Unit 13: Banking

What is the Bank?

The bank is an institution that provides banking services to organisations and private customers
for profit. Banks generate their profit from interests on loans as well as charging fees on the
financial services they provide.

Services provided by the bank:

1. The bank allows customers to deposit their money in a safe and secure place

2. The bank can make payments for people as well as receiving payments on behalf of
customers. For example, banks can pay the salary of a company`s staffs by credit transfer.

3. Giving loans to customers

4. Giving financial advices to customers. For instance, a bank can suggest companies to put in
place new strategies in order to boost profit

5. Offers a wide variety of other financial services such as insurance for instance

Types of Bank account

1. Current or cheque accounts

2. Deposit or savings account

Current Accounts

Current accounts allow customers to get access to their money on a daily basis without any
delay. When opening a current account, a customer will normally receive a cheque book and a
debit card which can be used to make payments or withdraw cash in ATMs.
Benefits of having a current account

 Money is kept safe in banks. At home, it may be stolen or get lost.

 It is easy to set up a current account as only an application form needs to be filled as well
as other identification documents need to be brought.
 Customers have the ability to make payments in a variety of ways such as by cheque,
debit cards or even credit cards.
 Customers can check if all transactions are correct as banks send regular bank statements
to them.
 Banks provide overdraft facilities to customers. This means that it allows them to
withdraw more money than they have in their current accounts in case they need.
However, when they repay the money, the bank can charge them a rate of interest.
 It makes it easier for companies to pay their employees through credit transfer where the
bank transfers money from the company`s bank account to the accounts of the
employees.

Deposit or Savings Accounts

When individuals or organisations have surplus amount of money, they may deposit the money
in the bank and in return the bank will give them interest as a reward. However, if the customers
want to withdraw their money, they need to notify the bank in advance or else, it is unlikely that
the bank will be able to give them their money.

Documents used by bank customers

 Paying-in slips
Whenever customers want to deposit money in their bank account, they need to fill in a
paying-in slip which is sometimes known as a deposit form. The paying-in slip includes
the following information:
- The date
- The name of the account holder
- The account number
- The name of the bank
  Bank Statements
A bank statement is a record of every transaction made in each customer’s bank account

MEANS OF PAYMENT

1. Cash

Cash includes notes and coins that customers use to pay for goods and services

2. Cheque

A cheque is a written instruction from an account holder or a bank customer to a bank requesting
the bank to pay an amount of money from his bank account to another person`s bank account.
There are two types of cheque namely a crossed cheque and an open cheque.

Crossed cheque

It can be paid only to the account of the person whose name is on the cheque.

Open cheque

It can be changed for cash at a bank and does not necessarily need to be paid into a bank account.

Advantages of cheques to businesses

Cheques are more secure than cash. If a cheque is stolen, it can be cancelled

Disadvantages of cheques to businesses

 It can take lots of time to clear, that is, it takes lot of time to receive the money in your
bank account
 Cheques may bounce or may be dishonoured. This happens when the person who has
issued the cheque does not have enough money in his bank account to honour the cheque.
 If a cheque is not paid within 6 months, it becomes unusable.
3. Standing Orders

This is when the bank makes regular payment on behalf of individuals or organisations for fixed
amounts of money. The bank will make these payments until the person tells the bank to stop.

4. Direct Debit

This is when the bank makes regular payments on behalf of individuals and organisations for
varied amounts of money. For example, paying for electricity bill each month.

5. Credit Transfer / Bank Giro credit

This is used when large numbers of different payments are being made at the same time. For
example, companies pay their employees via credit transfer.

6. Credit Card

A credit card allows customers to buy a good immediately and pay for them later. At the end of
each month, every credit card holder receives a statement detailing all the items they have bought
and how much they owe to the credit card company as well as interest. If the balance is not paid
at the end of the month, the card holder will have to pay very high rates of interest.

7. Debit Card and electronic transfer

A debit card looks similar to a credit card but it works in a different way. For instance, when a
customer pays for a product with a debit card, the amount is immediately deducted from his bank
account. The transaction is instant.

8. Documentary Credit

This document is used by importers to pay their suppliers, that is, the exporters in other
countries. The importer will ask his bank to prepare a documentary credit. He will then give the
document to the exporter so that he can ask his bank for payment.

9. Banker`s Draft

This is considered as a bank`s own cheque and is accepted by all organisations because they
know that payment is guaranteed by the bank.
Trends in Banking

1. Automatic Teller Machine (ATM)

Banks normally offer ATM facilities so that customers can easily withdraw money from their
account any time they want.

2. Telebanking

This involves a customer calling his bank and using a code word to gain access to banking
services like transfers, payments, advice and so on.

3. Internet Banking

Many banks offer to their customers internet banking services where they can get access to their
accounts 24 hours a day.