CHAPTER V BANKING AND BUSINESS PRACTICE METHODS OF DEPOSITING MONEY 188. Banks are institutions that deal in money and take care of other people's money. Most people do not keep much money on their persons or in their houses or places of business. They put it (or deposit it) in a bank. Money so intrusted to a bank is called a deposit. 67 10-09 250M Business men generally deposit every day the greater part of their cash funds. Commonly depositors use a slip like this, which the bank keeps to show just how much has been deposited. The bank clerk also enters the amount in a bank book, belonging to the depositor. 189. When depositors make payments to others, instead of paying out money they use checks. A check is an order on a bank to pay to some one an amount of money specified. The bank honors the check; that is, it pays the specified amount to the person named, Deposited to the account of IN The Eighth National Bank PLEASE ENTER EACH CHECK SEPARATELY Bills DOLLARS CTS. 125 Coin 37 Check Feuch Ward 4732 Borough 1346 Phila 412 after making sure that the one whose name is signed really signed it, and that he has money enough on deposit to pay it. Read this check and tell on what bank the order was drawn. Who made the check? To whose order was it made? For how much was it made? If the check is made payable to a particular person, he must indorse it, that is, write his name on the back, before he can get the money. It is not necessary for the man who receives a check to go to the bank on which it is drawn to get his money. He 190. Richard Smith owes Bonner & Preston $65.24. has a deposit in the Eighth National Bank of New York. So he sends them a check for the amount of the bill. They indorse the check and deposit it, as if it were cash, in the Second National Bank, where they keep their money. The Second National Bank collects the amount, $65.24, from the Eighth National Bank, for them, and places it to their credit in that bank. These banks thus save both of these parties a great amount of time and trouble. By such means banks provide a convenient and prompt method of collecting and paying money. To pay themselves for this, they loan on interest the money deposited with them. CLEARING HOUSES 191. For the convenience of banks in collecting from one another money due on the checks of their depositors, there are in most cities "clearing houses." A Clearing House is a place where representatives from the different banks meet to exchange checks and to adjust balances. At a certain time every day the different banks send to the clearing house all the checks on other banks which have been deposited during the day. These checks are compared, the amounts due between the various banks canceled so far as they are equal, and any balance due paid in money. In the above example, the Second National Bank sends to the clearing house Mr. Smith's check drawn on the Eighth National Bank. The Eighth National Bank has a check drawn by Mr. Jones on the Second National Bank for $78.40. So the messenger of the Second National Bank pays to the messenger of the Eighth National Bank, in money, the difference between the two checks, $78.40 - $65.24 or $13.16. This is done through clearing house officials. Each of the checks mentioned will be stamped on the back with the clearing house stamp which gives the date of its clearance. 192. All the checks due from each bank to all the others are taken by the officers of the clearing house, classified, and added. Then the balances are paid by those whose checks payable are less in amount than their checks receivable. CERTIFICATE OF DEPOSIT 193. Banks receiving and caring for deposits do not pay interest on them, unless the depositors agree to leave the money in the bank for a considerable time. In this case the ordinary bank issues to the depositor a certificate of deposit. Walter Emery TELLER No 23056 This Certifies that New York April 3. 19th Fredrick Layton has deposited in this Bank -Dollars on payable four months after date to his order hereon return of this fortificate with interest at 2 percent per annum Due Amount deposited $_ months interest $ 19 $ EIGHTH NATIONAL BANK Boters Goddard CASHIER Sometimes interest is paid on the average of deposits left in the bank for 60 days or more. WRITTEN EXERCISES 194. Find the interest on the average amounts of the following deposits for the periods named, at 31 % : 66 4. $10,150 July 16, 1908" Sept. 20, 1908. 5. Find the interest at 4% on the average amounts of the following deposits for the periods named: TRUST COMPANIES AND SAVINGS BANKS 195. There are two kinds of banking institutions that receive deposits not subject to check and pay interest on them. Such banks are called Trust Companies and Savings Banks. Trust companies usually receive money in large amounts, such as entire estates, and care for it, charging for time. and services, and paying interest on funds deposited. Some trust companies also do a regular banking business and pay out money on checks of depositors. But they do not pay interest on deposits subject to check, unless a special arrangement is made. Savings banks receive money in small amounts and pay compound interest. COMPOUND INTEREST 196. Savings banks and some other institutions pay interest on the money deposited with them. At stated times. they add to the principal the interest then due, and compute interest on the amount for the next period, thereby paying not only interest on the original principal, but interest on interest. This is called compound interest. 197. Interest is computed from a certain date in each month, usually not later than the 5th. Money deposited before that date receives interest from the 1st. Money deposited after that date draws no interest until the 1st of the next month. In some institutions no interest is allowed unless the money has been on deposit 6 months if compounded semiannually, or 3 months if compounded quarterly. Money withdrawn from a savings bank before the end of any six months' period does not draw interest for that period if interest is compounded semiannually. Money withdrawn is called a draft. |