of Deposit (CD)
• Person deposits money with a bank and
promises they will not withdraw money for
a set period of time (6 months, a year)
• Money withdrawn early is charged a fee.
 Advantages/Disadvantages of CDs.
• Adv.
1. Earns a higher interest rate than
savings account or inflation
2. No fees
3. Money is safe form changes in the
economy
• Dis.
1. Money is locked into set interest rate. If
other interest rates go up, still stuck
with lower one.
2. Cannot access money until set period
of time. Penalty fees for taking money
out early.
 Why do banks pay interest?
• Interest is payment by the bank for use of
your money.
• Banks take deposits made and use them a
loans for homes, cars, etc. Money that is
more likely to remain in the bank earns a
higher rate of interest (CDs), while money
that may be used receive little to no
interest (Savings/Checking accounts)
 Money Market Accounts
• Accounts where the bank invests the
money in short-term investments. These
investments pay out interest.
 Advantages/Disadvantages of Money
Market Accounts
• Adv.
– Pay out more interest than CDs or
other accounts
• Dis.
1. They require a high minimum deposit
to open, usually between $1000 and
$10,000 and must keep a high
balance to avoid fees
2. Subject to change in market/interest
rates
3. Strict limits on the number of checks
that access these accounts.