Financial Institutions Flashcards
Non-depository institutions-
Receive their money from other sources. These are mortgage, finance, & insurance companies.
Depository institutions-
Those that receive their money from costumer deposits. Their profit is largely created through the interest paid on loans made to costumers.
What is insured by the FDIC?
most savings, checking, & certificate of deposit accounts in the US.
What is the FDIC?
An insurance agency that is supported by the government that insures a personal account in a commercial bank for up to 100,000$. Accounts aren’t insured or protected if they are provides by a mutual fund company, insurance company, or brokerage firm.
Insurance-
Protects consumers who deposit money in cases where a bank closes or goes bankrupt.
What are the different types of depository institutions?
Commercial banks, credit unions, savings & loans institutions, stock held savings institutions, mutual savings institutions & web only financial institutions.
Commercial banks-
Most well known depository institutions. Funded through deposits into checking and savings accounts and they provide services such as mortgages, personal loans, & bank issued credit cards.
Credit unions-
Non profit, member owned institutions. Able to provide loans through deposits to checking & saving accounts. Loans are typically only given to members of the credit union who are also partial owners of the credit union. Have higher interest rates for savings & Lower rates on loans bc they’re non profit. Generally limited to a particular group that shares a common bond.
Savings and loans institutions-
Receive money from households like commercial banks, but they use over 70% of their money on home mortgages. Insured up to 100,000$
Stock-held savings institutions-
Owned by stockholders
Mutual savings institutions-
Owned by the individuals who deposit their money in the institutions. Individual receives dividends on their money instead of interest.
Dividend-
Ties to the overall profit of the institution in a given year.
Web-only financial institutions-
Do not have physical locations & conduct all business with costumers online. Bc these financial institutions have a lower overhead they can sometimes offer higher interest rates on savings accounts.
Mutual fund companies-
Investment companies that sell shares to Individuals & pool funds to buy financial securities. Money deposited here isn’t insured. Offer low-risk investment options.
Brokerage firms-
manage & facilitate the purchase of stocks, bonds & other types of investments. Individual deposits money & a broker purchases stocks & bonds as authorized by the individual account holder. Makes its money by charging a fee or commission for each sale or purchase on the part of an individual investor.
Life insurance companies-
Non-depository financial institutions that sell life insurance, which is paid out by the company on the death of an insured individual. Individuals pay insurance premiums to an insurance company for the policy. The insurance company takes these premiums & invests them on behalf of the company, earning profits from those investments
What are some types of financial services?
Savings, payment services, loans, financial services
Savings-
Also known as time deposits, these accounts may earn interest and the money may be insured. Money is available to the account holder at any time, although a few may be charged if the balance falls below the minimum account limit.
Payment services-
Demand deposits such as checking accounts, are account that individuals use to pay their bills & are able to write checks or use debit cards to take money out of accounts & pay merchants for their products without having to go to the bank to get cash for the items.
Loans-
Provide credit to individuals who wish to borrow money the opportunities for credit may be short or long term for items such as houses (mortgages), automobiles, home improvements, education, & other purposes.
Financial services-
May provide financial planning, tax assistance, or investment advice
Certificate of deposit-
Another type of account commonly offered at commercial banks & other institutions. These accounts pay a standard rate of interest on the balance, but the money must be left in the account for a specific period of time. Not federally insured & are less liquid then savings account they tend to be safe with investments with higher interest rates
Maturity date-
Is the end of a certificate of deposit account time when the money can be withdrawn. The interest rate depends on the amount of the deposit and the duration of the CD.
Money market mutual funds-
Accounts in which a mutual fund company pools the accounts of depositors & invests the money in different financial assets. The funds are often invested in short-term debt securities which means they have a higher risk than savings account. Might be some limited check writing ability but majority of the money will be tied up for a specified time period in the account. Not insure by the gov. & interest rates fluctuate according to market.
