Source: Image of question mark: http://pixabay.com/en/point-mark-marks-circle-cartoon-29350/ Picture of light bulb: http://bit.ly/1qAPmhS Bank Vector graphic http://pixabay.com/en/administration-banking-college-152960/
Hello, and welcome to this tutorial on financial institutions and their services. Now, as always with these tutorials, please feel free to fast forward, pause, or rewind as many times as you need in order to get the most out of the time that you'll spend here.
So let me ask you a question. What is it that banks do, and why do we have banks in the first place? What role do they play in finance in the US economy? We looked at the role that the Federal Reserve, or the bank for banks plays, but what do the rest of these institutions do?
During this tutorial, we're going to be looking at financial institutions, and we're also going to be taking a look at the banking services that they provide. The key terms for this lesson are going to be commercial banks, mutual savings banks, credit unions, non-deposit institutions, and savings and loan associations.
So let's go ahead and get started with the financial institutions and take a look at some of the different ones that are out there. Now, financial institutions help by moving money or help move money around the US. They serve as a means to help move that money, that means of exchange, around the US economy. Now, they're regulated by the Federal Reserve and provide financial services to both businesses and customers. And they impact the money supply in the United States, which in turn impacts the rate of growth and the overall general well being of the economy.
Now, some of these different institutions are, for instance, a commercial bank. A commercial bank is a bank that provides services to companies and individuals. These folks make loans. They accept deposits into the bank, and they also work to make a profit. Savings and loan associations are 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. So these folks will focus on the individual consumers instead of that commercial business. Traditionally, savings and loan associations have been focused on home loans.
Some other financial institutions are a mutual savings bank. Now, this is a bank that is set up by a local government without capital stock and is maintained by members who contribute to a common fund. Normally, like I said, these are mutually held, and that means that borrowers and depositors are members with voting rights on how the bank will run. Credit union 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.
Now again, a credit union will accept deposits, and they'll make loans like a regular bank. But the big difference is, these members must meet certain qualifications before they become a member of the credit union. For instance, they have to be an employee of a particular company or organization, such as public school teachers or postal workers.
Now, there are also some non-deposit institutions. A non-deposit institution is an institution that can offer some services, such as a mortgage, but cannot accept deposits. Now, examples of this would be things like a pension funds or insurance companies. Also, finance companies and securities and investment dealers, these would all be non-deposit institutions.
Now, what are some of the banking services that these different institutions provide? And these are services that banks, savings and loan associations, and credit unions will typically offer their customers or members. The first one is checking. Checking is a transaction that allows for deposit and to take out money for the customer. A certificate of deposit, also known as a CD, is an agreement in which is a deposit is kept for a specific amount of time with a specific return, a fixed interest rate, for that entire period-- say, three months to five years depending on the certificate of deposit that you own.
They also offer lines of credit. Now, this is the maximum amount of money that has been promised to a business or person for a loan. So you can draw on this line up to the limit of that line of credit throughout your business dealings with the bank. The next is a letter of credit. And this is a promise by the bank to pay a third party if certain conditions are met. A revolving credit agreement, this is a line of credit in which the terms are open ended, because there's not a set number of payments. Money can be re-borrowed up to the max on and off again in the form of credit cards, as an example.
Next, you have point of sale terminals. A point of sale terminal is an electronic means for a business to process payments electronically. Think of the electronic cash register that you have at any store that you may go to. Automated clearinghouses is used by businesses, and it's used to transfer wages and salaries from the bank to the different employees. You have electronic check conversion, and this is the ability to convert checks into more immediate payments. So instead of waiting for the check to move all the way through the system and back into a business's bank account, which can take several days, this does it much more quickly.
There's also electronic funds transfer that's offered by banks and SNLs and credit unions. Now, this is moving money electronically, either within a bank or across bank. So again, you don't have to wait for the physical money to move from place to place or wait for something like the mail to make this happen. This makes these funds available much more quickly.
And lastly, you have automated teller machines. Now, automated teller machines-- I'm sure we're all familiar with-- is a machine that allows you to access immediate cash and banking services at any time of day or night in remote locations around the world. Now, as you can see, the left side has traditional banking services, and as we move to the right side of the screen, we start seeing how technology really has changed banking. Point of sale terminals, electronic check conversion, electronic funds transfer are things that weren't necessarily available even just a few years ago, or they weren't readily available. And this has really helped to speed up banking services and reduce the amount of time that companies or individuals have to wait for a payment to clear a particular bank and end up in your bank account.
So what is it we looked at today? Well, we took a look at some different financial institutions, things like commercial banks and credit unions, savings and loan associations, for instance. And we also took a quick look at the different banking services that these folks will offer, like checking accounts or letters of credit.
Now, as always, I want to thank you for spending some time with me today. And you folks have a great day.