Chapter 5

Banking Procedures

Copyright 2007 Thomson South-Western

Introduction to Checking Accounts
A check is a written order to pay a stated
amount to a person or business
Checking account
Is a demand deposit in a bank or other financial
institution
Provides a safe place to keep money
Provides easy access to the money
The FDIC insures accounts for up to
$100,000 per depositor per bank
5-1 Checking Accounts Slide 2
Opening an Account
To open an account, you will need to
Provide personal data and identification
Complete a signature card
Deposit money
Some banks charge
monthly fees or a fee
for each check written

5-1 Checking Accounts Slide 3

Keeping a Checkbook Register
Checks and a checkbook register are
received when you open an account
A checkbook register
Can be used to track checking account
transactions
Can provide a record of payments made for
bills or purchases
Shows how much money is in the account

5-1 Checking Accounts Slide 4

Sample Checkbook Register

5-1 Checking Accounts Slide 5

Writing Checks
Use ink to write the data on checks
The current date
The name of the payee
The amount in numbers and words
Your signature
A note on the Memo line
If you make a mistake
Write VOID on the check and in the register
Begin a new check
5-1 Checking Accounts Slide 6
Sample Check

5-1 Checking Accounts Slide 7

Using Debit and ATM Cards
Debit card
Allows the account holder to withdraw cash
at an ATM
Can be used to make purchases
The withdrawal is made electronically
ATM card
Allows the account holder to withdraw cash
or make deposits at an ATM

5-1 Checking Accounts Slide 8

Protecting Account Data
Crimes can be committed using account
and personal data
Check fraud and forgery
Identity theft
To help prevent crime
Keep cards and account
information in a safe place
Protect your PIN or
password when using cards

5-1 Checking Accounts Slide 9

Making Deposits
Endorse checks to be deposited

5-1 Checking Accounts Slide 10

Making Deposits
Complete a deposit slip, including
Current date
Amount of cash (bills and coins)
Check numbers and amounts
Total amount of cash and checks
Cash amount received, if any, and your
signature
Net deposit amount
Record the deposit in the check register
5-1 Checking Accounts Slide 11
Reconciling a Bank Statement
Bank statements
Come in paper or electronic form
Show the checks, other withdrawals, and
deposits made to an account
Purpose of a bank reconciliation
To review the bank statement
To update the checkbook register
To bring the statement and register balances
into agreement
5-1 Checking Accounts Slide 12
Focus on...

Check Cashing Services

Are businesses that charge a fee to cash a
check
Charge fees that vary by state and by the
type of check being cashed
May also make payday loans

5-1 Checking Accounts Slide 13

The Purpose of Savings
Saving means accumulating money to
use for future needs
A savings account
Is a demand deposit in a bank or other
financial institution
Is a safe way to set aside money
Typically pays interest
May have some restrictions on how quickly or
easily the money can be withdrawn
5-2 Savings Accounts Slide 14
Computing Interest
Money deposited in a savings account
typically earns a set rate of interest
Simple interest

SIMPLE INTEREST

Interest (I) = Principal (P) x Rate (R) x Time (T)

Interest = $1,000 x 6% annual rate x 6 months

$30 = $1,000 x 0.06 x 0.5

5-2 Savings Accounts Slide 15

Computing Interest
Compound interest
QUARTERLY COMPOUNDING
Annual Interest Rate 6%
Quarterly Interest
Beginning Ending
Year Balance Rate 1 2 3 4 Balance

1 $100.00 0.015 $1.50 $1.52 $1.55 $1.57 $106.14

2 $106.14 0.015 $1.59 $1.62 $1.64 $1.66 $112.65

3 $112.65 0.015 $1.69 $1.72 $1.74 $1.77 $119.57

5-2 Savings Accounts Slide 16

Savings Options
Certificates of deposit
Money market accounts
Individual retirement arrangements (IRAs)
U.S. savings
bonds

The TreasuryDirect Web

site provides information
on savings bonds.
Source: TreasuryDirect, http://www.treasurydirect.gov
(accessed April 27, 2006).
5-2 Savings Accounts Slide 17
Meeting Financial Goals
When choosing a savings option, consider
The amount to save
The length of time you will save
The interest you can earn
Use the Rule of 72 to estimate how long it
will take the money to double at a certain
interest rate

5-2 Savings Accounts Slide 18

Bank Services
Safe deposit box
Overdraft protection
Cashiers checks and money orders
Stop payment
Bank cards
Bank loans

Banks offer home mortgages

and other types of loans.

5-2 Savings Accounts Slide 19

Success Skills

Negotiating
Means working to reach an agreement
that benefits you
Understand your position (what you want)
Understand the other partys position
Create a proposed solution
Be willing to compromise when appropriate

5-2 Savings Accounts Slide 20

Ethics

Writing Bad Checks

A bad check is one you write but do not
have money in the account to pay
Monitor your account carefully to avoid
writing a bad check by mistake
Show ethical behavior by not writing a
bad check intentionally

5-2 Savings Accounts Slide 21

Technology Corner

Internet Banking
Involves banking using phone or Internet access
to bank accounts
Offers various services
Electronic payment of bills
Transfer of money between accounts
Checking that deposits are posted
Seeing which checks have been processed
Seeing interest or fees that have been posted

5-2 Savings Accounts Slide 22

Federal Reserve System
Is the central bank of the United States
Seeks to provide the nation with safe, flexible,
and stable monetary and financial systems

Source: The Federal Reserve Board, http://www.federalreserve.gov/consumers.htm

(accessed October 20, 2006).

5-3 The Federal Reserve System Slide 23

Monetary Policy
Key interest rates are controlled by the Fed
Discount rate
Federal funds rate
Prime rate
The Fed sells and buys U.S. government
securities in open-market transactions
Government bills (Treasury bills)
Treasury notes
Treasury bonds

5-3 The Federal Reserve System Slide 24

Monetary Policy
The Fed plays a major role in operating the
countrys payment systems
Reserve banks act as a clearinghouse for checks
Checks may be deducted from your account in a
single business day
The Fed regulates the banking industry
All interstate banks must be Fed members
Intrastate banks are also subject to Fed rules

5-3 The Federal Reserve System Slide 25

Building Communications Skills

Reading Comprehension
Is the ability to understand what is read
Can be improved with practice
Read slowly and think about the material
Note the paragraph structure and topic sentences
Underline key points
Read the material a second time, focusing on
vocabulary and details

5-3 The Federal Reserve System Slide 26