In order to stay competitive in today’smarketplace, banks and other financialinstitutions have expanded the range ofservices that they offer.
Four main categories:
Savings
Payment services
Borrowing
Other Financial Services
Safe storage of funds for future use is a basicneed for everyone.
Money that is going to be left in a financialinstitution for months or years is called a timedeposit.
Money kept in savings
Certificates of Deposit
Selection of a savings plan is commonly based oninterest rate, liquidity, safety, and convenience.
Transferring money from a personal account tobusinesses or individuals for payments is abasic function of day-to-day financial activity ata bank.
Checking Accounts are the most commonlyused payment service.
Money that you place in a checking account iscalled a demand deposit because you canwithdraw the money at any time, or on demand.
Most people use credit at some time duringtheir lives.
Options for borrowing money:
Short term by using a credit card or taking out apersonal cash loan.
Longer term borrowing may include car or mortgageloans.
Insurance protection
Stocks
Bonds
Mutual Fund Investment accounts
Income Tax Assistance
Financial Planning Services
Obtain cash; check account balance
Transfer funds:
From savings to checking
From savings to loan
From checking to loan
From checking to savings
Direct Deposit of paychecks, government payments
Preauthorized payments for insurance, mortgage, utilities, and otherbills
Automated Teller Machines – Obtain cash; check account balances
Access “e-banks” with a complete range of financial services
Debit card retail purchases
Many businesses offer their employees directdeposit, an automatic deposit of net pay to anemployee’s designated bank account.
Direct Deposit saves time, money, and effort –and offers a safe way to transfer funds.
Utility companies, lenders, and other businesses allowcustomers to use an automatic payment system.
With your authorization, or permission, your bank willwithdraw the amount of your monthly payment or billfrom your bank account.
It is very important when using Automatic payments thatyou have enough money in your account for thepayment.
Arrange payments with when you receive your paycheck.
Check monthly statements to make sure payments weremade correctly.
A cash machine, or automated tellermachine(ATM), is a computer terminal thatallows a withdrawal of cash from an account.
ATMs are located in banks, shopping malls,grocery stores, and even sports arenas.
To use an ATM for banking, you must apply for adebit card, which is a cash card that allows youto withdraw money or pay for purchases fromyour checking or saving account.
Some financial institutions may charge a smallfee for the use of the card.
A debit card is in contrast to a credit card sinceyou are spending your own money instead ofborrowing additional money.
When using your debit card the computer willask you to enter your personal identificationnumber(PIN).
Never give this number to anyone!
Although cash and checks are very commonmethods of paying for goods and services,various access cards are also available.
Electronic Payments
Online Payments
Stored-Value Cards
Smart Cards
Commercial Banks: a for-profit institution thatoffers a full range of financial services,including checking, savings and lending.
Serve both individuals and businesses.
Organized as corporations with individualinvestors, or stockholders, contributing thecapital the bank needs to operate.
Savings and Loan Associations is a financialinstitution that traditionally specialized insavings accounts and mortgage loans but nowoffers many of the same services ascommercial banks.
Services include checking accounts, businessloans, and investment services.
Mutual Savings Bonds: Owned by depositors andspecialize in savings accounts and mortgageloans.
Some offer personal and automobile loans as well.
The interest rate on loans from a mutual savingsbank may be lower than those that a commercialbank charges.
Sometimes pay a higher interest rate on savingsaccounts.
A credit union is a non-profit financialinstitution that is owned by its members andorganized for their benefit.
Most credit unions offer a full range of services
Life Insurance Companies
Investment Companies
Finance Companies
Would you pay $20.00 to borrow $100 for two weeks?
Most people without access to financial services usepawnshops, check-cashing outlets, loan stores, andrent-to-own centers.
Pawnshops
Make loans based on the value of tangible possessionssuch as jewelry or other valuable items
Usually small loans usually around $75 to be repaid in 30-45 days.
State regulate rates, but 3% interest per month or higher iscommon
Check Cashing Outlets
Charge anywhere from one to twenty percent ofthe face value of a check; the average cost istwo to three percent.
Sometimes called currency exchanges, alsooffer services, including electronic tax filing,money orders, private postal boxes, utility billpayment, and the sale of transit tokens.
Payday Loans:
Desperate borrowers pay annual interest rates of asmuch as 780 percent and more to obtain neededcash from payday loan companies.
In a typical payday loan, a consumer writes apersonal check for $115 to borrow $100 forfourteen days.
The payday lender agrees to hold the check unitl thenext payday. This $15 for the $100 loan for the nextfourteen days translates into an annual percentagerate of 391%. Some consumers “roll-over” theirloans. Paying another $15 for the $100. After a fewroll-overs, the finance charge can exceed theamount borrowed
Rent-to-Own centers:
Defined as stores that lease products toconsumers who can own the item if theycomplete a certain number of monthly or weeklypayments