Banking and Interest Rates

Depository institutions

financial institutions that accept deposits from individuals and provide loans

Commercial banks

financial institutions that accept deposits and use the funds to provide commercial and personal loans

savings institutions

financial institutions that accept deposits and provide mortgage and personal loans to individuals

credit unions

nonprofit depository institutions that serve members who have a common affiliation.

nondepository institutions

financial institutions that do not offer federally insured deposit accounts, but provide various other financial services.

finance companies

nondepository institutions that specialize in providing personal loans to individuals

securities firms

non-depository institutions that facilitate the purchase or sale of securities by providing investment banking and brokerage services

insurance companies

nondepository institutions that provide insurance to protect individuals or firms against possible adverse events.

investment companies

non-depository institutions that sell shares to individuals and use the proceeds to invest in securities to create mutual funds

financial conglomerates

financial institutions that offer a diverse set of financial services to individuals or firms.

Debit card

a card that is used to make purchases that are charged against a checking account

safety deposit box

a box at a financial institution where a customer can store documents, jewelry, or other valuables

automated teller machines (ATMs)

a machine where individuals can deposit and withdraw funds at any time of the day

cashiers check

a check that is written on behalf of a person to a specific payee that will be charged against a financial institution’s account

money order

a check that is written on behalf of a person for a fixed amount that is paid in advance

traveler’s check

a check that is written on behalf of an individual and will be charged against a large well-known financial institution or credit card sponsor’s account

Certificate of deposit (CDs)

an instrument that is issued by a depository institution and specifies a minimum investment, an interest rate, and a maturity

risk-free rate

a return on an investment that is guaranteed for a specified period.

risk premium

an additional return beyond the risk-free rate that can be earned from a deposit guaranteed by the government

loan rate

the financial institutions loan money at a rate higher than they pay depositors.

Term structure of interest rates

he relationship between the maturities of risk-free debt securities and the annualized yields offered on those securities

monetary policy

the actions taken by the Federal Reserve to control the money supply

money supply

demand deposits (checking accounts) and currency held by the Public

open market operations

the Fed’s buying and selling of Treasury securities.