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Personal Finance Chapter 9

Checking Accounts and Banking Services
by

Richard Sarles

on 11 July 2013

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Transcript of Personal Finance Chapter 9

Chapter 9
Checking Accounts and Banking Services
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Parts of a Check
The drawer/maker, is the person authorized to write checks on the account.
Date
Enter the date you are writing
Do not write a post-dated check
Amount of check in words
Enter the amount of the check in words. Follow the dollar amount by the word, “and”, then write the cents. Draw a line to the end of the line.
00/100
no/100
Even
Routing and Account Number
The bank’s routing number is for sorting and routing checks to the bank. The account number is the member’s checking account number.
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Examples of Bank Fees
Loan fees
Trustee fees
Check cashing fees
Per-check fees
Monthly service fees
Overdraft fees
NSF check charges
ATM transaction fees
Safe deposit box fees
Teller service fees
Minimum balance fees
Fees for guaranteed-payment checks
Notary service fees
Online bill payment fees
Fees to return canceled checks
Terms
Check
Demand deposit
Canceled check
Overdraft
Floating check
Checkbook register
Bank reconciliation
Blank endorsement
Special endorsement
Restrictive endorsement
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Checking Account Basics
Checks follow a process through the banking system.
The payee cashes your check.
The bank that cashed the check returns it to your bank.
Your bank withdraws the money from your account and sends it to the other bank.
Your bank then stamps the back of your check, indicating that it has cleared.
A canceled check is a check that has cleared your account. A canceled check is one that has been processed by the bank and has been subtracted from the depositor’s account.
(continued)
Overdraft
When you don’t have sufficient funds in the bank—your bank will not honor the check.
When this occurs your check has

_________________
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Check Number
Prenumbered for identification
Payee
Enter the name of the person or the company you are going to give the check to.
The payee is the person or company to whom the check is made payable.
Don’t leave spaces
Amount of check in numerals
Enter the amount of the check, in numbers. Don’t leave any spaces.
Memo
Optional component. Use this space to note why you wrote the check.
Signature
Sign your check exactly the way you signed your name on the signature card you filled out when you opened your account.
Don’t sign until you use it!
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Reconciling Your Checking Account
1.Write ending balance from bank statement.
2.Add credits or deposits not on statement.
3.Total lines 1 and 2.
4.List checks, withdrawals, and debits made but not shown on statement.
5.Total outstanding checks/debit transactions.
6.Subtract line 5 from line 3. (Result should match checkbook balance)
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Bank Credit Cards
You can apply to a full-service bank for a bank credit card, such as a Visa or MasterCard.
If you meet the requirements and are issued a card, you can use it instead of cash at any business that accepts credit cards.
Banks offering national credit cards usually charge both an annual fee for use of the card and interest on the unpaid account balance.
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Online and Telephone Banking
Most banks also allow and encourage electronic transfers of money.
An electronic funds transfer (EFT) uses a computer-based system that enables you to move money from one account to another without writing a check or exchanging cash.
(continued)
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Safe Deposit Boxes
Examples of items commonly kept in a safe deposit box include
Birth, marriage, and death certificates
Deeds and mortgage papers
Stocks and bonds
Jewelry
Coin collections
(continued)
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Financial Services
Purchasing or selling savings bonds
Investment brokerage services
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Lesson 9.1
Checking Accounts
GOALS
Describe the purpose of a checking account and the forms associated with it.
Explain how to use a checking account.
Discuss the types of checking accounts.
Financial institutions
Banks, credit unions, and savings and loan associations are examples of financial institutions.
Financial institutions usually charge a fee for checking account services.
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Checking Account Basics
A checking account allows you to write checks to make payments.
A check is a written order to a bank to pay the amount stated to the person or business named on it.
A checking account is also called a demand deposit, because the money may be withdrawn at any time—that is, “on demand.” The depositor can withdraw money at any time.
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Checking Account Basics
Many banks no longer send paper checks to other banks for processing.
To make processing faster and more efficient, they exchange check information electronically by transmitting an image of the check, called a substitute check.
A substitute check can be used in the same way as an original check.
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Checking Account Basics
You must also maintain enough money in your account to cover all the checks you write.
A check written for more money than your account contains is called an overdraft.
An overdraft occurs when a depositor writes a check on account that is insufficient to cover a check. A bank that does not honor a check usually stamps the check with the words “not sufficient funds” (NSF) and returns the check to the payee’s bank.
When this occurs, the check has bounced.
Your bank will charge you a fee for each NSF check processed.
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Checking Account Basics
Floating a check is writing a check and hoping to deposit money to cover it before the check clears.
Floating a check is writing a check when you know there are temporarily not enough funds to cover the check.
Floating a check is very risky because today’s electronic systems allow checks to process very quickly.
Floating a check is illegal in most states.
(continued)
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Bank Reconciliation
A bank statement is sent by the bank regularly, listing checks and deposits processed by the bank, as well as charges and credits to an account.
The process of matching your checkbook register with the bank statement is known as bank reconciliation.
Checking Account Advantages
Convenience
Safety
Built-in record keeping system
Access to bank services
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Writing checks
When writing check, be sure to do the following
Always use pen
Write legibly
Sign your name
Avoid mistakes
Adequate funds
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Even with the existence of credit cards, checks are still popular, we still need checks
To pay rent
Purchase cars through private owners
Write personal checks to friends
We receive checks from employers, from companies for rebates, and from relatives as gifts
Teens may open their own checking account as early as the age of 16
Blank Endorsement
A blank endorsement is the signature of the payee written exactly as his or her name appears on the front of the check. The payee simply signing his or her name as it appears on the front of the check.
Restrictive Endorsement
A restrictive endorsement restricts or limits the use of a check. A restrictive endorsement, such "For Deposit Only," limits the negotiability of a check.
Endorsing Checks
A check generally cannot be cashed until it is endorsed.
To endorse a check, the payee signs the top part of the back of the check in ink.
There are three major types of endorsements.
Blank endorsement
Special endorsement
Restrictive endorsement
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Types of Checking Accounts
Joint accounts
Special accounts
Standard accounts
Interest-bearing accounts
Share accounts are checking accounts at credit unions.
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Lesson 9.2
Banking Services and Fees
GOALS
Describe banking services available at most financial institutions.
List and explain fees charged by financial institutions for their services.
Paper money in the form of dollar bills, fives, tens, and so on, is called currency.
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Guaranteed-payment Checks
A certified check is a personal check that the bank guarantees or certifies to be good.
A cashier’s check, also called a bank draft, is a check written by a bank on its own funds.
Traveler’s checks are check forms in specific denominations that are used instead of cash while traveling.
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Money Orders
Banks sell money orders to people who do not wish to use cash or do not have a checking account.
A money order is like a check, except that it can never bounce.
There is a charge for purchasing a money order.
You also can purchase money orders through the post office and local merchants.
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Automated Teller Machines
An Automated Teller Machine is often called an ATM.
To use ATMs, you must
Have a card that is electronically coded
Know your personal identification number (PIN)
Getting cash is a common ATM transaction.
Using a debit card you can withdraw cash from your checking or savings account.
Using a Visa or MasterCard, you can receive a cash advance electronically.
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Safe Deposit Boxes
Financial institutions offer customers a safe deposit box to store valuable items or documents.
They charge a yearly fee based on the size of the box.
Keeping important documents and other items in a safe deposit box ensures that the items won’t be stolen, lost, or destroyed.
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Loans and Trusts
Financial institutions also make loans to finance the purchase of cars, homes, home improvements, vacations, and other items.
Banks can also provide advice for estate planning and trusts.
Banks can act as trustees of estates for minors and others.
A trustee is a person or an institution that manages property for the benefit of someone else under a special agreement.
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Notary Public
A notary public verifies a person’s identity, witnesses the person’s signature on a legal document, and then “notarizes” the signature as valid.
Financial institutions typically have a person on their staff who is a notary public.
This person provides notary services for account holders, usually without charge.
For noncustomers, however, there is typically a small fee.
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Bank Fees
Banks charge fees to their customers to help cover their operating costs.
The best way to avoid fees is to choose the right kind of account.
Shop around and find the account that is right for you.
Be aware of the rules of your account, so that you don’t violate them and be required to pay high fees.
Checking Accounts and Banking Services
9.1Checking Accounts
9
Checking Account
A checking account is a banking service in which a customer deposits money and writes checks to withdraw at his or her convenience.
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Opening a Checking Account
Signature authorization form
Initial deposit
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Using Your Checking Account
Writing checks
Paying bills online
Making deposits
Using a checkbook register
A checkbook register is a booklet used to record checking account transactions.
A checkbook register is a record of checks written and deposits made in a checking account, kept by the depositor.
Why would you use checks?
Your checkbook is safer than carrying cash
A checkbook register helps you keep track of your money and what you spend it on
Writing Checks
Always use a pen. Keep numbers and letters clear and distinct, without extra space before, between, or after them.
Sign your name as it appears preprinted on the check and on the signature card.
Avoid mistakes. Write “VOID” to cancel a check and then write a new check.
Special Endorsement
A special endorsement, or an endorsement in full, is an endorsement that transfers the right to cash the check to someone else.
Joint endorsement
A joint endorsement requires two signatures
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Banking Services
A full-service bank is one that offers every possible kind of service, from savings and checking accounts to credit cards, safe deposit boxes, loans, and ATMs.
Other services commonly offered are online banking, telephone banking, certified checks, cashier’s checks, money orders, and debit cards.
Most banks offer FDIC (Federal Deposit Insurance Corporation) insurance, which protects the deposits of customers against loss up to $250,000 per account.
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Debit Cards
A debit card is a plastic card that deducts money from a checking account almost immediately to pay for purchases.
The debit card is presented at the time of purchase.
When a debit card is used, the amount of the purchase is quickly deducted from the customer’s checking account and paid to the merchant.
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Overdraft Protection
Overdraft protection allows you to cover checks or withdrawals up to a specified amount, usually between $100 and $1,000, depending on the typical balance in your account.
With overdraft protection, your checks will be covered even if you have insufficient funds in your checking account.
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Online and Telephone Banking
Online and telephone banking services give you the ability to access your accounts from a computer or telephone anytime, day or night.
Services include:
Transferring money from one account to another
Paying bills by authorizing the bank to disburse money
Getting account balances
Seeing which checks have cleared and which deposits have been entered
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Stop Payment Orders
A stop-payment order is a request that the bank not honor a specific check (not to cash a check).
The usual reason for stopping payment is that the check has been lost or stolen.
Most banks charge a fee for stopping payment on a check.
Vocabulary
Bank statement
Blank
Canceled
Cashier’s check
Certified check
Checkbook register
Checking account
Currency
Debit
Demand deposit

Drawer/maker
Financial institutions
Floating a check
Joint
Overdraft
Payee
Reconciliation
Restrictive
Shared accounts
Stop payment order

CHECKING ACCOUNT BASICS
Checking Account
A banking service in which a customer deposits money and writes checks to withdraw at his or her convenience.
Demand deposit
An account on which the depositor can withdraw money at any time.
Diagram : Check process through the bank
Canceled check
A check that has been processed by the bank and has been subtracted by the depositor.
Overdraft
When a depositor write a check on an account that is insufficient to cover a check.
Floating check
Write a check when you know there are temporarily not enough funds to cover the check.
Checkbook register
A record of checks written and deposits made in a checking account, kept by the depositor.
Bank reconciliation
The process of matching your checkbook register with the bank statement.
Blank endorsement
The payee simply signing his or her name as it appears on the front of the check.
Special endorsement
An endorsement signing a check over to a third person.
Restrictive endorsement
Restricts of limits the use of a check.
Joint endorsement
An endorsement requires two signatures.
ENDORSING CHECKS
When you cash the check - sign the back
Currency
Paper money in the form of dollar bills, fives, tens, and so on.
Debit card
Cards provide you immediate deductions from your checking account when you make a purchase.
Share accounts
Checking accounts at credit unions
Drawer/Maker
The person authorized to write checks on an account.
Payee
The person to whom a check is made payable.
Making Deposits
In the example above, the student is depositing money into the bank.
Using a Checkbook Register
1. Record the balance in your account.
2. As soon as the spend cash or receive cash,
record the transaction.
3. Write the check number for checks you write.
4. Write the date.
5. Write the type of transaction.
6. For payments, deduct the amount for a new balance.
7. For deposits, add the amount for a new balance.
Drawer/Maker
Payee
Cashier's check
A check drawn against the bank's own funds.
Certified check
A check guaranteed by the bank.
Stop payment order
A request to the bank not to cash a check
Bank statement
Sent by the bank regularly, listing checks and deposits processed by the bank, as well as charges and credits to an account.
Credit Union
A non-profit financial institution that is owned and operated entirely by its members.
Bank
A financial establishment that invests money deposited by customers, pays it out when required, makes loans at interest, and exchanges
Full transcript