Page 470 - Business Principles and Management

Chapter 17 • Financial Services

losses, repaying a loan at intervals is safer than paying one lump sum at the end
of the time period. Borrowers can then include the monthly payments in their facts
budget plan. &
Rates may be set for the full term of the loan or they may change during the
loan period at predetermined times or based on specified conditions. An interest figures
rate that does not change throughout the life of the loan is a fixed interest rate.
Interest rates that can change are variable rates. A variable interest rate can
increase or decline based on the factors used to adjust the rates. Often variable Over 70 percent of all U.S.
interest rates are based on changes in the prime rate or in the price of govern- employees receive their pay-
ment securities. Variable interest rates are usually cheaper at the beginning of a checks through direct deposit,
loan but may become more expensive over the full term if economic conditions with a 97 percent satisfaction
and government policies tighten the money supply. rate. Fifty-four percent of
households have at least one
monthly payment—such as for
a mortgage, auto loan, or util-
CHECKPOINT ity bill—paid directly to the
Why do banks usually require collateral when loaning money company by their bank with-
to businesses and consumers? out having to write a check.

Technology and Financial Services

Remarkable changes have occurred in banking over the last decade, thanks to the
rapid development of computers and other forms of electronic technology. Much
of the work once done by clerks, such as processing checks, recording deposits
and withdrawals, and keeping customer accounts up to date, is now done elec-
tronically. Electronic funds transfer (EFT), transferring money by computer rather
than by check, has enabled financial institutions to provide faster, improved ser-
vices. For example, EFT transactions reduce the need for checks. Direct deposits,
automatic teller machine transactions, and Internet banking are three common
uses of EFTs. The use of debit cards is another form of EFT and will be discussed
in the next chapter.

DIRECT DEPOSIT

A direct deposit is the electronic transfer of a paycheck directly from the employer’s
bank account into the employee’s bank account. The use of direct-deposit banking
has increased in popularity. Employees who select this service receive immediate
use of their earnings. They no longer have to wait in line to cash checks or make
deposits. For each pay period, the employer must provide the employee with a
record listing gross pay and all deductions. The Social Security Administration and
the Internal Revenue Service both prefer that individuals receiving checks from
them use direct deposit. In this way, checks do not get lost or stolen. Direct deposit
is also used for the direct electronic transfer of other payments from one bank to
another.

AUTOMATIC TELLER MACHINES
An automatic teller machine (ATM) is a computer terminal that enables bank
customers to deposit, withdraw, or transfer funds by using a bank-provided
plastic card. ATMs are located at banks and other convenient places, such as

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