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Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
Banking
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Banking

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  • 1. Banking and Financial Services
  • 2. A Bank <ul><li>Is a business – sells services </li></ul><ul><li>Must apply for a charter to start – Federal or state </li></ul><ul><li>Regulated more strictly than other businesses </li></ul><ul><li>Commercial – Full service </li></ul><ul><li>Insured by FDIC </li></ul>
  • 3. Other Deposit Institutions <ul><li>Savings & Loan Associations </li></ul><ul><ul><li>Specialize in savings accounts and home loans </li></ul></ul><ul><li>Mutual Savings Banks </li></ul><ul><ul><li>Specialize in savings accounts and home loans </li></ul></ul><ul><ul><li>Owned by depositors </li></ul></ul><ul><li>Credit Unions </li></ul><ul><ul><li>Owned by users </li></ul></ul><ul><ul><li>Not for profit </li></ul></ul><ul><ul><li>Formed by users with a common interest (teachers) </li></ul></ul>
  • 4. Non Deposit Institutions <ul><li>Life Insurance Companies </li></ul><ul><li>Investment Companies </li></ul><ul><li>Consumer Finance Companies </li></ul><ul><li>Mortgage Companies </li></ul><ul><li>Check-Cashing Outlets </li></ul><ul><li>Pawnshops </li></ul>
  • 5. Types of Financial Services <ul><li>Accept deposits of money </li></ul><ul><ul><li>Safe keeping </li></ul></ul><ul><ul><li>Possibility of earning extra money </li></ul></ul><ul><li>Transferring funds </li></ul><ul><ul><li>Check writing </li></ul></ul><ul><ul><li>Electronic fund transfers </li></ul></ul><ul><ul><li>ATMS </li></ul></ul><ul><li>Lending money </li></ul><ul><li>Storing valuables </li></ul><ul><ul><li>Safe deposit box </li></ul></ul><ul><li>Financial/investing advice </li></ul><ul><li>Managing trusts </li></ul>
  • 6. The FED <ul><li>History </li></ul><ul><ul><li>Over 30,000 different notes were issued during the 1800s </li></ul></ul><ul><ul><li>Sometimes banks did not have enough money to pay depositors and would go out of business </li></ul></ul><ul><ul><li>Federal Reserve Act passed in 1913 by President Woodrow Wilson </li></ul></ul>
  • 7. The FED <ul><li>Structure - Two Parts </li></ul><ul><ul><li>7 appointed Board of Governors, (public or government part) </li></ul></ul><ul><ul><li>12 Federal Reserve Banks (private part) </li></ul></ul><ul><ul><li>The president nominates each governor; the senate confirms or approves (check and balance) </li></ul></ul><ul><ul><li>Primary Roles: Economic analysis, delivering financial services to banks, supervising banks. </li></ul></ul>
  • 8. The FED <ul><li>Monetary Policy </li></ul><ul><ul><li>Primary focus is price stability </li></ul></ul><ul><ul><li>Federal Open Market Committee regulates the amount of money and credit available in the economy </li></ul></ul><ul><ul><li>Inflations results when the supply of money grows faster than the production of goods and services </li></ul></ul>
  • 9. The FED <ul><li>Bank Supervision </li></ul><ul><ul><li>Congress establishes laws that regulate banking institutions; the Federal Reserve makes sure the laws are followed </li></ul></ul><ul><ul><li>Stable banks make the public confident in the banking system </li></ul></ul><ul><ul><li>FED examiners review the financial records of banks and make sure they are following the laws </li></ul></ul>
  • 10. The FED <ul><li>Financial Services </li></ul><ul><ul><li>The transfer of funds between banks is key to keeping banks safe and reliable </li></ul></ul><ul><ul><li>The FED provides services to banks </li></ul></ul><ul><ul><li>The FED maintains the US Treasury’s account, collects federal taxes, and issues and redeems Treasury securities (T Bills, savings bonds) </li></ul></ul>
  • 11. The FED <ul><li>The mission of the FED is to maintain confidence in the nation’s monetary and banking system </li></ul><ul><li>The FED has adapted to change through new computer technologies </li></ul><ul><li>New democracies are using the US Federal Reserve System as a model </li></ul>
  • 12. $aving $5
  • 13. $aving $269 Save $5 at 8% annual return and it will grow to $269 in 50 years.
  • 14. Objectives <ul><li>Describe reasons for saving </li></ul><ul><li>Understand the importance of setting financial goals </li></ul><ul><li>Understand saving alternatives </li></ul><ul><li>Compare the risk, return, and liquidity of saving alternatives </li></ul><ul><li>Identify advantages and disadvantages of saving alternatives </li></ul><ul><li>Identify appropriate savings alternative for various situations </li></ul>
  • 15. Purpose of Saving Money <ul><li>Purchase something expensive </li></ul><ul><li>Prepare for emergencies </li></ul><ul><li>Go on a trip </li></ul><ul><li>School expenses </li></ul>
  • 16. Saving Goals <ul><li>Short-term goal </li></ul><ul><ul><li>Need the savings in the near future </li></ul></ul><ul><li>Long-term goal </li></ul><ul><ul><li>Will not need the savings for several years </li></ul></ul>
  • 17. What is a Savings Plan? Systematic way to reach a financial goal A savings plan is personalized. The plan states how much and when contributions are made to your savings.
  • 18. Savings <ul><li>Savings should come from discretionary income </li></ul><ul><ul><li>(income available to spend after money has been set aside for basic needs) </li></ul></ul><ul><li>The amount of discretionary income determines how much money can go into savings </li></ul>
  • 19. Saving Alternatives <ul><li>Choosing the best alternative can help you meet financial goals </li></ul><ul><li>Examples </li></ul><ul><ul><li>Savings Accounts </li></ul></ul><ul><ul><li>Certificates of Deposit </li></ul></ul><ul><ul><li>Money Market Accounts </li></ul></ul><ul><ul><li>Savings Bonds </li></ul></ul><ul><ul><li>Piggy Bank </li></ul></ul><ul><ul><li>Shoe Box </li></ul></ul>
  • 20. Why is a bank account better that a piggy bank???????? <ul><li>Money is safer </li></ul><ul><ul><li>Less tempting to spend money </li></ul></ul><ul><ul><li>Protected </li></ul></ul><ul><ul><ul><li>FDIC </li></ul></ul></ul><ul><ul><ul><li>NCUA </li></ul></ul></ul><ul><ul><li>Can earn extra money </li></ul></ul><ul><ul><ul><li>Interest </li></ul></ul></ul>
  • 21. Interest <ul><li>When you deposit money into an account you are loaning your money to be used by others </li></ul><ul><li>The borrower pays the lender interest </li></ul><ul><li>Interest is a percentage of the amount you put into your account </li></ul>
  • 22. Two Types of Interest <ul><li>Simple </li></ul><ul><li>Compound </li></ul>
  • 23. Simple Interest <ul><li>Simple interest is only earned on the amount you save </li></ul><ul><li>If you save $5000 and it earns 10% simple interest per year: </li></ul><ul><li>Year 1 Interest = $5000 x 10% = $500 </li></ul><ul><li>Year 2 Interest = $5000 x 10% = $500 </li></ul>
  • 24. Compound Interest <ul><li>Interest earned on the amount you save PLUS previous interest earned. The interest is added to the principal. </li></ul><ul><li>If you save $5000 and it earns 10% simple interest compounded annually: </li></ul><ul><li>Year 1 Interest = $5000 x 10% = $500 </li></ul><ul><li>Year 2 Interest = $5500 x 10% = $550 </li></ul>
  • 25. Simple vs Compound <ul><li>Initial Savings: $5000 </li></ul><ul><li>Year 1 Interest 500 </li></ul><ul><li>Year 2 Interest 500 </li></ul><ul><li>Total Savings $6000 </li></ul><ul><li>End of year 2 </li></ul><ul><li>Initial Savings: $5000 </li></ul><ul><li>Year 1 Interest 500 </li></ul><ul><li>Year 2 Interest 550 </li></ul><ul><li>Total Savings $6050 </li></ul><ul><li>End of year 2 </li></ul>
  • 26. Rule of 72 <ul><li>Determines how many years it will take </li></ul><ul><li>for your money to double </li></ul><ul><li>Works only for compounding interest </li></ul><ul><li>Divide 72 by the interest rate on your investment </li></ul>
  • 27. Rule of 72 Example: 72/Interest Rate (%) = Years to double money If you earn 8% on your savings: 72/8 = 9 years for money to double $10,000 earning 8% will grow to $20,000 in 9 years
  • 28. How do you choose a saving alternative? <ul><li>Risk </li></ul><ul><li>Rate of Return </li></ul><ul><li>Liquidity </li></ul>
  • 29. Risk <ul><li>Measure the safety of your savings </li></ul><ul><li>Investments with very little risk of a loss are considered “low risk” </li></ul><ul><li>Investments with a high risk of having a loss are considered “high risk” </li></ul>
  • 30. Yield/Rate of Return <ul><li>Percentage of interest added to your savings over a period of time </li></ul><ul><ul><li>What you get for your investment </li></ul></ul><ul><li>Higher Risk = Higher Return </li></ul>
  • 31. Liquidity <ul><li>Ability to turn an investment into cash without losing its value </li></ul><ul><li>If an investment can quickly and easily be changed into cash, it is a liquid investment </li></ul>
  • 32. Savings Accounts <ul><li>Available at: </li></ul><ul><li>Banks </li></ul><ul><li>Credit Unions </li></ul><ul><li>Savings and Loans </li></ul>
  • 33. Savings Accounts <ul><li>Advantages: </li></ul><ul><li>Easy access to money </li></ul><ul><ul><ul><li>High Liquidity </li></ul></ul></ul><ul><li>Insured </li></ul><ul><ul><ul><li>Low Risk </li></ul></ul></ul><ul><li>Earns Interest </li></ul><ul><ul><ul><li>Low Rate of Return </li></ul></ul></ul>Disadvantage: No check writing ability
  • 34. Certificate of Deposit - CD <ul><li>Available at Banks, Credit Unions, S & Ls </li></ul><ul><li>Minimum balance required </li></ul><ul><li>Numbered certificate </li></ul><ul><ul><li>Term: length of time money must be left in CD </li></ul></ul><ul><ul><li>Maturity Date: date money becomes available for withdrawal </li></ul></ul><ul><ul><li>Penalty: amount of money that must be paid if withdrawn before maturity date </li></ul></ul><ul><ul><li>Interest Rate: extra money paid if left in CD until end of term </li></ul></ul>
  • 35. CD <ul><li>Liquidity? </li></ul><ul><ul><li>Moderate, medium </li></ul></ul><ul><li>Risk? </li></ul><ul><ul><li>Low </li></ul></ul><ul><li>Return? </li></ul><ul><ul><li>Better than savings, lower than higher risk investments </li></ul></ul>
  • 36. Money Market Account <ul><li>Earns variable interest rates: determined by money market </li></ul><ul><li>Limited check writing </li></ul><ul><li>Insured </li></ul><ul><li>Higher balance required </li></ul><ul><ul><li>Medium Liquidity </li></ul></ul><ul><ul><li>Low Risk </li></ul></ul><ul><ul><li>Good Rate of Return </li></ul></ul>
  • 37. US Savings Bonds <ul><li>When you buy a savings bond, you loan your money to the government. </li></ul><ul><li>Guaranteed by US Government </li></ul><ul><li>Can be replaced if lost, stolen, or destroyed </li></ul><ul><li>Can be bought in small to large denominations </li></ul><ul><li>Interest exempt from state and local taxes </li></ul><ul><li>Easy to buy (banks, credit unions, online) </li></ul><ul><li>Make good gifts </li></ul>
  • 38. US Savings Bonds
  • 39. Series EE Saving Bond <ul><li>Bought at discount </li></ul><ul><ul><li>Face Value = $100, purchase for $50 </li></ul></ul><ul><li>Receive return on investment plus interest </li></ul><ul><ul><li>Must hold for five years or pay penalty </li></ul></ul><ul><li>Can purchase up to $30,000 in one year </li></ul>
  • 40. Series I Savings Bond
  • 41. Series I Bond <ul><li>Bought at face value </li></ul><ul><ul><li>Face value = $100; purchase for $100 </li></ul></ul><ul><li>Earns fixed rate of interest for 6 months </li></ul><ul><ul><li>Government sets interest rate </li></ul></ul><ul><li>Receive principal plus interest </li></ul><ul><ul><li>Penalty if cashed within 5 years </li></ul></ul>

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