Chapter 29

1. Chapter 29 Checking Accounts

2. Why it is Important • Paying with checks is the most common medium of exchange

3. The Basics of a Checking Account • The Federal Reserve oversees and establishes financial policy for banks that serve the public • You may already know that banks offer checking accounts and savings accounts • But what you don’t know is that they also offer credit cards, loans, financial planning services, and investments

5. Opening an Account • Most banks offer several types of checking accounts. • Before opening a checking account a wise consumer investigates all the kinds of accounts available, as well their advantages and costs • You have to be 18 to open a checking account, or have a parent or guardian sign on the account

6. Opening an Account • About 85% of the U.S. households have checking accounts • With a checking account a customer can deposit money, and receives a book of checks to pay bills • Checking accounts are sometimes called demand deposits (DDA) because each check a customer writes is an order to the bank to release money from the account on demand.

7. Types of Accounts • Since the banks offer a wide range of different checking accounts the customer service rep at the banks can answer questions about account fees and service charges. • You might also want to ask other people about their experience with different banks and different types of accounts • Shop around

8. Regular Account • A regular checking account is designed for customers who write few checks each month and don’t keep a minimum amount of money in the account. • Withdrawals from a checking account include checks the customer writes, automatic deductions, and ATM withdrawals • Some accounts require a minimum balance.

9. Regular Account • If the balance falls below the minimum, a service charge is deducted from the account. • Usually a $7 or $8 charge every month can take a quiet a bite out of your funds • Make sure you look into the account before opening as they may be more fees added into the account

10. Interest-Bearing Account • In addition to regular accounts, most banks offer interest-bearing accounts • An interest-bearing account is a checking account that earns interest on your account’s balance. • An interest-bearing account usually has a minimum balance requirement with an unlimited number of checks allowed each month.

11. Interest-Bearing Account • The minimum balance might be much higher than for a regular checking account, and could run from $1000 to $10000

12. Joint Account • A joint account is an account shared by two people who are equally responsible for the account. • With a joint checking account, either person can write checks on the account. • They are often used by married couples or for business with more than one owner

13. Signature Card • Once you have decided what type of account you want, you have to fill out a signature card • A signature card is a record of your signature used by the bank to verify your identity. • The signature card helps prevent other people from cashing your checks. • The bank can check your signature card when one of your checks is presented for payment

14. Signature Card • If the signature matches then the check will be cased • The signature you put on your card is the same one you have to use when you sign your checks. • For example, if you sign your card with your middle initial rather than the full name, then you must sign the checks the same way

15. Signature Card • If you are opening a joint account both have to sign the card • Also on the card you have to put your physical address and phone number • You will also have to provide your driver’s license. • The bank then assigns you a checking account number and issues you a book of checks

16. Account Services • Banks offer various services for checking accounts • Some of these services are offered as protection to the consumer, while others are designed to make banking more convenient

17. Overdraft Protection • One risk of having a checking account is writing checks for more money than you have in your account, or overdrawing your account. • If you write a check to someone without enough funds to cover it, the bank returns the check to the person • Your account is then charged a return fee • $20-$35

18. Overdraft Protection • The business you wrote the check to will also probably charge you a fee • This is also known as NSF (Non Sufficient Funds) • Overdraft protection is a line of credit for overdrawn checks • If you write a check for more thatn you have the bank will cover the check

19. Overdraft Protection • You pay a service fee for the overdraft protection and interest on the overdrawn amount until it is repaid. • Also some banks offer to transfer money out of your savings into your checking to cover the check. • There is usually a $7 transfer fee involved which is better then the $25 from the bank and the $20 from the business

20. Stop Payment • There might be a time when you want to stop the payment of a check • A stop payment is an order for a bank not to cash a particular check. • For example, you might have misplaced a check, sent a check for the wrong amount, or sent a check to the wrong address. • If you wish to stop a check contact the bank immediately

21. Stop Payment • As with other services, banks charge a fee for stop payment • Usually either $30 or $35

22. Debit Cards • Many banks offer check cards, or debit cards • A debit card is like a credit card but money is taken directly from your checking account when you use it rather than charging the amount to a credit account. • A debit card can be used anywhere credit cards can be used. • You don’t pay interest on it because it is taken directly out of your account

23. Online Banking • Online banking allows you to check your accounts, transfer money, or pay bills at any time of the day over the Internet. • Online checking is less expensive for banks, so service fees are often lower than a traditional account. • Banks offer the option of scheduling automatic payment of your bills from your checking account.

24. Account Records • An advantage of a checking account is that it enables you to keep records of your financial transactions. • There are several types of checking account records that you keep for yourself or that your bank provides for you • With these records, you can keep track of your income and expenses

25. Writing a Check • There are usually 3 people, or parties named on a check • The party to whom the check is written and who is cashing the check is the payee. • The party who wrote the check and is paying the money, or drawing it from an account, is called the drawer. • The bank or financial institution where the drawer has an account is the drawee.

26. Writing a Check • When you write a check, record the check number, the amount of the check, date, and the name of the payee in your check register • Your check register is your checkbook log where you keep track of all your checking transactions. • If you don’t record the check immediately, you might forget some of the information which could lead to NSF

27. Depositing a Check • To deposit a check in your account you need to fill out a deposit ticket. • The deposit ticket lists the amount of cash and check you are depositing. • To deposit or cash a check requires an endorsement, or the signature of the payee on the back of the check. • To endorse a check follow these rules for your protection

29. Endorsements • Endorse the check on the back, don’t write below the lines • Use Pen so your signature cannot be erased • Sign your name exactly how it is on the front of the check • If you are depositing the check write “For Deposit Only”. This way if it is lost or stolen it can only be used for depositing

30. Bank Statements • Each month the bank will issue a bank statement • A bank statement is the bank’s record of all the transactions in your checking account. • A bank statement includes a record of all withdrawals, deposits, interest, and fees. • A bank statement also includes a record of all canceled checks, or checks you’ve written that have been cashed.

31. Bank Reconciliation • Bank reconciliation is the process of seeing whether your records agree with the bank’s records for your account. • You can usually reconcile your account using a form on the back of the bank statement

32. Balancing your Checkbook • The first step to reconciling your account is to see whether the bank has processed all your checks and deposits. • With the bank statement and your check register, you can identify your outstanding checks • Outstanding checks are checks that have been written but haven’t yet been cashed.

33. Balancing your Checkbook • Deposits that haven’t been recorded on the bank statement should be added to the bank statement balance. • These are known as Outstanding Deposits • After you have recorded the outstanding checks and deposit, you have to record any fees that you may have been charged

34. Homework • Due Thursday • Pg 480-481 • Number 1-22 • Brochures from 3 different Banks on their accounts • Salin • Regions • IFCU • Security Federal • First Financial • LB&T