5 Deposits in Banks

5.1 Deposit Accounts

5.2 Interest-Bearing Accounts
5.3 Flow of Deposits
5.4 Deposit Regulations

The U.S. Banking System, 3e

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 5.1
Deposit Accounts

Learning Objectives
5.1.1 Define transaction accounts and identify
major types of checking accounts.
5.1.2 Define time deposits and identify major
types of savings accounts.

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 Key Terms

transaction account
demand deposit
Check 21
time deposit
statement savings account
money market deposit account (MMDA)
certificate of deposit (CD)

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 Making Your Deposit

Transaction Accounts
Transaction account is an account that allows
transactions to occur without restrictions on the
frequency or the volume of transactions.
Demand deposit is a type of transaction account
that is payable on demand whenever the
depositor chooses.

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 Making Your Deposit (continued)

Checking Accounts
Check 21 is federal legislation that allows banks
to process check information electronically.
Basic
Free
No Service Charge
Interest-Bearing
Express

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 Making Your Deposit (continued)

Checking Accounts (continued)

Lifeline
No-Frills
Asset Management
Online Banking
Mobile Banking
ATM Fees
Other Demand Deposit Transactions
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  checkpoint
What is a transaction account and why is it a
demand deposit?
An account that allows transactions to occur at
any time and in any number
They are payable on demand whenever the
depositor chooses.

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 Time Deposits

Time deposits are deposits including savings

accounts, money market deposit accounts,
certificates of deposit (CDs), and various bonds
that are held for or mature at a specified time.
Savings Accounts
Statement savings accounts provide a monthly
or quarterly computerized statement detailing all
account activity, including interest credited and
fees charged.
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 Time Deposits (continued)

Money market deposit accounts (MMDAs) are

time deposits that offer a higher rate of interest
than regular savings accounts and usually
require a higher initial deposit to open.
Certificates of deposit (CDs) are certificates
issued by banks that guarantee the payment of a
fixed interest rate until a specified date in the
future.
Credit Union Products
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  checkpoint
List three types of time deposits.
Savings accounts
Money market deposit accounts
Certificates of deposit
Which of these are exempt from reserve
requirements?
All time deposits are exempt from reserve
requirements.

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 5.2
Interest-Bearing Accounts

Learning Objectives
5.2.1 Explain how interest is calculated.
5.2.2 Discuss why compound interest is the
most powerful savings tool.
5.2.3 Describe how interest rate variations
can impact consumer behavior.

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 Key Terms

interest
compound interest
annual percentage rate (APR)
annual percentage yield (APY)

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 In Your Interest

Interest is the price paid for the use of money.

Calculating Interest
Basic formula is P × R × T = I, where P is
principal, R is rate, T is time, and I is interest.
Interest in the Real World
Compound interest is the practice of adding
interest to the principal and charging interest on
the new total.

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  checkpoint
What do the terms in the formula P × R × T = I
stand for?
Principal multiplied by rate multiplied by time
equals interest.

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 The Power of Compounding

APR and APY

Annual percentage rate (APR) is the nominal
rate on which interest is calculated per year.
Annual percentage yield (APY) represents the
effect of compounding.

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  checkpoint
Why is compound interest such a powerful
savings tool?
Compounding adds interest to the principal at
each interval, thus increasing the principal for the
next interval.

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 Interest Rates Impact
Consumer Behavior
Savvy consumers who want to make money in a
fairly low-risk environment have profited from
understanding the spread of interest points in the
marketplace.
The spread is the variation in value of two
competing interest rates.
Financial institutions that offer high interest rates
are hoping to attract long-term customers.

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  checkpoint
Why do financial institutions try to obstruct the
efforts of rate chasers?
Rate chasers seek to make a profit without
exposing themselves to financial risk.
They enter into banking relationships to make a
quick profit.
They do not intend to become long-term
customers of the bank.

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 5.3
Flow of Deposits

Learning Objectives
5.3.1 Explain the complexity of forces that
influence the flow of deposits.
5.3.2 Identify limitations of the Federal
Reserve’s influence of the flow of
deposits.

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 Key Term

interbank transactions

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 A Complex Pattern

The Economic Engine

Interbank transactions are transactions that
occur when banks make or receive deposits from
each other or from the Fed.

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  checkpoint
What is the greatest factor in the flow of deposits?
The biggest factor in the flow of deposits is the
activity of the economy.
Why do economists track and analyze so much
data?
Economists work to understand the large-scale
patterns of the movement of money.

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 Deposits and the Fed

Adjusting the Money Supply

The Banking Business

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  checkpoint
How does the Federal Reserve influence the
flow of deposits?
By setting reserve requirements, by creating or
removing money from the economy with open
market operations, and by setting the discount
rate.

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 5.4
Deposit Regulations

Learning Objectives
5.4.1 Describe deposit account documents.
5.4.2 Identify and explain basic deposit
account rules.

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 Key Terms

governing documents
overdrawn
stale check
post-dated check

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 Deposit Account Documents

Governing documents are a formal set of

documents that outline customer rights, the
policies and rules of a bank, and how customers
can expect their bank to operate.

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  checkpoint
Why are governing documents necessary?
They provide specific statements of the rights
and responsibilities of the bank and its
customers.
They are also required by law as a form of
consumer protection.

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 Account Rules

Reference to Governing Documents

Signature Policies
Opening and Closing Accounts
Resolution Form
Deposit Collection
Overdraft Policies
Overdrawn means an account has insufficient
funds to meet its obligations.

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 Account Rules (continued)

Minimum Balance/Service Charges

Withdrawal Policies
Check Policies
Stale check is dated six months or more before
it is presented for payment or deposit.
Post-dated check is dated later than when it
was written.
Account Statement Policies

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 Account Rules (continued)

Other Policies
Waivers
Federal Reserve Regulations
Regulation DD
Regulation D
Regulation CC
Regulation E

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  checkpoint
How do governing documents and account rules
differ?
Governing documents are general bank policies
and fee schedules.
Account rules are the detailed policies applying
to a specific account.

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