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Chapter 5

THE BANKING SYSTEM

5.1 Checking accounts


Checking account: a demand deposit in a bank on which

checks are drawn

Check: a written order to a bank to pay a stated amount

to a person or business

Endorsement: a signature, with or without instructions,

written on the back of a check

Checkbook register: a tool used to track checking account

transactions

5.1 Checking accounts


Deposit: money added to a checking or savings

account Withdrawal: taking money from your account


Postdated check: a check written with a date that will

occur in the future


Debit card: a card used to withdraw or deduct money

from your checking account

5.1 Checking accounts


Electronic Funds Transfer (EFT): the use of a

computer-based system to move money from the drawers account to the payees account
Bank reconciliation: process of adjusting the

checkbook register and bank statement balances so they agree

5.1 Checking accounts


Reconciliation:

Note the date of reconciliation


Enter the ending date from the bank statement Compare your checkbook register with the bank

statement Use the reconciliation form to list any deposits / withdrawals that do not appear on bank statement

5.1 Checking accounts


Transpose: to be out of order

Canceled (cleared) checks: one that has been

processed
Truncated (substitute) checks: both sides are

scanned to produce a digital image


Checking account fees & service charges: know these

before you open an account.

5.2 Savings accounts


Savings account: demand deposit account designed

for the accumulation of money in a safe place for future use.


Can have restrictions Can pay interest

Principal: sum of money set aside on which interest

is paid

5.2 Savings accounts


Simple interest: interest computed on principal once

during a certain time period

Compound interest: interest earned on both

principal and previously earned interest

Future Value of Money: what it will be worth in the

future, after interest has compounded

Annuity: a fixed amount set aside on a regular basis

over time

5.2 Savings accounts


Rule of 72: a quick formula for computing how long

it will take to double money invested at a given interest rate

Divide the annual interest rate into 72; the answer is the number of years it will take to double
$50 invested @ 6% 72 6 = 12 In 12 years, you will have $100.

Money market account: a type of savings account

that earns the market rate of interest on the money deposited

5.2 Savings accounts


Certificate of deposit: a time deposit that pays a fixed

rate of interest for a specified length of time U.S. savings bond: a discount bond issued by the federal government that pays a guaranteed minimum rate of interest Maturity value: a bonds future value as stated on its face IRA (individual retirement account)

5.3 Banking Services & fees


Free checking: in order to have an account with no

monthly service charge, there are usually requirements like . . You must have direct deposit . . . . . . You have to have a minimum balance . . Safe deposit box: a secure container located in a bank vault Overdraft protection: a bank service that covers a shortage in your account Stop payment: an instruction to the bank not to honor a check that has been issued or lost

5.3 Banking Services & fees


Cashiers check: a check issued against the banks

funds Money order: a type of check used to pay bills or make payments for which the money is guaranteed Internet banking: accessing and managing your account online Smart card: a card that contains a computer chip that stores electronic money

5.3 Banking Services & fees


Bounced check: a check that is not honored by a

bank and is returned to the payees bank due to nonsufficient funds


Inactive account: a checking or savings account that

does not meet minimum usage requirements


Floating a check: writing a check and planning to

make a deposit later to cover it before the check is processed

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