Money, Banking &

Interest
a
BASICS

Money

Money: current medium of exchange in the form of

coins and banknotes; coins and banknotes
collectively.
Sources of Income
Paycheck (Hourly & Salary)
Bonus, Allowance, Gifts (birthday, etc.),
Inheritance, Interest on Investments, Child
Support, Life Insurance, Proceeds, Workers
Compensation

Money

Gift Cards
Gift cards are purchased, for a fee.
Inactivity fee MAY begin after 12 months of not
being used.
The recipient may have to face expiration
dates, administrative fees, restrictions in use,
and absence of adequate protection in case
of fraud or loss.[2] Over time the value of a
gift card may become zero.

The Federal Reserve

Central bank of the United States

Established in 1913
Purpose is to ensure a stable economy for the
nation
NO Gold Standard - United States money today is
fiat money, which has value because a
government has decreed that it is an acceptable
means to pay debts.

The Federal Reserve

Conducts the nations monetary policy

Supervise and regulate banking institutions
Operate a nationwide payments system

The Federal Reserve

Structure
Board of Governors
12 Reserve Banks
Federal Open Market
Committee

The Federal Reserve

The Federal Reserve

Distribute the nations currency and coin

Supervise and regulate member banks and bank
holding companies
Serve as banker for the U.S. Treasury
Promote safety and soundness of banking system
along with other regulatory bodies

The Federal Reserve

Full
Employment
Stable'Prices
-

Sustainable'
Economic''Growth
-

Policy changes
affect the
nations supply
of money and
credit.
Actions have real
short- and longterm effects on
the economy.

The Federal Reserve & High Interest Rates

The Fed raises interest rates as an

effective way to fight inflation.
Inflationa sustained rise in the general
price level; that is, all prices are rising
together.

Consumers pay more to borrow

money, dampening spending.
Businesses have difficulty
borrowing; unemployment
rises.

The Federal Reserve & Low Interest Rates

Generally, low interest rates stimulate the

economy because there is more money
available to lend.
Consumers buy cars and houses.
Businesses expand, buy equipment, etc.

Why does the Fed lower interest rates?

If inflation is in check, lower rates stimulate economic

activity, thus boosting economic growth.

14

The Effect of Inflation on US

Should We Raise the Minimum Wage?

16

Role of the U.S. Treasury

collects taxes, prints money, issues treasury

bonds
treasury bonds (t-bond): A marketable,
fixed-interest U.S. government debt
security with a maturity of more than 10
years. Treasury bonds make interest
payments semi-annually and the income
that holders receive is only taxed at the
federal level.

U.S. Currency Value

NO gold standard
measured in three ways:
1. exchange rates
2. Treasury notes
3. foreign exchange
reserves (the
amount of dollars
held by foreign
countries)

Banks and Credit Unions

What is the difference between a
bank and a credit union?

Banks
Banks are financial institutions that
take deposits, engage in lending and
operate for a profit
Banks offer checking and savings
accounts to the general public

Retail Banks
Retail bank: is a bank that works with consumers,
otherwise known as 'retail customers'. Retail banks
provide basic banking services to the general public,
including:

Checking and savings accounts

CDs (Certificates of Deposit)

Safe deposit boxes

Mortgages (House or property Loan)

Auto loans

Commercial Banks
A commercial bank is a bank that works with
businesses. Commercial banks handle banking needs
for large and small businesses, including:
Basic accounts such as savings and checking
Lending money for real and capital purchases
Lines of credit
Letters of credit
Lockbox services

Credit Unions
Credit unions are financial cooperatives that
are owned by and serve individuals with a
common affiliation

for example, a workplace, church, employees

union, neighborhood, etc.

Credit unions offer checking and savings

accounts to members

24

Checking and Savings Accounts

What are some of the advantages to

having a checking and savings
account?

Advantages of Checking and Savings

Accounts
Your money is safe
Each account is insured
Checking account records provide proof that you
paid bills and help you keep track of spending
Money in a savings account earns interest to help it
grow
Less expensive than check-cashing stores and
money orders.

Account Verification Services

How do banks and credit unions

learn how you have handled your
accounts in the past?

Checking Accounts
What kinds of things
can you do with a
checking account?

Checking Accounts
Checking accounts allow you to:

Pay bills with checks/online bill pay

Get cash, transfer money and make purchases
using your debit card

Access your checking account:

At an ATM or bank branch

On your computer (online banking)
By phone or using a data-ready mobile device
(mobile banking)

Debit Cards
You can use your debit card in
these ways:
Enter your personal identification
number (PIN) at an ATM or at a
retailers point-of-sale (POS)
terminal
Sign a receipt
Swipe without a signature or PIN
on purchases under $25 at some
stores

Debit Cards
If your debit card is lost or stolen:
Alert your bank or credit union as soon as
possible. The longer you wait, the more
money you might be responsible for if an
unauthorized person uses your card to
buy things.

Check Writing Activity

Why is it important to enter your

checks and debit transactions in your
account register?

Check Writing

Checks include the following information:

Check Writing

DATE: Include the month, day and year you are

writing the check.

09/15

06

Check Writing

PAYEE: Write the name of the person or

business on the line, Pay to the order of.

09/15
Athletic Shoe Company

06

Check Writing

AMOUNT IN NUMBERS: Write the amount of

the check in numbers.

09/15
Athletic Shoe Company

06
55.63

Check Writing

AMOUNT IN WORDS: Write the amount of the

check in words.

09/15

06

Athletic Shoe Company

55.63
Fifty-Five and 63/100 ----------------------------------------------

Check Writing

SIGNATURE: Sign all checks the way you sign

the signature card.

09/15

06

Athletic Shoe Company

55.63
Fifty-Five and 63/100 ----------------------------------------------

George Washington Doe

Check Writing

MEMO: Use the memo area to note the reason

for the check.

09/15

06

Athletic Shoe Company

55.63
Fifty-Five and 63/100 ----------------------------------------------

Running Shoes

George Washington Doe

Check Writing

ROUTING NUMBERS: The nine-digit string of

numbers used to identify your bank to process
the transaction

Check Writing

ACCOUNT NUMBER: The number used to

identify your unique account within the bank.

Check Writing

CHECK NUMBER: The number used to identify

a specific check within the sequence of the
register. It usually includes 3 or 4 digits.

Check Writing

TRANSIT NUMBER: Used to list checks for

deposit.

Check Writing

Check Register: Dont forget to balance your

checkbook by filling out the check register.

Check Writing Activity

In this activity you will practice writing

a check and entering it into a sample
checking account register.

Keep Records of your Transactions

So that you dont forget checks, cash withdrawals,
and purchases with your debit card

If you forget to record a transaction, it could overdraw your

account. This could lead to a fee for non-sufficient
funds (bounced check) being charged to your account.

So that you know how much money you have in

your account
So that you can track your spending and stick to a
budget

Types of Checks
Travelers Checks: as good as cash, widely accepted, provide a safe
way to carry currency while traveling.
Security is provided against lost or stolen checks by the issuing
party - usually a bank. When a lost or stolen check is identified,
it is simply canceled and the individual is re-issued a new
check.
Certified Checks: is a form of check for which the bank verifies that
sufficient funds exist in the account to cover the check, and so
certifies, at the time the check is written.
Cashiers Checks: is a check guaranteed by a bank, drawn on the
bank's own funds and signed by a cashier.
commonly required for real estate and brokerage transactions.
more secure than certified check.

Banking/Checking Online
Also known as Internet banking
Via a secure website operated by your financial
institution (or via an app)
Pay bills, view transactions, transfer funds between
accounts
Benefits: convenient, low or no account fees, quick
access to info, savings on postage and checks
But, may still need to visit the ATM

Safe Internet Banking

Make sure the institution is legitimate
Create a strong password
Keep your ID and password private
Dont fall for phishing scams
Be careful when using public wireless networks
(Wi-Fi) or shared computers
Monitor account activity regularly

Safe Internet Banking

Shop around for free or low-cost
checking accounts

e-Accounts
Electronic transfer accounts (ETAs)
Basic (Lifeline) accounts
Low-cost accounts for seniors or
students

Savings Accounts
How is a savings account different
from a checking account?

Types of Savings Accounts

Regular Savings Account: you can make deposits and
withdrawals.
Money Market Account: you can write a limited number of
checks. You earn more interest than regular savings but also are
required to keep a higher minimum balance.
Certificate of Deposit: When you open a CD, your bank agrees to
pay you a relatively high rate of interest if you keep the money in
the account for a specific amount of time. If you take the money
out early you will pay a penalty (usually, you have to give up the
interest). Interest on a CD will be higher than regular savings or
money market accounts.

Types of Savings Accounts

Series EE Savings Bond: Very safe because it is backed by the US
Government.
*How it works: You purchase EE savings bonds for of their
face value. At the maturity date, they can be cashed in for full
face value (ex: You pay $25 for a series EE Savings bond with a
face value of $50. At the maturity date, you can turn it in for
$50.)
In Virginia, 529 Plans are College Savings Plans.

What is Interest?
Interest is the cost of borrowing money

When a bank/credit union gives you a loan, you pay

interest to them
When you keep your savings in a bank/credit union,
they pay interest to you

APR, or annual percentage rate, is the annual

amount of interest, expressed as a percentage of the
amount loaned or borrowed

Types of Interest
There are two types of interest:
Simple Interest means that you
only earn interest on your initial
deposit
Compound Interest allows you
to earn interest not only on your
initial deposit, but also on the
interest you earn as you go along

Interest
Simple Interest

$100 on deposit for 10 years at a 1% APR would

earn $10 in interest

Interest
Compound Interest

The same deposit, compounded monthly, would

earn $10.51 (51 more because of compounding)

Compounding earns more, especially if you save

regularly

Calculating Compound Interest

Marias Savings Decision Problem 1
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually
Step 1: Convert annual interest rate (5%) to
decimal (.05)
Step 2: Divide annual interest rate (stated as
decimal) by two to change it to semiannual.
(.05/2=.025)

Calculating Compound Interest

Marias Savings Decision Problem 1
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually
Step 3: Multiply the principal by the interest
rate to get the interest paid in dollars.
($1,000 x .025=$25.00)
Step 4: Add principal and interest to get new
amount of principal.
($1,000 + $25.00=$1,025)

Calculating Compound Interest

Marias Savings Decision Problem 1
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually

Calculating Compound Interest

Marias Savings Decision Problem 1
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually

Calculating Compound Interest

Marias Savings Decision Problem 1
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually

Calculating Compound Interest

Marias Savings Decision Problem 1
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually

Rule of 72
A method to estimate the number of years it will take for a
financial investment (or debt) to double its value (or cost).
Divide 72 by the interest rate (percentage) to determine the
approximate number of years it will take the investment (debt) to
double its value (cost)

Liquidity/Accessibility
Liquidity: the measure of how easily & quickly (quickly and
without losing value) an asset can be turned into cash.

Higher'interest'rates'are'a'trade-o'for'lower'liquidity'

Money)
Market)
Deposit)
Accounts)

Checking)
Checking)
Account)

Most)Liquid/
Lowest)
Interest)

Accounts)

Savings)

Savings)
Accounts)
Account)

Cer7cates)

Cer7cate)
of)Deposit)
of)Deposit)

Least)
Liquid/)
Highest)
Interest)

Determining the Right Account for You

Consider'these'factors'when'determining'the'most'
appropriate'savings'tool'for'your'nancial'goal'
Amount'
of'funds'
available'

Liquidity'

Interest'

Purpose'
of'
money'
saved'

When'
money'
is'
needed'

Savings'
tool'
require
ments'

Fees'

Account Costs
How can you save money on
account costs?

Keeping Account Costs Down

Combine checking and saving balances to avoid
monthly fees
Save on ATM fees by using your own banks
machines
If you cant avoid an ATM fee, take out larger sums
less frequently
Use direct deposit for your paycheck or
government benefits check.

Keeping Account Costs Down

Ask your local bank or credit union about accounts
with free checks
Order from a reputable mail-order company
Check with the Better Business Bureau before
buying checks from a company you are not
familiar with
Write down all transactions and reconcile your
account so you dont overdraw your account and
incur overdraft fees

Overdrawing An Account
Overdrawing your checking account or Bouncing a check is
when there is not enough money (insufficient funds) in the
checking account to cover the account.
You can avoid bouncing checks by having Overdraft Protection

Overdra- Protec2on is not automa2cally given, you must opt-in

(choose) to have this service
How it works: the bank covers your check and treats it as a loan
(you repay with interest)

Standard Overdraft Protection

Your overdraft transaction is covered if you pay a fee
There is a separate fee for each overdraft transaction
You must give your permission (opt in) to allow overdrafts
on debit card and ATM transactions
If you dont opt in, you cant be charged but your
overdraft debit transactions will be declined

FDIC & NCUA

Most but not 100%, of banks and credit unions are insured
to protect your savings and checking accounts.
FDIC = Federal Deposit Insurance Fund
NCUA = National Credit Union Administration
Savings and checking accounts are protected for up to
$250,000 per account holder per bank.

Safety Deposit Box

Safety deposit boxes are used to store valuable
possessions and important documents such as wills,
property deeds, and birth certificates, or computer data
storage that need protection from theft, fire, flood,
tampering or other reasons.
In the typical arrangement, a renter pays the bank a fee
for the use of the box, which can be opened only with
production of an assigned key, the proper signature, and
perhaps a password or code of some sort.

Safety Deposit Box

What should you not keep in a safe
deposit box?
The originals of your will and life
insurance policies should not be kept in
a safe deposit box
The box might be sealed at the time of
your death and your survivors would
need a courts permission to open it.

Opening a Banking Account

Questions to ask:
What is the minimum to open
an account?
What is the interest rate on the
account?
Is there a monthly fee?
Is there any way to avoid
monthly fees?

Opening a Banking Account

Is there a maximum
number of checks I can
write each month?
Is there a fee for using
your ATMs?
What happens if my
balance falls below the
minimum requirement?

Opening a Banking Account

What should you bring with you when you
are opening a new account?
When you go to a financial institution to open a
new account, bring:

Photo identification, such as a drivers license,

state ID card or passport

Proof of your address, such as a utility bill or

lease

Your Social Security number for tax purposes

Bank Account Application

Ownership
W-9 certification
Optional services

ATM cards

Linking accounts

ATM fees
Sign and date your application