Chapter 4: Banking Services Quiz

Chapter 4: The Banking Services of Financial Institutions

• This chapter discusses various banking services offered by financial institutions.
• Learning objectives include analyzing factors affecting financial service selection and comparing different financial institutions, savings plans, and chequing accounts.
• Everyday payment methods include cash, cheques, credit cards, debit cards (ATMs), e-transfers, and mobile apps.
• Common mistakes in managing cash include overspending, insufficient liquid assets, using savings/borrowing for current expenses, and neglecting interest-earning accounts.

Learning Outcomes:

• LO1: Analyze factors that affect the selection and use of financial services.
• LO2: Compare different types of financial institutions.
• LO3: Compare costs and benefits of various savings plans.
• LO4: Identify factors used to evaluate various savings plans.
• LO5: Compare the costs and benefits of different types of chequing accounts.

A Strategy for Managing Cash (1)

• Cash, cheques, credit cards, debit cards (ATMs), e-transfers, and mobile apps are common payment methods.
• Common mistakes include overspending, lack of liquid assets, using savings/borrowing inappropriately, and neglecting interest-earning accounts.

A Strategy for Managing Cash (2)

• Various financial services are categorized for short-term and long-term goals.
• Short-term services: daily purchases, living expenses, and emergency funds with options for cash availability, savings, chequing, and credit cards.
• Long-term services: major purchases, financial security with savings, guaranteed investment certificates, high-interest online savings accounts, cash loans, mortgages, and home equity loans.
• Investment services include registered retirement savings plans (RRSPs), brokerage services, investment advice, mutual funds/ETFs, and annuities.
• Other services encompass insurance (auto, home, life, health), trust services, tax preparation, safety deposit boxes, budget counselling, and estate planning.

A Strategy for Managing Cash (3)

• Three types of financial services are presented: Savings, payment services, and borrowing.
• Other financial services round out the category.

A Strategy for Managing Cash (4)

• Electronic banking services include direct deposit of pay, automatic payments, and automated teller machines (ATMs).
• Payment methods include point-of-sale transactions, stored-value cards, smart cards/digital wallets, and software-based payment systems.

A Strategy for Managing Cash (5)

• Mobile banking options cover deposits/other services and payments/transfers.
• Deposits/other services include direct deposit, remote deposit, account opening, notifications, rates/loans/insurance, buying/selling/monitoring investments, customer service, financial planning, rewards, and loyalty programs.
• Payments/transfers include online bill payments, scheduled payments, instant pay for late bills, transfers, person-to-person payments, tap/pay, ATM access, balance inquiry, viewing statements/history/fees/charges, and images of cancelled cheques.

A Strategy for Managing Cash (6)

• Opportunity costs of financial services: higher return may come at the cost of lower liquidity; conveniences like 24-hr ATMs need to be balanced against service fees.
• "No fee" chequing accounts with minimum balances lead to lost interest (example given: $4,000 minimum balance costing nearly $1,375 lost interest over 10 years with a 3% interest rate).

A Strategy for Managing Cash (7)

• Financial services and economic conditions relate rising interest rates to long-term loans having advantage of lower rates and short-term savings taking advantage of higher rates when maturing.
• Falling interest rates suggest refinancing loans, using short-term loans, and long-term savings locking in earnings at existing high rates.

A Strategy for Managing Cash (8)

• Changing interest rates influence decisions related to financial services.
• Rising interest rates entail using short-term loans, selecting long-term savings, and using long-term loans.
• Falling interest rates imply using short-term loans and selecting long-term savings with consideration of current interest rates.

Types of Financial Institutions (1)

• Deposit-type institutions include chartered banks, trust companies, credit unions (and caisses populaires), providing financial services to individuals, businesses, and government agencies.
• Schedule I, II, and III banks represent full domestic service banks, subsidiaries of foreign banks in Canada, and branches of foreign institutions.

Types of Financial Institutions (2)

• Deposit-type institutions are chartered banks, trust companies, and credit unions/caisses populaires.
• Non-deposit institutions include life insurance companies, investment companies, mortgage and loan companies, pawn shops, and cheque-cashing outlets.

Types of Financial Institutions (3 & 4)

• Non-deposit institutions consist of life insurance companies, investment companies, mortgage and loan companies, pawn shops, and cheque-cashing outlets.
• Online banking services cover electronic bill presentment, pre-authorized debits, recurring transfers, stop payments, cheque services, email money transfer, downloadable statements, synchronization with software (Quicken or Money), and phone app photo deposits.

Types of Financial Institutions (5)

• Online banking benefits are saving time and money, convenience, identity theft protection, transfer access for loans/investments, and notices of due dates.
• Online banking concerns include potential privacy/security breaches, costly ATM fees, difficult cash deposits, overspending, and scams/phishing/spam emails.

Types of Financial Institutions (6 & 7)

• Comparing financial institutions involves services offered, rates, fees, financial advice, safety (deposit insurance), location convenience, special programs, online bill payments, and virtual banks.
• Choosing a financial institution should involve identifying essential features based on needs, ranking importance, researching local, national, and online banks and credit unions, researching services/policies/fees/reviews, visiting branches for in-person interactions, and collecting information on disclosure statements/rate/loan application forms.

Savings Plans (1 & 2)

• Savings alternatives include regular savings accounts, term deposits and guaranteed investment certificates (GICs), interest-earning chequing accounts, money market accounts, money market funds, and high-interest savings accounts.
• Benefits of different savings alternatives are categorized along with their drawbacks. This allows for comparison of regular savings accounts, guaranteed investment certificates (GICs), and interest-earning chequing accounts.

Savings Plans (3)

• Evaluating various savings plans considers factors like rate of return, inflation, taxes, liquidity, and safety. This section specifies restrictions and fees, giving detailed advantages and disadvantages.

Savings Plans (4-6)

• Evaluating savings plans focuses on rate of return (yield) and compounding.
• This includes a detailed calculation of Effective Annual Rate (EAR).
• Compounding frequency (daily, monthly, quarterly, annually) affects the savings yield. Different compounding frequencies are demonstrated using a hypothetical $10,000, five-year GIC investment with a 4% nominal interest rate.
• Further considerations on savings plans include inflation comparison to rate of return, tax considerations, liquidity, safety and restrictions.

Selecting Payment Methods (1-5)

• Main types of chequing accounts include regular, activity, and interest-earning accounts.
• Regular accounts typically have monthly service charges avoidable by maintaining minimum balance.
• Activity accounts charge fees with each cheque written.
• Interest-bearing accounts require minimum balances.
• Additional payment methods (certified cheque, cashier's cheque, money order, traveler's check, prepaid travel card with local currency ATM, credit, and debit cards) are categorized.
• Comparisons on chequing account costs involve calculating inflows and outflows to determine net costs.