Banking and Financial Services
A Bank <ul><li>Is a business – sells services </li></ul><ul><li>Must apply for a charter to start – Federal or state </li>...
Other Deposit Institutions <ul><li>Savings & Loan Associations </li></ul><ul><ul><li>Specialize in savings accounts and ho...
Non Deposit Institutions <ul><li>Life Insurance Companies </li></ul><ul><li>Investment Companies </li></ul><ul><li>Consume...
Types of Financial Services <ul><li>Accept deposits of money </li></ul><ul><ul><li>Safe keeping </li></ul></ul><ul><ul><li...
The FED <ul><li>History </li></ul><ul><ul><li>Over 30,000 different notes were issued during the 1800s </li></ul></ul><ul>...
The FED <ul><li>Structure - Two Parts </li></ul><ul><ul><li>7 appointed Board of Governors, (public or government part) </...
The FED <ul><li>Monetary Policy </li></ul><ul><ul><li>Primary focus is price stability </li></ul></ul><ul><ul><li>Federal ...
The FED <ul><li>Bank Supervision </li></ul><ul><ul><li>Congress establishes laws that regulate banking institutions; the F...
The FED <ul><li>Financial Services </li></ul><ul><ul><li>The transfer of funds between banks is key to keeping banks safe ...
The FED <ul><li>The mission of the FED is to maintain confidence in the nation’s monetary and banking system </li></ul><ul...
$aving $5
$aving $269 Save $5 at 8% annual return and it will grow to $269 in 50 years.
Objectives <ul><li>Describe reasons for saving </li></ul><ul><li>Understand the importance of setting financial goals </li...
Purpose of  Saving Money <ul><li>Purchase something expensive </li></ul><ul><li>Prepare for emergencies </li></ul><ul><li>...
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...
What is a Savings Plan? Systematic way to reach a financial goal A savings plan is personalized. The plan states how much ...
Savings <ul><li>Savings should come from discretionary income </li></ul><ul><ul><li>(income available to spend after money...
Saving Alternatives <ul><li>Choosing the best alternative can help you meet financial goals </li></ul><ul><li>Examples </l...
Why is a bank account better  that a piggy bank???????? <ul><li>Money is safer </li></ul><ul><ul><li>Less tempting to spen...
Interest <ul><li>When you deposit money into an account you are loaning your money to be used by others </li></ul><ul><li>...
Two Types of Interest <ul><li>Simple </li></ul><ul><li>Compound </li></ul>
Simple Interest <ul><li>Simple interest is only earned on the amount you save </li></ul><ul><li>If you save $5000 and it e...
Compound Interest <ul><li>Interest earned on the amount you save PLUS previous interest earned. The interest is added to t...
Simple vs  Compound <ul><li>Initial Savings:  $5000 </li></ul><ul><li>Year 1 Interest  500 </li></ul><ul><li>Year 2 Intere...
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>Wo...
Rule of 72 Example: 72/Interest Rate (%) = Years to double money If you earn 8% on your savings: 72/8 = 9 years for money ...
How do you choose  a saving alternative? <ul><li>Risk </li></ul><ul><li>Rate of Return </li></ul><ul><li>Liquidity </li></ul>
Risk <ul><li>Measure the safety of your savings </li></ul><ul><li>Investments with very little risk of a loss are consider...
Yield/Rate of Return <ul><li>Percentage of interest added to your savings over a period of time </li></ul><ul><ul><li>What...
Liquidity <ul><li>Ability to turn an investment into cash without losing its value </li></ul><ul><li>If an investment can ...
Savings Accounts <ul><li>Available at: </li></ul><ul><li>Banks </li></ul><ul><li>Credit Unions </li></ul><ul><li>Savings a...
Savings Accounts <ul><li>Advantages: </li></ul><ul><li>Easy access to money  </li></ul><ul><ul><ul><li>High Liquidity </li...
Certificate of Deposit - CD <ul><li>Available at Banks, Credit Unions, S & Ls </li></ul><ul><li>Minimum balance required <...
CD <ul><li>Liquidity? </li></ul><ul><ul><li>Moderate, medium </li></ul></ul><ul><li>Risk? </li></ul><ul><ul><li>Low </li><...
Money Market Account <ul><li>Earns variable interest rates: determined by money market </li></ul><ul><li>Limited check wri...
US Savings Bonds <ul><li>When you buy a savings bond, you loan your money to the government. </li></ul><ul><li>Guaranteed ...
US Savings Bonds
Series EE Saving Bond <ul><li>Bought at discount </li></ul><ul><ul><li>Face Value = $100, purchase for $50 </li></ul></ul>...
Series I Savings Bond
Series I Bond <ul><li>Bought at face value </li></ul><ul><ul><li>Face value = $100; purchase for $100 </li></ul></ul><ul><...
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Banking

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Banking

  1. 1. Banking and Financial Services
  2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 12. $aving $5
  13. 13. $aving $269 Save $5 at 8% annual return and it will grow to $269 in 50 years.
  14. 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. 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. 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. 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. 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. 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. 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. 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. 22. Two Types of Interest <ul><li>Simple </li></ul><ul><li>Compound </li></ul>
  23. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 38. US Savings Bonds
  39. 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. 40. Series I Savings Bond
  41. 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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