Financial Institution

Muhammad Talha Akhtar

 Types of Financial Institutions
• Depository institutions: Financial institutions
that accept deposits
from individuals and provide loans
– Commercial banks: financial institutions that
accept deposits and use the funds to provide
commercial and personal loans
• Deposits insured by Federal Deposit Insurance
Corporation (FDIC) up to $100,000 per depositor

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 Types of Financial Institutions
– Savings institutions (or thrift institutions): financial
institutions that accept deposits and provide
mortgage and personal loans to individuals
– Credit unions: nonprofit depository
institutions that serve members who have a
common affiliation

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 Types of Financial Institutions
• Focus on Ethics: Special Rates on Deposits
– Check the fine print before making any deposit
– Ask important questions
• How long is an advertised rate good for?
• What will it be lowered to?
• How long must your maintain the deposit?

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 Types of Financial Institutions
• Nondepository institutions: financial
institutions that do not offer federally insured
deposit accounts, but provide various other
financial services
– Finance companies: nondepository institutions
that specialize in providing personal loans

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 Types of Financial Institutions
– Securities firms: nondepository institutions that
facilitate the purchase or sale of securities by
providing investment banking and brokerage
services
– Insurance companies: nondepository institutions
that provide insurance to protect individuals or
firms against possible
adverse events

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 Types of Financial Institutions
– Investment companies: nondepository institutions
that sell shares to individuals
and use the proceeds to invest in securities
to create mutual funds
• Financial conglomerates: financial institutions
that offer a diverse set of financial services to
individuals or firms
– Examples include Bank of America, Merrill Lynch,
and Citigroup

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Types of Financial Institutions

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 Banking Services Offered by Financial
Institutions
• Checking services
– Checking accounts allow you to draw on funds by
writing checks
– Monitor your account balance by recording checks
as you write them
• Banks charge fees for bounced checks
– You should reconcile your account balance with
your monthly statement

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Banking Services Offered by Financial
Institutions

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 Banking Services Offered by
Financial Institutions
• You can often access your account balance by
calling an automated phone service or online
• Electronic checking reduces fraud by clearing
checks immediately

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 Banking Services Offered by
Financial Institutions
• Credit card financing such as Visa
and Mastercard
• Debit card: a card that is used to make
purchases that are charged against an existing
checking account
• Safety deposit box: a box at a financial
institution where a customer stores valuables
such as documents or jewelry

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 Additional Services
Financial Institutions Offer
• Automated teller machines (ATMs): machines
where individuals can deposit
and withdraw funds any time of the day
• Money order: a check that is written
on behalf of a person and will be charged
against a nonfinancial institution’s account

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 Additional Services
Financial Institutions Offer
• Traveler’s check: a check that is written
on behalf of an individual and will be charged against
a large well-known financial institution or credit card
sponsor’s account
• Cashier’s check: a check that is written on behalf of a
person to a specific payee and will be charged against
a financial institution’s account

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 Selecting a Financial Institution
• Convenience
– Close to where you live or work, convenient ATM
locations, Internet banking
• Deposit rates and insurance
– Comparison shop for best interest rates
• Fees
– Comparison shop for best fees on the services you
need

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 Financial Planning Online:
Internet Banking
• Go to: http://www.chicagofed.org
• Click on: Project Money $mart, then “What
You Should Know About Internet Banking”
• This Web site provides information that can
help you decide whether an Internet bank
suits your needs.

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 Financial Planning Online: Financial
Institutions That Can Serve Your Needs
• Go to:
http://dir.yahoo.com/business_and_economy/
finance_and_investment/banking/
• This Web site provides information about
individual financial institutions such as the
services they offer and the interest rates they
pay on deposits or charge on loans.

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