Depositing Money with a Bank

Ex 1. Read the Text

There are two general reasons for using a bank account. The first and most common is the convenience and safety 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 be 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 in deposit account can be made through a standing order lo the bank that will automatically transfer the agreed amount according to your instructions. Other payments are 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 are 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.

Ex.2 Answer the questions on the text:

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?

Vocabulary Exercises

Ex.3 Choose the right answer:

1. "a current account" is:

a) one which is available for the time being,

b) one in which savings arc held,

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

2. "a canceled cheque" means:

a) worthless cheque,

b) stamped 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 the interest 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.

Ex.4 Say if the sentence is true and what is false. Correct:

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 arc 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 get money out of a deposit account than it is from a current account.

Bank Investments

Vocabulary

Ex. 1 Read the text

The investment policy of a bank is based upon the recon­ciliation of two conflicting aims. On the one hand the bank wants to make as much profit as it can and for this reason it must take the risks of lending money. On the other hand its funds belong to its depositors and must be available when­ever they wish to make withdrawals.

There are two things that the bank must therefore do. First, it must keep a proportion of its assets in the form of rash to meet demands. The amount than this needs to be varies very little from one bank to another or from one day to another and experience suggests that it is about six percent. As a cushion against unexpected demands a further propor­tion of funds is invested at low rates of return in highly liquid lending mostly to firms in the money and capital markets.

The second thing that the bank must do as it ensures that the investments it chooses are sale. This also means that they are relatively low yielding since high yields are associated with risk and with lending tor long periods of lime. Much of a bank's investment is in short and medium government and lo­cal government bonds. They yield certain incomes and are readily saleable should the occasion demand.

Advances by a bank to its customers are the least liquid of their assets since there are few borrowers who could repay a loan at very short notice. However, they are also the most profitable of them yielding the highest rate of return. Advances to customers are likely to account for more than two thirds of the bank’s investment portfolio although this will vary on a day to day basis since overdrafts are the most common form of advance and are not immediately controllable by the bank. In general banks do not lend lo industry for long periods of time or for investment projects. They regard themselves as providing working capital rather than fixed capital.

Ex.2 Answer the questions on the text:

1. What two conflicting aims must a bank reconcile in its investment policy?

2.What must the bank do to be ready to meet demand for cash on the part of its customers?

3.Why does the bank prefer rather low yielding investments?

4.Which investments do visually yield high returns?

5. Which investments are hardly controllable by the bank? Why?

6.Why don't banks usually invest in industrial projects?

Ex.3 Say what is true and what is false. Correct the false, sen­tences:

1.Bonds are highly liquid investments.

2. Stocks are less speculative than bonds.

3. Blue chip issues show a lot of price fluctuation.

4. It is desirable to diversify one's portfolio.

5. All municipal bonds are tax-exempt.

6. Bonds yield uncertain incomes and are difficult to resell.

7. Advances are the most liquid of bank's assets.

8. Advances are the most profitable of bank's investments.

Ex.4 For each of the following phrases, find the expression in the text that explains it:

1. a stock of the highest quality

2. a unit of ownership in a company

3. the return actually received from an investment

4. changes in prices

5. a list of stocks and bonds belonging to a company
6. a firm's investment in long term assets

7. loans and overdrafts granted lo customers

8.bought and sold in an attempt to make profits from price fluctuation

9. the amount of cash needed by a firm for day to day activity

10. a protective barrier against the unexpected