Study Questions

Account Ownership - is a simple area - that can cause major problems for both the customer and the bank. It is important that the customer(s) understand what ownership type they are agreeing to when the account is opened. From experience, too often the customer has a clear understanding (in their own mind) of what they want, but are unable to explain to the new account representative their full intentions. The result can lead to legal consequences that neither the financial institution nor the customer ever intended.

The account agreement or contract is exactly that. It is a legal and binding contract between the customer and the financial institution. However, since all banks supply the contract - they have a more complete understanding of what is intended than the customer could ever have. It becomes extremely important then, for the new account representative to fully explain the terms of the contract and the implications of various account styling.

Types of deposit accounts also vary considerable from one financial institution to another. Nearly banks have similar accounts - but for marketing purposes - each may have a unique approach, name or feature.

The text, correctly, differentiates between Demand Deposit Accounts and NOW accounts. In practice, however, most customers will not consider the difference meaningful. In fact, most financial institutions that originally offered NOW accounts (interest bearing checking accounts) now also offer non-interest bearing accounts. Many institutions have come to understand that no one product has universal acceptance and that most consumers want a choice - not just of which financial institution they prefer - but what type of product that most suits their particular needs.

Cash Management is the science ... of minimizing one's holding of static cash." CASH - is a NON-earning asset. While it is a requirement for doing most retail business - every organization, including banks, should attempt to minimize the amount of CASH being held. For our purposes CASH is both the currency held and the balances held in non-earning transaction accounts.

From an operations viewpoint, the term "Commercial Cash Management Services" includes the meeting business account needs for the management of THEIR cash requirements. This applies to all businesses considering their transaction (checking) account balances - but in the terms of currency - specifically to businesses that are generally RETAIL in nature. Stores, restaurants and other smaller financial institutions all have a need for someone to either supply them with cash or take excess cash in the form of deposits. When you go to a store - make a purchase with dollars - and receive change - behind the scene there was a bank that supplied that store with the coin or currency necessary to help process your transaction. All businesses should work to maintain balances in their checking accounts that are sufficient to meet current needs, but not much more than the minimum needed.

Banks - are specifically suited to help business manage cash needs - since they too must manage their needs for profitability. In order to have a better understanding of how one manages cash needs - the various components must be considered.

"Float" - refers to the status of funds in the process of collection or payment. In a simple example, from the time you write a check to pay a bill - while the check is in the mail - while it is going through the company you mail it to - while it is going through their bank's processes - then through the collection processes - until it is withdrawn from your account at your bank - is "float". During that time - you still have the use of those funds (for example if your account is a NOW account, you are earning interest until the check is actually withdrawn). From your viewpoint, the longer it takes from time you get credit for the check the billing company - until it clears your account - the better. From the businesses' view - the shorter that time - the better.

All cash managers should work to minimize both the amount and the length of the float process. Large, national companies - long ago realized that if they had multiple-regional payment processing centers, instead of one single location - they could reduce their overall float. Locally, many retail organizations have learned that if they encode the MICR line amount on the checks they receive, that they could receive collected balances sooner than if they didn't.

Float management also applies to the writing of business checks - in that many national companies - write checks on banks that are intentionally in different parts of the country than the office writing the check. For example, the Dallas office of a company may write checks locally drawn on a New York or Los Angeles bank - while the New York office writes checks on a Los Angeles bank. These techniques are designed to increase the amount of time the business has use of their own funds. Of course, the businesses receiving these checks are losing that same amount of time.

ASSIGNMENT: Discuss the importance of choosing the correct "ownership" for a bank account. Consider the impact of title, control, convenience, authority - on accounts for both individuals and businesses.

Paper length should be two to three pages - Include url's used for your information sources as references. Research paper must be emailed to the instructor by Friday of the sixth week of classes.