CHAPTER: 5

FINANCIAL SERVICES: SAVING

PLANS AND PAYMENT
ACCOUNTS

FINANACIAL SERVICES
Various kinds of services are available:

Banking
Insurance
Mutual funds
Mortgage companies
Funding companies(NBFC)
Credit card companies

CASH MANAGEMENT STRATEGY

With the help of various financial services
available in market a person can complete
his routine activities related to finance and
move towards his financial goals.

Financial services for short term Needs Daily purchases

Living expenses
Emergency funds

Financial services for long term needsMajor purchases

long term financial securities

MEETING DAILY MONEY NEEDS:

Buying groceries, rent other routine expenses
that require cash.

Managing cash:
Cash, cheques, credit cards, ATMs are common
payment choices. So to use these means also
consider the fees related to them.
Eg. NEFT transaction.

Common mistakes while managing cash needs

Overspending by impulsive buyings

Insufficient liquid assets
Using saving and borrowings to pay current expenses
Fail to put unneeded funds in earning savings

Sources
of quick
-The funds
requirecash:
for emergencies
-Even if a person has carefully managed his
resources there may be time comes you need
more liquidity on hand. That results either
liquidate saving or go for borrowings.
-Basically saving acnts, mfs or advance from
credit card and personal loans are used but by
all these net worth will come down.

TYPES OF FINANCIAL SERVICES

SAVINGS: Safe storage of funds for future use is
basic need for everyone. This generally refers to
the time deposits, bal in deposit acnts and CDs.
Selection of plan is based on interest rates,
liquidity, safety and convenience.

PAYMENT SERVICES: Ability to transfer money

to other parties for daily business activities.
Through RTGS(Real Time Gross Settlement) and
chqs also can make payments.

 BORROWINGS: Many use credit some time in life.

Credit available from short term to long term brwngs
like home loans.

OTHER FINANACIAL SERVICES: Insurance

protection, future investments, tax assistants are
some services that a person need for successful
financial management.

Trust- A legal agreement that provides for

management and control of assets by one party
for the benefit of others. Created through
commercial banks.
Asset management companies- All in one
accounts
that
includes
saving,
borrowing,
investments and other financial services for a single
fees.

ELECTRONIC BANKING
24 hours Banking by mobile, telephone and
web banking at any place.
(1)Direct deposit of pay cheques and
government payments: salary, tax refunds
and PF acnts directly fund get transferred.
(2)Automatic
payments:
Rent,
loan
installments,
utility
bills,
investment
deposits(SIP) get debited from the accounts.

(3)ATM(ANY TIME MONEY): Anywhere and

anytime. Apart from withdrawals one can request for
chq books, statement also.
(4) Debit cards: Withdrawal through debit card from
ATMs by inserting PIN. Some charges are taken for
this debit cards issuance. So whenever lost or
stolen immediately get it blocked.
(5) Online banking: Through website of the bank one
can view balance, transfer money, make payment,
make FDs and recurring by just a click.

OPPORTUNITY COST OF FINANCIAL

SERVICES
When you make decisions about spending and
saving consider the trade off between current
satisfaction and long term financial security.
High return on long term saving and
investments can be achieved by low liquidity
for emergency
Using of banking services may cost you by
various charges.

FINANCIAL INSTITUTIONS
Previously financial services were limited to
only banks but now no of insurance,
investments companies, mutual funds,
brokers available.

(I) DEPOSIT INSTITUTES

Financial institutes that serve as intermediaries
between supplier and user of funds.
(i) Commercial banks: provides full range of
services eg. Savings, lending and other
services. Comm banks are organized as
corporations and national banks are governed
by central and state govt. eg. SBI, AXIS, ICICI
BANK

(ii)Saving and loan associations: Saving and loan

associations specialized in saving accounts and
loans from mortgages.
(iii)Mutual saving banks: Mutual saving banks
owned by the depositors and like traditional
saving and loan associations. eg Pragati bank.
(iv)Credit unions: it is a user owned, non profit
financial institution. Credit union are like
association or communities. Charges and fees
are lower than commercial banks.

(II) OTHER FINANCIAL INSTITUTIONS

i. Life insurance: the main purpose of life
insurance is to provide life security for the
person and dependent people. But now apart
from that some features are provided like unit
link plans.
ii. Investment companies: mutual funds- trust is
created through trustees, sponsors and asset
management company take care of the fund that
attracts the small savings of the public.

(iii) Finance companies: Short and intermediary

borrowings provide to the customers at higher
interest rates.

(iv)

Mortgage

companies:

Provides

loans

to

purchase home.

(v) Pawnshops: Make loans against the tangible

possessions such as jewellery and valuables.

COMPARING FINANCIAL INSTITUTIONS

- Based on returns
- Cost and other charges
- Liquidity when need arises
As market changing rapidly a person must
constantly assess various services and factors
before selecting any institution. Personalized
services important to every customer.
Eg. Axis bank and ICICI bank.

SAVING PLANS
Evaluation of various saving plans is the
starting point of this process to achieve
financial goals.
(1) Regular saving plan: Traditionally called
passbook accounts. They having minimum or
low balances. Regular statements sent to the
customers and interest rate on deposits are
nominal like 4%. Anytime can withdraw from
account.

(2) Certificate of deposit: CDs are unsecured,

negotiated short term instruments in bearer
form. Generally issued by commercial banks
and financial institutes.
CDs- A saving plan requiring a certain amt to be
left on deposit for a stated period to earn a
specific interest rates.
CDs are like FDs but difference between two is
that CDs are transferrable and tradable.

(3) Money market acnts and funds: To meet

customer demand for higher savings rates,
saving plans with floating rate has been created.
This acnt require minimum balance and has
earning based on the money market rates.
(4) G- bonds and securities: Larger borrower in
India are central and state govt. GOI periodically
issued bonds which are called G-sec or gilt
securities. Issued by RBI. Interest rate around
8%.

EVALUATION SAVING PLANS

RATE OF RETURN:
Earning on savings measured in terms of
rate of return or yield.
COMPOUNDING:
A process that calculates interest based
on earned interest. So the yield you get is
more than the stated interest rate.

 TRUTH IN SAVINGS:
Financial institutes disclose the information Fees on deposit acnts
Interest rates
APY(Annual Percentage Yield)
Other terms and conditions

INFLATION:
The rate of return earn on saving should be
compared with inflation rate. So as inflation increase
the interest rates should also be increased.

 TAX CONSIDERATION:
Taxability of interest on your saving will reduce real
rate of return. So some tax exempted saving plans
would decrease the tax liability.
LIQUIDITY:
Liquidity allows you to withdraw your money on
short notice without loss of principal amount.
SAFETY:
Most bank and financial inst are secured by govt.

 RESTRICTIONS AND FEES:

-Limitation like per day maximum w/d or transfer
limits
-Charges on each transfer.

PAYMENT METHODS
ELECTRONIC PAYMENT: With the wide use of
technologies customers also find it easy and
has accepted.
1)Debit card transactions: Many stores and malls
accept this cards for shopping so as card used
the amt get debited from your account.
Used in two ways- In stores with signature
and in ATMs with PIN.
2) Online payments: Third party transaction
facility is also available. Eg. Credit card bills

3) Stored value cards: pre paid mobile cards, bus

passes, meal passes. They are disposable and
can be used after re loaded with additional
amount.

Types of saving accounts

Regular saving a/c
Current a/c

MANAGING DEPOSIT ACCOUNTS

Opening Of Saving Account: Single owner or
joint owner. In single only an individual can
sign the cheque and in joint both can access
the account.
Making deposit: Deposit minimum funds
required.
Each chq you deposit require an endorsement
your signature on the back of the chq.

 Blank endorsement: Which should only be used

when you are depositing or cashing a chq. But
chq can be encashed by anybody if it is signed.
Restrictive endorsement: Consist words for
deposit only followed by signature.
Special endorsement: Allows to transfer a chq to
payee only.

WRITING CHEQUES:
Before writing chqs, record the information in
chq slipRecord the date on chq
Write the beneficiary name
Record amt in figure
Record amt in words
Sign the chq
Note the reason of payment

 RECONCILING SAVING ACCOUNT:

Each month you receive the bank statement
summary. Properly check and match with the
transaction made during the month.