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Financial Institutions and Their Services

Financial Institutions and Their Services

Author: Jeff Carroll
Description:

Differentiate between the types of financial institutions.

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Tutorial

Source: Image office building, dollar bill, images by Video Scribe, License held by Jeff Carroll; Image of United States, Creative Commons, http://bit.ly/Szo9xj.

Video Transcription

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Hi, I'm Jeff. And in this lesson, we'll learn about financial institutions and how they work, as well as some of the banking services they offer. So let's get started.

The financial institutions in the United States are organizations that help distribute money throughout the economic system. They are regulated by the Federal Reserve. And they provide financial services to businesses and consumers along with the Federal Reserve.

The financial institutions actions impact the amount of money supply available. And that impacts the rate of economic growth. There are a variety of financial institutions that contribute to this process.

Some of the different institutions are a commercial bank-- which is a bank that provides services to companies and individuals-- savings and loan associations-- which is a financial institution that limits its services to making loans and accepting deposits-- a legal limitation is that no more than 20% of its loans can be offered commercially, mutual savings bank-- a bank that is set up by a local government without capital stock and isn't maintained by members who contribute to a common fund-- a credit union-- this is a cooperative that is nonprofit, set up for a specific membership who owns it and provides a variety of banking services for its members-- and finally, non-deposit institutions-- this is an institution that can offer some services, such as mortgage, but cannot accept deposits. Some examples of these institutions are pension funds, insurance companies, finance companies, and securities, and investment dealers. Although, the different types of financial institutions offer varied services, most of the banks, credit unions, and savings, and loan institutions offer similar banking services to businesses and consumers.

These are checking, which is a transaction account, but allows an individual or a company to deposit and take out money quickly. Certificate of Deposit, also known as a CD, which is an agreement in which a deposit is held for a specific amount of time by the institution in return for a specific rate of return on the money, also known as a fixed interest rate. Line of credit, this is when a maximum amount of money is promised to a business or person for a loan. They can withdraw this money as they need until they reach the maximum.

A letter of credit, which is a promise by the bank to pay a third party if conditions are met revolving credit agreement, such as is used with a credit card. This is a line of credit in which the terms are open-ended and there is not a set amount of payment. Money can be borrowed, paid back, and re-borrowed up to a maximum limit.

Point of sale terminals, these are electronic means for businesses to process payments. Automated clearing houses, businesses will use this service to transfer wages and salaries. Electronic check conversion, which is a service to convert checks into more immediate payments.

Electronic funds transfer, also known as EFT, this service allows the movement of money within or across banks. And automated teller machines known as ATMs, these machines provide access to immediate cash and some other basic account services, such as deposits or a view of an account balance.

All right, good job. In this lesson, we learned about financial institutions. We talked about the different types of institutions. And we discussed some of the banking services they offer. Thanks for your time, and have a great day.

Terms to Know
Commercial Banks

A bank that provides services to companies and individuals.

Credit Union

A cooperative that is nonprofit, set up for a specific membership who owns it and provides a variety of banking services for it’s members.

Mutual Savings Bank

A bank that is set up by a local government, without capital stock and is maintained by with members who contribute to a common fund.

Nondeposit Institutions

An institution that can offer some services, such as a mortgage, but cannot accept deposits.

Savings and Loan Associations

A financial institution that limits it’s services to making loans and accepting deposits; a legal limitation is that no more than 20% of it’s loans can be offered commercially.