Interest-earning cheque accounting

Gradually, the smaller banks and some of the larger banks are attracting customers by offering accounts that not only give the normal current-account facilities but will offer interest on the daily balances.

The conditions on this type of account tend to vary from bank to bank, but in general terms a minimum balance of about £2,000 is expected and cheques for not less than £250 may be drawn.

Unlike a normal deposit account, the withdrawal of funds do not need a notice of seven days, or suffer the loss of seven days' interest. This hybrid account is very attractive to customers and so it is expected that as competition grows between banks, the conditions imposed for its maintenance may disappear and all current accounts may eventually attract interest.

Deposit accounts

There are various types of deposit account, but basically it is an account that attracts interest on the cleared funds, calculated on a daily basis. Normally, funds that are not needed in a current account are transferred to a deposit account, and a reverse entry is passed when these funds are needed. The individual often uses this type of account as a simple and easy method of putting money aside to meet holiday expenses, Christmas, birthday presents, and so on.

No cheque book is given nor is a cheque card available with this account, but a paying-in book is available if necessary. Statements can be sent at regular intervals. No overdraft is permitted and interest is paid either quarterly or half yearly, depending on the banks policy, but it should be remembered that for individuals, joint accounts, partnerships, trustees and other non-corporate customers, except non-residents, interest is paid net of tax, that is tax is deducted by the bank at the Composite Rate of Tax (CRT). This brings the interest-bearing accounts in line with those of building societies.

Other than the basic deposit account, each bank may offer four or five other types. The first is a form of 'savings account'. Again, each bank will have its own pet name for this type of account, but basically the customer is encouraged to transfer a regular sum each month to this account, and for this he may be offered between 1.0 and 1.5 per cent above the basic rate of interest. The disadvantage is that the bank will only permit withdrawals twice a year. Many customers find this a painless way of saving as it can be arranged that the current account is debited on salary day, so that funds are available for such occasions as Christmas, a deposit for a house, birthdays, and so on.

Amounts of £10,000 and above may be put on a special type of fixed-term deposit account; this attracts a higher rate of interest. Usually, the longer the term, the higher the rate of interest. Such amounts are often dealt with by the treasurer's department at head office. Once the rate and term is fixed, a legally binding contract has been made and it is usual for the funds to be left on the account until maturity. Should the customer require early repayment, then he is penalized.

Another type of deposit account is the savings account for children. In order to attract children, special money boxes are available which can usually be opened at home. The bank would encourage the young customer to come to the branch, however, and credit the account with the contents.

Each bank has its own variety of deposit accounts. Basically, the interest earned on deposits will depend on the length of time, rate of interest appertaining and the amount deposited. These rates are displayed in the banking hall of each branch.

Budget accounts

This type of account assists the ordinary man and woman to monitor and regulate their cash flow. It helps to avoid periods of shortages of funds with those periods where a surplus of cash is available. Again, each bank has its own name for this type of account, but basically, after consultation with a branch manager or senior clerk, the customer calculates his total domestic expenditure, which includes, rates, gas, electricity, insurance, mortgage, and so on. The total of all expenses plus the bank's charges are divided by twelve, and the customer then signs an instruction to transfer, once a month, an amount from current to budget account. A cheque book is given to the customer who may pay his bills as and when they fall due. Providing all calculations are correct, at the end of the twelve month period, there should be a nil balance, when the whole exercise is started all over again.

Loan accounts

One of the methods by which a bank earns its profit is by lending money to its customers. A loan to an individual may be for the purchase of consumer durables (e.g. washing machines, TVs) or to redecorate the house or flat, or for a holiday, and so on. For a businessman, such an advance may be for the purchase of stock or fixed assets. In both cases the loan may be for a period of two years and upwards. The interest charged will be stated at x per cent above the bank's base rate. The interest calculated is debited either quarterly or half yearly to the current or the loan account at the customer's option.

 

PERSONAL LOAN ACCOUNTS

 

This loan is usually for an individual who again wishes to purchase, for example, consumer durables, but in this case he will know precisely the amount he has to pay each week/month to repay the debt. Once the amount lent is known, the bank will add to this an amount for the total interest due for the whole period, and request the customer to pay one twenty-fourth or one thirty-sixth back each month, or whatever repayment is agreed between banker and customer.

Under the Consumer Credit Act 1974, the customer will be informed of the Annual Percentage Rate (APR), the amount of the loan and the amount of the interest added to that loan. Should interest rates move either up or down, this will not affect the loan agreement, so that within the loan time, the customer need not concern himself if rates move upwards, but may feel inclined to either repay the loan earlier or negotiate a new loan if rates move downwards.

The added attraction of this type of loan, from the customer's point of view, is that he may go to a retail outlet, purchase goods for cash or offer a cheque, which may attract a cash discount, which could be sufficient to offset any interest paid.

With this type of account, security is not usually requested by the bank, and with a built-in insurance, should anything happen to the customer, the debt is cancelled and the deceased's family is not encumbered with a debt.

 

XXI. Add the words and expressions that complete the following sentences below:

deposit account credit card night safe letter of credit safe (for safety) deposit box

current account investment advice checkbook foreign exchange loans

banker’s draft mortgage standing order transfer overdraft

1. When I opened the account, they gave me a _______ and a paying-in hook.

2. Banks' basic business used to be making ______, hut they now often earn more from securities trading and financial services.

3. Most banks are able to offer ______ to rich clients.

4. An importer who has to pay a hilt in a foreign currency, and so cannot use a cheque, can arrange to pay by ______.

5. Outside banking hours, shops and other businesses can deposit money in the banks ______.

6. Before travelling abroad, I always get some currency from the _______ department of the bank.

7. I pay regular bills every month with a ______.

8. My salary is paid directly into my account every month by an automatic ______.

9. Nearly all restaurants accept payment by ______.

10. Most people in Britain who buy a house take out a ______.

11. Since I sometimes spend more than I have in my current account, I have arranged an ______.

12. If you want higher interest, and don't need to withdraw money too often, you should get a ______.

13. A _______ is a paper issued by a buyer's bank which guarantees that the seller will be paid.

14. If you want to write cheques and have easy access to your money at any time, you should have a _______.

15. People with valuables often keep them in a ______ in a bank.

 

XXII. Read and discuss the following text. Give answers to the questions below:

There are two general reasons for using a bank account. The first and most common is the convenience and safely pro­vided by a current account at a bank. The second is that small and perhaps regular surpluses are available to be saved, and for this purpose a bank provides deposit accounts.

A deposit account will not offer a high rate of interest and would not he the best way to save large sums of money for any long period of time, but it is designed to make saving simple, convenient and safe. It is especially appropriate for those who may save small amounts from time to time without any planned regularity or for those who wish to save for a particular purpose in the immediate future, for example for annual holidays or for the purchase of a major item such as a car.

Most customers of a bank who have opened a deposit ac­count will also have a current account and this makes the transfer of amounts of money from one to the other an easy matter. Regular payments into a deposit account can be made through a standing order to the bank who will automatically transfer the agreed amount according to your instructions. Other payments arc made on standard forms but it is most convenient and provides a useful record if the depositor uses a paying in book. Interest is calculated every six months and added to the account. The rate of interest varies from time to time and is publicly advertised in any bank., Because the bank uses money deposited with them to lend to others it normally requires about seven days notice of intention to withdraw money from a deposit account, but unless there is a heavy demand for money they arc not likely to insist on this and cash is often immediately available to those who wish to with­draw it. There is an assumption that such notice was given and you would lose seven day's interest on the money.

The increasing need for security and the use of computers in wage payments have combined to make it more common to have a bank account than to be without one. This kind of account is a current one and its most common use is a single regular payment in either a weekly wage or a monthly salary and regular payments out to meet the normal everyday ex­penses. Most payments are still made by cheque although the use, of the standing order or the direct debit is becoming very common. It is normally expected that a current account will remain in balance and customers who regularly maintain an agreed minimum balance are often given the services of the bank without charge. In general, however, charges are made which vary with the size of the balance, the amount of use of the bank's services and the number of transactions. If the account is overdrawn a further charge, which is interest on the overdrawn amount, is also made.

Overdrafts are not permitted automatically and anything other than a small temporary overdraft would have to be by agreement with the bank manager. Such a facility is often useful particularly when there is a short term disbalance be­tween income and expenditure. On the other hand, since money in a current account does not attract interest, it is not a good idea to maintain large cash balances, these would be better transferred to a deposit account or to an alternative form of saving.

 

1. What are the two main reasons for opening a bank ac­count?

2. Which type of account is used by those who wish to save?

3. What kind of saving is this type of account most suited to?

4. What is a standing order?

5. Why does a bank sometimes need notice of intention to withdraw money from saving accounts?

6. What is the most common use of current accounts?

7. Why are some customers not charged for the facility of a current account?

8. Why is it not a good idea to retain large balance in a cur­rent account?

 

XXIII. Choose the right answer:

1. "a current account" is:

a) one which is available for the time being,

b) one in which savings are held,

c) one which is used all the time for day-to-day transac­tions.

2. "a canceled cheque" means:

a) worthless cheque,

b) slamped to indicate that payment has been made,

c) crossed cheque.

3. "a genuine signature" is:

a) a person's name written by himself,

b) a person's name written correctly,

c) legible signature,

4. "an outstanding cheque" means:

a) unpaid cheque,

b) written but not yet presented for payment,

c) overdue cheque.

5. "a deposit account" is:

a) one from which regular payments are made,

b) one in which savings are held,

c) one from which withdrawals can be made by cheque.

6. "rate of interest" is:

a) the percentage of each unit of money paid for its use,

b) rate of profitability,

c) portion of an investment on which Ihe inlcrcsl is calcu­lated.

7. "an overdraft" is:

a) an amount by which the balance in a current account exceeds the value of a cheque drawn from it,

b) an amount by which the value of a cheque exceeds the balance in the current account,

c) an excessive balance in a current account.

 

XXIV. Say what is true and what is false. Correct the sentences:

 

1. The teller has to learn to recognize all customers' signatures.

2. If you want to keep your investment fairly liquid, put it in a deposit account.

3. You cannot make withdrawals from your deposit account.

4. Interest is paid by the bank on both current accounts and deposit accounts.

5. Withdrawals are made from a deposit account by cheque or standing order.

6. Money is easily transferable from a current account to a deposit account.

7. The rate of interest on deposit accounts is fixed.

8. It is easier to gel money out of a deposit account than it is from a current account.

 

XXV. For each of the following phrases find the expression in the text or in the dialogue that explains it:

1) to record figures in a ledger

2) to compare one's own records with the bank's statement and make them agree

3) money paid for the use of someone's money

4) to increase in quantity

5) the date when a loan or investment is due

6) a specified period of time

7) to protect against loss or damage

8) at the rate of 5% each year

9) an instruction to a banker to make a payment at regular intervals

10) an instruction to a banker to make a single payment to a specified person

11) the amount on which the money paid for its use is calcu­lated

12) on my deposit account this payment for the use of my money builds up at the rate of 3%

13) another type of account into which my salary is paid ev­ery month

14) the amount which I have to pay the bank for the use of their services

15) the amount by which my current account holding is greater than nothing

16) my statement shows me that I owe the bank money