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CHAPTER 8: BANKING PRODUCTS AND SERVICES - Coggle Diagram
CHAPTER 8: BANKING PRODUCTS AND SERVICES
DEPOSIT
Definition
: The placement of excess funds by the surplus units in the financial system for the purpose either investment or temporary placement.
Divided into two:
(i) Demand Deposit: refer to the funds placed in the current account maintained by individuals or corporate customers.
(ii) Other Deposit: refer to the placement of funds in the savings accounts, fixed deposits or investment account.
➡Other deposit can be divided into various categories such as public sector deposits, private sector deposit etc.
➡Specific group to deposit such as children saving account, teenage savings account or senior citizen saving accounts.
Savings Account
Focus more to attract small depositors to place their fund in the bank normally employed individuals, societies or clubs
Holders would be given an Automated Teller Machine (ATM) card so that the account's holder can easy access to the account anytime throughout the country.
Small investment return can be obtained where interest is credited for credit balance. The interest is calculated daily basis but amount is credited every six months
Minimum services by savings account holders:
to bank in cash or cheques.
to make over the counter and ATM withdrawals
To make fund transfers and bill payment facilities.
Current Account
Normally for individuals, with or without business, partnerships and corporations to place money for their daily usage.
Features of a current account:
an ATM card issued to account holders for anytime and anywhere usage.
A cheque book facility where account holders can use the cheques to make payment.
A monthly statement of account to be sent to account holders.
Types of Fixed Deposit:
➡FD- Premature Upliftment
Is a withdrawal of fund by customers from the FD account before its maturity date.
Withdrawals that made before the maturity date will charged for penalty.
➡Negotiable Instruments of Deposits.
Documents issued by a bank to certify a customers has deposited a sum of money at a specific rate for a specified period. Types of NIDs are short term negotiable certificate of deposits, long term negotiable certificate of deposits, zero coupon negotiable certificate of deposits and floating rate negotiable certificate of deposits.
Fixed Deposit Accounts (FD)
It is a placement of funds by a customer for a specific period of time.
Special account for those who have excess fund of investment purpose.
Features:
✔Funds are kept for a specific period of time usually 12 months and even up to 60 months.
✔Account can be opened by individuals or corporations.
✔Customers are not allowed to withdraw until it reaches the maturity period.
✔The profit is paid when the withdrawals are made at the maturity date.
LOAN AND ADVANCES
Definition:
An arrangement whereby a borrower obtains financing from a lender in exchange for an agreement to repay the funds at a later date normally on an installment basis with interest.
TERM LOAN
Definition: A single loan for a stated period of time or series of loan on a specified date.
The purpose of loan are to purchase machinery, commercial buildings, factory or house etc.
Housing Loan
➡A type of loan given to customers to meet the full or part purchase price of the house specifically for residential property.
➡Housing loan is a secured loan.
➡Housing loan is a long term basis where the repayment usually from 10 years to 35 years.
➡Other cost to be borne by property purchaser such as: legal cost, stamp duty valuation fees and insurance premium.
Personal loan
➡A loan that given to an individual for a specific personal purpose such as to buy personal assets, to invest to purchase computer or for education.
➡Personal loan are repayable by monthly installment over a minimum of 6 months to up to 7 years or more.
Overdraft (OD facility)
✔A facility where a bank allows for a current account of a customer to be debited even when the account is having insufficient fund.
Features:
Only granted to a current account holder, it is subject to periodic review on conduct of account, OD facility can be secured or unsecured etc.
CARD SERVICES
Credit card
⭐It is given to the individuals to make payment but with a credit limit and this limit is revolving in that when the credit card holder pays part or full amount of the limit, the card holder can reutilize the paid amount together with the balance not utilized.
⭐Very easy to use, interest free period and less cash involve.
Part of bank and retail outlet is that it is subjected to fraudulent card.
Charge card
⭐Facilities given to customers where the cardholders are not specified with any credit limit.
⭐The card holder must pay the amount outstanding in full as indicated in the statement given out to customers every month.
Debit card
✔It is a facility whereby when the card is used at the retail outlet, the account of the card holder is debited immediately.
✔It does not have credit limit like a credit card.
✔Debit card advantage: less cash related risk involve by customers, reduce cost of cash handling and faster fund transfer but it may be subjected to fraudulent card.
Electronic Banking
Self-service Terminal (SSTS)
⭐Banking facilities in the form of machines being located at various strategic places for the public to perform banking transaction.
Cash Deposit Machines (CDM)
⭐ CDM will provide facilities to deposit money to own account, third party accounts and cash payment to credit card or term loan
Phone Banking
⭐Phone banking allows customers to perform banking transaction through telecommunication devices by dialing a touch-tone telephone or mobile communication unit.
Phone banking services by bank:
Balance enquiry, fund transfer, loan repayment and new account opening.
Automated Teller Machine (ATMs)
ATMs electronic machine operated by customers themselves to perform a lot of banking transaction conveniently.
Advantages of ATMs:
Operated anytime of the day
Conveniently located
Variety transaction
Privacy in transaction.
Disadvantages of ATMs:
Service interruptions
Lack of communication
Limited services
Security.
Corporate Products (E-banking)
Electronic Data Interchange is an electronic bridge between banks and customers that carry detailed trading data and payment information.
Advantages of EDI:
Provide fast and accurate information of shipping for the transportation company.
Provide up-to-date information related to customers account etc
Disadvantage of EDI:
Merely provides the information and abides by instruction given.
It does not generate paper payment
It does not make decisions for customers.
Interbank Electronic Banking
(i) Real Time Electronic Transfer of Funds and Securities (RENTAS).
It is used for large value interbank funds transfer and scriptless securities.
Advantages:
Using real time therefore can control risk.
Enables better liquidity management for participants.
Can be used as means of controlling risks associated with large value payments in develop financial market.
(ii) Society for Worldwide Interbank Financial Telecommunications (SWIFT)
Provide a computer controlled system for transmitting messages such as FOREX confirmation, statements collection or documentary credits.
Internet Banking
Can be defined as performing transactions and payments through a bank's secure website.
Advantages:
Fast and convenience service
Flexibility
Hassle-free payment etc
Disadvantages:
Lack of security
Service not sufficient.
Interruptions of service.
OTHER BANKING PRODUCTS AND SERVICES
Remittances
Can be defined as the sending of money from one place to another.
Cashier's order and demand draft.
Cashier's order: issued in Malaysian Ringgit to pay a beneficiary normally residing in the same area or town where the issuing bank is located.
Demand Draft: A payment order in writing addressed by a bank to another, requiring the bank to whom it is addressed to pay on demand the sum stated in the draft to or the order of the person specified on the draft.
The Telegraphic Transfer (TT)
A form of transferring money electronically using cable, telex, fax etc such as RENTAS and SWIFT.
Standing Instructions or Standing Order.
A service provided by a bank to its customers who wants to make regular (periodic) payment to the same beneficiaries by debiting the customer's account.
SPECIALIZED FINANCIAL SERVICES
Hire Purchase Agreement (HP)
A financing agreement where the debtor hires the goods and has possession of its with an option to purchase and obligation to make payment to the bank every month.
Block Discounting
A purchase of a book debt such as the purchase of a block of hire purchase agreement belonging to another bank or a dealer and charging the bank lower interest than stated in the agreement.
Leasing
A written contract between a leasing company and the user of the equipment where the lessee agreed to pay the lessor a specified sum of rentals over an obligatory period by the lessor.
Factoring
A type of financing facility whereby a bank as factoring company purchases approved sales invoices of a company. The bank will collect the factored trade debts from debtors of the company.
Bridging Loan
Facilities by bank for property and developer or company for the payment of construction and other infrastructure projects
End Financing
The financing given by the bank to purchasers or individuals of the house build by the property developer that receives bridging loan from the bank.