Services provided by banks
Financial services provided by the banking industry: demand
deposits, time deposits, loans, electronic transfer of funds, financial advice,
trust services, certified checks, safe deposit boxes.
Deposit side of
banking: firms, individuals deposit money in checking accounts (demand
deposit) so that they can write checks to pay for purchases. Check –
written order for a bank or other financial institution to pay a stated amount
to the business or the person indicated on it. Most fin inst charge fee for
check accounts between 5 and 10$ per month for individual, for businesses –
based on daily balance, number of checks written. Saving accounts (time
deposit) – safe place to store money, conservative means of investing; the
usual passbook saving account earns about 5.5% in commercial banks and more in
credit unions. A depositor can earn a higher interest rate by buying a certificate
of deposit that is a document stating that the bank will pay the depositor
a guaranteed interest rate for money left on deposit for a specified period of
time. The interest rate depends on the amount and the period of time. Depositors
are penalized for earlier withdrawal of funds.
Lending side of
banking: short/long term loans are provided to individuals and businesses. Short
term loans are those that have to be repaid within one year. For businesses
– to provide working capital that will be repaid with sales revenue. Long
term loans – repaid in 3 to 7 years, sometimes 15 years – finance the
growth of a firm. It is preferred collateral – real/personal property like
stocks, bonds, land, and equipment. Repayment terms, interest rates are
arranged between the lender and the borrower. Payment for businesses maybe be
annual, semiannual, quarterly, monthly, for personal loans – depends on how the
money will be used and the type of collateral.
Electronic transfer
of funds (EFT) – fin trans through a comp terminal. Ways of use: 1. Automated
teller machine (ATM) – costumer identified: money dispense, cash advance,
even accept deposits, provide info about acc balance. ATMs are located
everywhere: park lots, banks, markets, drugstores, filling stations and active
all the time. 2. Point of sale (POS) – electronic cash register located
in retail store and connected with a bank’s computer: choose merchandise, pull
debit card through magnetic card reader in the cash register, enter personal
identification number PIN – central processing center notifies the bank about
purchase, bank deducts money, and sends it to the store’s account, transaction
complete, receipt. Debit card – money deducted immediately, credit card – short
term loan made to you by the bank or the credit card company.