Banks - TeachNet Ireland

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Banks
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Aim of Lesson
To understand the services provided by
a bank.
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Banks
Takes in ones savings
Gives out loans
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Interest rates
• Banks normally talk about two types of
interest, that they give people with money in
the bank and that they charge people who
have loans from them.
• So banks borrow from savers and give them
a lower rate of interest, than they charge
those who have taken out loans from them.
• This is how they make some of their profits.
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2 Types of accounts
• Current account. You are given a cheque
book and can withdraw money from the hole
in the wall, however you get no interest.
• Deposit account. You get interest, but no
cheque book, debit card and you cannot use
the hole in wall.
• Bank now often offer customers a
combination of these two types of accounts.
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ATM
• Most banks now allow one to withdraw
money 24 hours per day 365 days per year,
using a machine placed outside the building.
• The machine is known as an ATM (Automatic
Teller Machine).
• The customer identifies themselves using
their ATM card and a number called a PIN
(Personal Identification Number).
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Cheque Book
• A customer, who has a current account or equivalent is given
a book containing a number of cheques.
• These cheques are personalised with their name for their use
only. If it is a couple, who have the account both parties
names will be on the cheques, or if it is a company the
company’s name will be on the cheques and only certain
people would be allowed to sign the cheques.
• When they write a cheque, it is an instruction to their bank to
take that amount of money out of their account and give it to
the bank of the person named on the cheque, who in turn will
put it in the account of the person named on the cheque.
• The process that the cheque goes through from the time it is
presented by the payee until the money appears in their
account is known as Clearing a Cheque
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Parties of a cheque
• The person, who writes the cheque is
the Drawer.
• The person, to whom the cheque is
written to is called the Payee.
• The bank that the drawer has their
account in is called the Drawee.
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Cheque
ABC
52 New Street Dublin 8
Date
Pay………………………………or order
………………………………………….
€
………………………………………….
Joe Bloggs
……………..
4557888 678788 45589903
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Numbers at the bottom of a cheque
There are three sets of numbers at the
bottom of a cheque.
• One identifies the bank and branch
that the drawer has their account in.
• One is the account number of the
person named on the cheque.
• One is the actual number of that
cheque.
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Types of cheques
• Order cheques. Most cheques have the words ‘or
order’ after the payee’s name, this means the payee
has to sign the back of the cheque (Endorse it)
before lodging it or passing it on to someone else as
payment for a debt.
• Crossed Cheques. This a cheque with two parallel
lines drawn on it, meaning the cheque cannot be
cashed in a bank, but must be lodged in an account.
• Open Cheque. This is a cheque that is not crossed.
• Blank Cheque. This cheque has something missing,
like the amount, date, payee’s name or signature.
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Endorsed Cheque
• One can pay their debts by endorsing a
cheque they have received from a third
party, but anyone receiving such a
cheque needs to be careful because the
third party may not have the funds to
pay or the cheque could be stolen.
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Cheque Card
• This card is issued by the bank and the
customer signs it.
• Then when the customer is signing a cheque
it acts as proof that the signature on the
cheque is who it should be.
• Cheque books and cheque cards should kept
apart, otherwise the thief knows what the
signature on the cheque should look like.
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When will a bank refuse to pay the
money stated on the cheque?
• If there is insufficient funds in the account.
• The drawer has stopped the cheque.
• The drawer has died or been declared
bankrupt.
• The date on the cheque has not yet arrived.
• The cheque is stale, i.e. 6 months has passed
since the date on the cheque.
• Words and figures do not agree.
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Overdraft
• One cannot withdraw or write cheques
for more than they have in their
accounts unless they have special
permission to do so called an Overdraft.
• Special permission has to be sought to
get this privilege.
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Bank Draft
• Sometimes a business is not prepared
to exchange goods for a personal
cheque, so they demand a Bank Draft.
• The buyer must go to the bank, give the
bank the money, plus extra called
commission and in return the bank
gives the customer a cheque from the
bank, known as a Bank Draft.
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Credit Transfer
• When someone puts money into your
account on your behalf, it is known as a credit
transfer.
• You can lodge money from another bank in
this way into your own account.
• Parents sometimes have to use this method
to put money into their children’s accounts, if
they are away from home and are running out
of money.
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Direct Debit
• This is where you give permission for
your bank to pay different sums of
money from your account on a regular
basis to another named account.
• For example you can pay your ESB or
Phone bill in this way.
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Pay Path
• This is where an employer pays their
employees wages into the employee’s
account, rather than giving them cash.
• It is safer and cheaper, as the employer does
not have to accumulate large amounts of
cash.
• The employee can take it out of the account
using an ATM, 24 hours per day, 7 day a
week.
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Bank Charges
In addition to charging interest on loans banks
make their profits by charging their customers
for each:
•Cheque
•ATM withdrawal
•Overdraft facility
•Credit Transfer
•Pay Path Transaction
•Direct Debit
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Bank Statement
• Periodically banks sent out bank
statements to current account holders
showing all the transactions that has
taken place through their account in the
last period.
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Missing Items on Bank Statements
However when a customer receives their bank statement,
there can be a difference in what they thought was in their
account and what the bank says they have, due to one of
the following reasons:
•Some cheques being lodged since the statement was
printed
•Cheques were written to people , but the people have not
yet cashed them.
•People paid money into your account by credit transfer
and did not tell you.
•You gave permission for Direct Debit, but forgot.
•The bank has charged you bank charges and did not tell
you, although they normally send you a letter telling you
they are charging you bank charges nowadays.
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Bank Reconciliation Statement
• It is recommended that all customers on
receiving a bank statement, make a list
of all the difference that has occurred
between, what they thought was in their
bank account and what the bank says is
in their bank account.
• They then start a Bank Reconciliation
Statement for themselves.
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Bank Reconciliation Statement
continued
Balance as per Bank statement
Add Cheques written not yet presented
1200
600
Minus cheques lodged last week, but not shown
1800
300
Add bank charges
1500
20
Minus Credit Transfer from Aunt Mary
1520
100
1620
This figure should be the amount you thought or had in the Bank, if not
either you or the bank have made a mistake.
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Paying on line
• Nowadays one can pay a bill using the
Internet.
• This saves time and is cheaper than
writing a cheque.
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Traveller’s Cheques
• When one is abroad a foreign bank or business will
not normally accept one’s normal cheques.
• Hence one has to buy Traveller’s Cheques in a bank.
• You tell the bank what value of cheques you want in
the currency of the country you are going to and they
charge you in euros plus a commission for
themselves.
• You sign the cheques before leaving the bank.
• When using the cheques in the foreign country, you
normally have to have your passport and you sign the
cheque again, as evidence that you are the person,
who bought the cheques.
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Traveller’s Cheques continued
• Travellers cheques can be used in shops, hotels and
banks abroad.
• If traveller’s cheques are stolen when you are
abroad, you must report this and your money will be
reimbursed.
• Nowadays rather than use travellers cheques a lot of
people pay money into their Credit Card account and
then use the credit card abroad and because they
have paid the credit card in advance will not be
charged interest, but will normally be charged for the
privilege of using their card abroad.
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Conclusion
• Are Banks useful or not?
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