Checking Account Simulation

1
Checking Account Simulation

• Understanding Checking Accounts

2
What is a Checking Account?

• Tool used to transfer funds deposited into the
  account to make a cash purchase
• Could also be named a transaction account
• Common financial service used by many consumers
• Available at depository institutions
• Traditionally called banks

3
Checking Accounts continued

• Services and fees will vary depending upon the
  financial institution
• Research the financial institution and type of
  account before choosing
• Many financial institutions offer telephone and
  internet banking services to customers

4
Benefits

• Can help to manage money
• Written record of expenses
• Check register
• Makes bill paying more convenient
• Reduces the need to carry large amounts of cash
• Most liquid of cash management tools
• Considered cash

5
How Do They Work?

• Money is deposited into the account with a
  deposit slip
• Pay the transaction by
• Writing a check
• Using an ATM and/or debit card
• Using electronic banking

6
Characteristics

• Funds are easily accessible through
• A check
• Automated teller machine (ATM)
• Debit card
• Telephone
• Internet

7
What is a Check?

• Used at the time of purchase as the form of
  payment

• Piece of paper pre-printed with the account
  holders
• Name
• Address
• Financial institution
• Identification numbers

• To completed check, fill in the
• Amount
• Payee
• To whom the check was written
• Date
• Signature

8
Bouncing a Check

• Check written for an amount over the current
  balance held in the account
• Bounces due to insufficient funds
• Assessed a substantial fee by both the financial
  institution and the payee
• Can cause harm to credit report
• Financial institutions report to credit bureaus
  the account holders failure/success to manage
  his/her checking account properly
• Used as a guide for future inquiries for credit

9
Other Checking Components

• Register
• Place to immediately record all monetary
  transactions for a checking account
• Written checks, ATM withdrawals, debit card
  purchases, deposits, fees, etc.
• Checkbook
• Contains the checks and the register to track
  monetary transactions

10
What is an ATM?

• Automated teller machine (ATM)
• Also called cash machines
• Electronic computer terminals offering automated,
  computerized banking
• Allows customers to perform transactions just as
  they would through a teller
• Deposits, cash withdrawals, account transfers,
  check account balances

11
ATMs continued

• Transactions at an ATM are automatically posted
  to account
• Immediately record all transactions into the
  checkbook register
• Good option for evenings or weekends when
  financial institutions are closed

12
ATM Availability

• Available most places around the U.S. giving
  customers access to money when away from home
• Can also be found worldwide
• Found in a variety of places including
• Financial institutions
• Supermarkets
• Convenience stores
• Shopping centers

13
ATM Fees

• ATMs are owned by different financial
  institutions
• Fees may be charged to the account for ATM use
• Fees range from 0.50 to 5.00
• Usually free to account holders of the financial
  institution

14
ATM Card

• Card given to account holder to make financial
  transactions at ATMs
• In the shape of a credit card, but can only be
  used in designated places
• Must use personal identification number (PIN) to
  access the account
• A protected number given or chosen by the account
  holder to allow access to the account

15
PINs

• Required at ATM as a safety measure so other
  people cannot access the account with the only
  the ATM card
• Choose a PIN which is not easily identified
• For example phone number, birthday
• Instead of requiring a PIN, some ATMs may read a
  persons face, fingerprint, or eyes iris to
  confirm identity

16
What is a Debit Card?

• Looks like a credit card, but is connected to the
  cardholders checking account for transactions
• Money is automatically withdrawn from account
  when transaction occurs

17
Debit Cards continued

• Some are dual function cards
• One card performs both functions for ATMs and
  debit cards
• Clarify whether or not the card is an ATM card, a
  debit card, or both

18
Using a Debit Card

• To make a purchase
• Debit card is swiped like a credit card
• Cardholder signs a printed receipt or enters pin
• Sometimes neither a signature or pin is required
• Record transactions immediately into check
  register
• Most can be used at retail establishments
  accepting major credit cards
• Many have the Visa or MasterCard logo

19
Debit Cards continued
Pros Cons

• Convenient
• Small
• Can be used like a credit card
• Allows a person to carry less cash
• Does not allow overspending

• Can lose track of balance if transactions are not
  immediately written down
• Opens checking account up to credit card fraud
• If lost, anyone can use it
• Someone else can gain access to account if card
  is found and PIN is learned

20
Types of Accounts Available

• Basic types/guidelines include
• Regular checking
• Free checking
• Special checking
• Interest-Earning checking (NOW account)

21
Regular Checking

• Typically no monthly charge if minimum balance is
  maintained or if other terms are followed
• Typically no interest is given
• Typically unlimited check writing

22
Free Checking

• Typically no charges or fees for using the
  account
• Typically no minimum balance required
• Typically unlimited check writing
• Usually for a specific group
• Students
• Seniors

23
Special Checking

• Generally for people who write only a few checks
  and keep a low balance
• Usually a basic account which pays no interest
• Typically a monthly service charge or fee for
  each transaction
• May have restrictions on number of transactions
  each month

24
Interest-Earning Checking

• Also called a NOW account
• NOW stands for Negotiable Order of Withdrawal
• Pays interest on money in account
• Usually the lowest interest rate of all the cash
  management tools
• Usually a minimum balance required
• Typically unlimited check writing
• Called a share draft at credit unions

25
Opening a Checking Account

• Most applications are completed on a computer to
  process quickly
• Customer may have to complete a brief
  hand-written application to be entered into the
  computer by new accounts personnel
• Customer must have
• Picture identification
• Name, address, phone number, and social security
  number

26
Opening continued

• If customer is approved, he/she completes a
  signature card
• Contains account information about the new
  account and his/her signature
• Used to verify the signature for each signed
  transaction for the account to prevent fraud
• Completion of the signature card means the
  customer agrees to all terms and conditions of
  the account

27
Signature Card example
28
Opening continued

• If offered, customers may choose to have an ATM
  and/or debit card for the account
• May be required to complete another form
• An initial deposit must be made
• Amount will vary among different financial
  institutions and type of account

29
Ordering Checks

• New customers are provided starter checks to use
  until the ordered checks arrive
• Generic checks with account number and financial
  institution pre-printed
• Customer information is hand written
• Many businesses do not accept starter checks
• Take this into consideration before making the
  initial deposit
• Ordered checks may take 5 to 10 business days to
  arrive

30
Ordering continued

• Personal information on checks
• Name
• Address
• Optional phone number, drivers license number
• DO NOT put the account holders social security
  number on the check for security reasons

31
Ordering continued

• Design of the check is customers choice
• Customer pays for checks
• Price depends on the style
• Style of the check does not change how a check
  works
• Some financial institutions may offer basic
  checks free of charge
• Single or duplicate checks are available

32
Ordering continued
Single Duplicate (carbon copy)

• No records of written checks
• Each check must be logged in the register
  immediately to track transactions

• Provides a written record of each check with the
  carbon copy
• Convenient in case the check was not recorded
  into register immediately

33
Endorsing a Check

• Endorsement
• Signature on the back of the check from receiving
  person approving it for deposit
• A check must be endorsed to be deposited
• Three types
• Blank
• Restrictive
• Special
• Safest way to endorse the check is to wait until
  going to the financial institution to deposit or
  cash the check

34
Blank Endorsement

• Receiver of the check signs his/her name
• Anyone can cash or deposit the check after has
  been signed

35
Restrictive Endorsement

• More secure than blank endorsement
• Receiver writes for deposit only above his/her
  signature
• Allows the check to only be deposited

36
Special Endorsement

• Receiver signs and writes pay to the order of
  (fill in persons name)
• Allows the check to be transferred to a second
  party
• Also known as a two-party check

37
Making a Deposit

• Deposit slip
• Contains the account holders account number and
  allows money (cash or check) to be deposited into
  the correct account
• Located in the back of the checkbook
• Complete a deposit slip to make a deposit
• Give to financial institution along with cash
  and/or check
• Checks must be endorsed to be deposited
• Deposited amount must be recorded in the check
  register to keep the balance current

38
Completing a Deposit Slip

• Date
• The date the deposit is being made

39
Completing a Deposit Slip

• Signature Line
• Sign this line to receive cash back

40
Completing a Deposit Slip

• Cash
• The total amount of cash being deposited

41
Completing a Deposit Slip

• Checks
• List each check individually
• Identify each check on the deposit slip by
  abbreviating the name of the check writer

42
Completing a Deposit Slip

• Checks
• If more checks are being deposited than number of
  spaces on the front, use the back
• List each check
• Add the total, enter it on the front

43
Completing a Deposit Slip

• Total from Other Side
• The total amount from all checks listed on the
  back

44
Completing a Deposit Slip

• Subtotal
• The total amount of cash and checks

45
Completing a Deposit Slip

• Less Cash Received
• The amount of cash back being received
• This amount is not deposited into account

46
Completing a Deposit Slip

• Net Deposit
• The amount being deposited into the account
• To calculate the amount, subtract the cash
  received from the subtotal

47
Writing a Check

• To pay for items using a checking account
• A check is given as a form of payment
• Must be completed and given to the person or
  business
• Pre-printed items on a check
• Name and address of account holder
• Name and address of financial institution
• Check number
• Identification numbers (account, routing)

48
Writing a Check

• Personal Information
• Account holders name and address
• May include a phone number, not required
• DO NOT list a social security number for safety
  reasons

49
Writing a Check

• Check Number
• Numbers used to identify checks
• Printed chronologically

50
Writing a Check

• Date
• The date the check is written

51
Writing a Check

• Pay to the Order of
• The name of the person or business to whom the
  check is being written

52
Writing a Check

• Amount of the Check in Numerals
• The amount of the check written numerically in
  the box
• Write the cents smaller and underline
• Write the numbers directly next the dollar sign
  to prevent someone else from adding numbers to
  change the amount

53
Writing a Check

• Amount of the Check in Words
• The amount of the check written in words on the
  second line
• Start at the far left of the line, write the
  amount in words, followed by and, and the
  amount of cents over 100 draw a line from the
  end of the words to the word dollars

54
Writing a Check

• Memo
• Space used to identify the reason for writing a
  check optional
• Good place to write information requested by a
  company when paying a bill, generally the account
  number

55
Writing a Check

• Signature
• The account holders signature agreeing to the
  transaction

56
Writing a Check

• Identification Numbers
• First - routing numbers to identify the accounts
  financial institution
• Second - account number
• Third - check number

57
Check 21

• Check Clearing for the 21st Century Act (Check
  21)
• Current trend that changes how money is withdrawn
  from customers account and deposited into
  businesses account

58
How Check 21 Works

• Prior to Check 21
• Paper checks physically moved from customer to
  business to various banks and the transfer of
  money from customers bank to business bank took
  days
• After Check 21
• Paper checks are scanned into a computer system
  at the place of business and immediately returned
  to the customer. This electronic copy of the
  check is called a substitute check. The
  substitute check is then transferred
  electronically to various banks and the transfer
  of money customers bank to business bank takes
  hours

59
Check Register

• Place to immediately record all monetary
  transactions for a checking account
• Written checks, ATM withdrawals, debit card
  purchases, deposits, fees, etc.
• Used to keep a running balance of the account
• Remember -
• Record every transaction!

60
Check Register

• Date
• The date the check was written or transaction was
  made

61
Check Register

• Number
• The number of the written check if a debit card
  or ATM was used, write DC or ATM

62
Check Register

• Description of Transaction
• The person/business the check was written to or
  where the debit card was used
• Gray line can be used to write the memo

63
Check Register

• Payment/Debit(-)
• Amount of the transaction
• Deducted from the balance

64
Check Register

• Deposit/Credit()
• Amount of the transaction
• Added to the balance

65
Check Register

• v T
• A box used to track whether the check has cleared
  on the monthly bank statement when reconciling at
  the end of each month

66
Check Register

• Fee (if any)
• Any extra fees charged to the account
• Listed on the bank statement

67
Check Register

• Balance
• The running total of the checking account
• Calculated by adding or subtracting each
  transaction
• Keep this updated

68
Monthly Statement

• Lists each monetary transaction and the current
  account balance for a specified time period
• Includes
• Dates
• Identification for each transaction (number or
  type, date, amount)
• Transaction amounts for withdrawals and/or
  deposits
• Interest earned (if applicable)
• Fees or charges (if applicable)

69
Monthly Statement continued

• If customer holds more than one account at the
  same financial institution
• May receive one statement
  for both
• For example a checking
  and a savings account
• May be mailed separately

70
Reconciling a Checking Account

• Reconcile
• Balance the checkbook register each month to the
  balance shown on the statement
• Do this every month to ensure the correct balance
  in the checkbook
• Knowing the correct balance can help to avoid
  bouncing checks

71
Steps for Reconciling

• Make sure every transaction listed on the
  statement matches the check register
• Place a check next to each item once it has been
  double-checked between the statement and register
• Do this for both withdrawals and deposits
• Identify any outstanding transactions in the
  check register
• Items which have not cleared through the
  financial institution and are not listed on the
  statement

72
Steps for Reconciling continued

• Start with checking account balance on the
  statement
• Add any outstanding deposits
• Subtract any outstanding withdrawals
• Compare this result with the current balance in
  the check register
• They should be the same

73
Reconciling Example

• Statement balance 204.00
• Add 154.01
• Outstanding deposits
• 8/30 - 154.01
• Subtract 44.75-
• Outstanding withdrawals
• 299 - 19.75
• 300 - 25.00

74
Reconciling Example continued

• Total 313.26
• Remember - this figure should be the same as the
  check register
• If not, double-check the math, look for mistakes
• Make sure all service fees and charges have been
  added to the check register

75
Checking Account Safety

• If a checkbook, ATM, and/or debit card becomes
  lost or stolen
• Immediately report it to the financial
  institution
• File a report with the police
• Reported lost/stolen checkbook
• Financial institutions generally do not hold the
  account holder liable for any fraudulent charges

76
Safety continued

• Reported lost/stolen ATM/debit card
• Within 2 business days
• Cardholder is only liable for 50.00
• Longer than 2 business days
• Could be liable for up to 500.00
• Varies depending upon the financial institution
• May not charge the account holder anything if the
  correct steps were taken to report the
  lost/stolen card

77
Conclusion

• Research before choosing a financial institution
  and checking account!
• Follow the precautions to prevent checking
  account fraud!
• Report a lost/stolen checkbook, ATM, and/or debit
  card immediately!