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!! Types of Deposits
!! Pricing Deposit-Related Services !! Cost Plus Profit Margin !! Marginal Cost Pricing Method !! Conditional Pricing Method !! Total Customer Relationship Method
Lectured by: Mr. Rithjayasedh PEOU 2 10/27/13
Introduction
!! Barney Kilgore, one of the most famous presidents in the history of Dow Jones & Company and publisher of The Wall Street Journal, once cautioned his staff:
Dont write banking stories for bankers. Write for the banks customers. There are a hell of a lot more depositors than bankers.
10/27/13
Introduction
!! Deposit accounts are a bankers number one source of funds. !! The ability of management an staff to attract checking and savings deposits from businesses and consumers is an important measure of a depository institution's acceptance by the public. !! Moreover, deposits provide most of the raw material for making loans and, thus, usually represent the ultimate source of profits and growth for a bank or thrift institution. !! Important indicators of managements effectiveness are whether or not funds deposited by the public have been raised at the lowest possible cost and whether sufficient deposits are available to fund all those loans the management of a bank or thrift wishes to make.
Lectured by: Mr. Rithjayasedh PEOU 4 10/27/13
Types of Deposits
!! Transaction (Payment) Deposits This transaction deposit service requires the bank to honor immediately any withdrawals made either in person by the customer or by a third party designated by the customer to be the recipient of the funds withdrawn. !! Noninterest-Bearing Demand Deposits !! Interest payments have been prohibited on regular checking accounts in the United States since passage of the GlassSteagall Act of 1933. !! Demand deposits are among the most volatile and least predictable of a depository institutions' sources of funds, with the shortest potential maturity. !! Most noninterest-bearing demand deposits are held by business firms.
Lectured by: Mr. Rithjayasedh PEOU 5 10/27/13
Types of Deposits
!! Transaction Deposits (contd) !! Interest-Bearing Demand Deposits !! Negotiable Order of Withdrawal Accounts !! Beginning in New England during the 1970s, hybrid checking-savings deposits began to appear in the form of NOWs. !! NOWs were permitted nationwide beginning in 1981 as a result of passage of the Depository Institutions Deregulation Act of 1980. !! The interest rate earned on NOWs roughly equals to that of a savings account. !! However, NOWs can be held only by individuals and nonprofit institutions.
Lectured by: Mr. Rithjayasedh PEOU 6 10/27/13
Types of Deposits
!! Transaction Deposits (contd) !! Interest-Bearing Demand Deposits (contd) !! Super NOW Accounts !! Created in 1982 as a result of passage of the Garn-St Germain Depository Institutions Act, SNOWs may be held only by individuals and nonprofit institutions. !! The number of checks the depositor may write is not limited by regulation. !! However, banks and thrift institutions post lower yields on SNOWs than on MMDAs because the former can be drafted more frequently by clients.
Lectured by: Mr. Rithjayasedh PEOU 7 10/27/13
Types of Deposits
!! Transaction Deposits (contd) !! Interest-Bearing Demand Deposits (contd) !! Money Market Deposit Accounts !! Authorized at about the same time as SNOWs, (MMDAs) are short-maturity depsits that may have a term of only a few days, weeks or months. !! The bank or thrift institution can pay any interest rate that is competitive enough to attract and hold the customers deposits. !! Unlike NOWs and SNOWs, MMDAs can be held by businesses as well as individuals.
Lectured by: Mr. Rithjayasedh PEOU 8 10/27/13
Types of Deposits
!! Nontransaction (Savings or Thrift) Deposits These deposits generally pay significantly higher interest rates than transaction deposits do. !! Passbook Savings Deposits !! Passbook savings deposits were sold to customers in small denominations, and withdrawal privileges were unlimited. !! While legally a bank or other depository institution could insist on receiving prior notice of a planned withdrawal from a passbook savings deposit, few institutions have insisted on this technicality. !! Individuals, nonprofit organizations, governments and businesses can hold savings deposits.
Lectured by: Mr. Rithjayasedh PEOU 9 10/27/13
Types of Deposits
!! Nontransaction Deposits (contd) !! Statement Savings Deposits !! Unlike passbook savings deposits, the statement savings deposits are evidenced only by computer entry. !! The customer can get monthly printouts showing deposits, withdrawals, interest earned, and the balance in the account. !! However, many banks and thrift institutions still offer the more traditional passbook savings deposits, and customers must present the passbook to a teller in order to make deposits or withdrawals.
Lectured by: Mr. Rithjayasedh PEOU 10 10/27/13
Types of Deposits
!! Nontransaction Deposits (contd) !! Statement Savings Deposits !! Unlike passbook savings deposits, the statement savings deposits are evidenced only by computer entry. !! The customer can get monthly printouts showing deposits, withdrawals, interest earned, and the balance in the account. !! However, many banks and thrift institutions still offer the more traditional passbook savings deposits, and customers must present the passbook to a teller in order to make deposits or withdrawals.
Lectured by: Mr. Rithjayasedh PEOU 11 10/27/13
Types of Deposits
!! Nontransaction Deposits (contd) !! Time Deposits !! Time deposits carry fixed maturity dates with fixed interest rates. !! More recently, time deposits have been issued with interest rates that are adjusted periodically (such as every 90 days, know as leg or roll period). !! Time deposits must carry a minimum maturity of seven days and cannot be withdrawn before that. !! The most popular time deposits are negotiable and nonnegotiable certificate of deposits (CDs).
Lectured by: Mr. Rithjayasedh PEOU 12 10/27/13
Types of Deposits
!! Nontransaction Deposits (contd) !! Time Deposits (contd) !! Negotiable CDs Negotiable CDs are the $100,000-plus instruments bought principally by corporations and wealthy individuals. !! Nonnegotiable CDs Nonnegotiable CDs are the $100,000-minus instruments bought principally by individuals. !! Callable CDs Callable CDs were introduced in the late 1990s, and their value fluctuates with market conditions and may be retired if interest rates fall significantly.
Lectured by: Mr. Rithjayasedh PEOU 13 10/27/13
Difference between Marginal Revenue and Marginal Cost Rate +3% +2% +1% +0% -1%
Total Profits Earned (after Interest Cost) $0.75 1.25 1.50 1.50 1.25
10/27/13
In Choosing a Bank to Hold Their Checking Accounts, Households Consider Convenient location Availability of many other services Safety Low fees and low minimum balance High Deposit interest rates
In Choosing a Bank to Hold Their Savings Deposits, Households Consider Familiarity Interest rate paid Transactional convenience Location Availability of payroll education Fees charged
In Choosing a Bank to Supply Their Deposits and Other Services, Business Firms Consider Financial health of lending institution Whether bank will be reliable source of credit in the future Quality of bank officers Whether loans are competitively priced Quality of financial advice given Whether cash management and operation services are provided
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