Negotiable Instruments

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Negotiable Instruments

• Created By Laura Kinchen

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Negotiable Instruments

• What is negotiable?
• Negotiable means transferable.
• The negotiation that goes on refers to the
  transfer of the instrument between two people, or
  from one bank to another, or even from one
  country to another.
• What is an instrument?
• In the broadest sense, almost any agreed-upon
  medium of exchange could be considered a
  negotiable instrument.
• In day-to-day banking, a negotiable instrument
  usually refers to checks, drafts, bills of
  exchange, and some types of promissory notes.

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Forms of Negotiable Instruments

• A negotiable instrument is a written order
  promising to pay a sum of money.
• It may be a bearer instrument, which is payable
  to the bearer, or it may be an instrument with
  highly specified terms.

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What Makes a Document Negotiable

• A document becomes negotiable when it contains an
  unconditional promise to pay money and is payable
  to a bearer or payable on demand.

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Negotiable Instruments

• To qualify as a negotiable instrument (commercial
  paper), the document must meet certain
  requirements established by Revised Article 3
  (Negotiable Instruments) of the Uniform
  Commercial Code (UCC).

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Functions of Negotiable Instruments

• Negotiable instruments serve the following
  functions
• Substitute for money
• Credit device
• Record-keeping device
• Most purchases by businesses and many individuals
  are made by negotiable instruments instead of
  cash.

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Types of Negotiable Instruments
Checks (cashiers travelers)
Drafts
Certificates of Deposit
Promissory Notes
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According to UCC 3-104(a), a negotiable
instrument must

• Be in writing
• Be signed by the maker or drawer
• Be an unconditional promise or order to pay
• State a fixed amount of money
• Not require any undertaking in addition to the
  payment of money
• Be payable on demand or at a definite time
• Be payable to order or to bearer

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Checks

• Most common form of negotiable instrument
• Preferred method of payment for many debts
• Offer convenience, safety, and a record of
  transactions

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Standard Features of a Check
Check Number
Date
Amount
Payee
Amount
Signature
Memo
Account Number
Identification Numbers
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Savings Bond

• U.S. Savings Bonds
• Another savings option is purchasing a U.S.
  Savings Bond. The maturity date of a bond depends
  on
• The date it was bought
• The interest rate the bond is earning
• Your bonds worth will depend on current interest
  rates and on the month and year in which the bond
  was issued.

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Bank Drafts

• A draft is a three-party instrument similar to a
  check.
• A draft is an order signed by one party (the
  drawer, or drafter) that is addressed to another
  party (the drawee) directing the drawee to pay to
  someone (the payee) the amount indicated on the
  draft.
• The payment may be at sight or at some defined
  time.
• Most drafts are used for the purchase of goods
  and services when the transaction goes beyond the
  bounds of U.S. banking law.

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Life cycle of a check

• Writing Checks
• Before writing a check, use your check register
  to record the
• Date
• Number of the check
• Name of the party who will receive the payment
• Exact amount of the check
• Be sure to keep a current balance of the money
  you have by deducting from or adding to your
  balance the amount of any check transaction.

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Types of Deposit Accounts

• Savings accounts simplest type of account to
  open and maintain, usually requiring minimum
  balances, sometimes very small, to avoid fees
• main drawback is that they typically pay very low
  interest or dividend rates.
• Basic Checking Accounts interest- or
  dividend-paying features, again usually requiring
  minimum balances
• Interest-Bearing Checking Account
• able to write an unlimited number of checks
• interest rate often depends on how large the
  balance in the account

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Types of Deposit Accounts

• Money Market Accounts your deposits earn based
  on the performance of a portfolio, or mutual
  fund, of large money market securities such as
  commercial paper, Treasury bills, banker's
  acceptances, and negotiable certificates of
  deposit
• Requires minimum balances that usually are higher
  than that required of regular savings accounts,
  but often pay the highest interest or dividend
  rates
• Central Asset Account account that combines
  savings, checking, credit/debit card services,
  and a line of credit in one wide-reaching
  account.
• CDs (certificate of deposit) also known as
  "time deposits", because the account holder has
  agreed to keep the money in the account for a
  specified amount of time, anywhere from three
  months to six years
• Since you wont be able to touch the money for
  the specified time, you get a higher interest
  rate
• Substantial penalty for taking the money out
  early

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Checking accounts

• The most commonly used payment service is a
  checking account. Money that you place in a
  checking account is
• Called a demand deposit
• Able to be withdrawn at any time, or on demand
• Checking accounts can be divided into three main
  categories
• Regular accounts
• Activity accounts
• Interest-earning accounts
• Write checks to pay bills or buy goods or
  services
• Linked to an ATM/Debit card

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Opening a Checking Account

• Opening a Checking Account
• Before you open a checking account, decide
  whether you want
• An individual account
• A joint account
• Personal joint accounts are usually or
  accounts, which means that only one of the owners
  needs to sign a check.

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Regular Checking Account

• Regular checking accounts usually do not require
  a minimum balance. You may have to pay a monthly
  service charge, however, if
• The account requires a minimum balance.
• Your account drops below that amount.
• Some institutions will waive a service charge if
  you keep a certain balance in your savings
  account.

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Interest Earning Checking Accounts

• Interest-Earning Checking Accounts
• Interest-earning checking accounts are a
  combination of
• Checking accounts
• Savings accounts
• These accounts pay interest if you maintain a
  minimum balance.

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Keeping Track of a Checking Account

• Keeping Track of a Checking Account
• Each month your bank will send you a statement
  that shows your checking account activity for the
  month. Your bank statement will list
• Deposits
• Checks you have written
• ATM withdrawals
• Debit card charges
• Interest earned
• Fees
• The balance reported on the bank statement may be
  different from the balance in your check
  register.

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Savings Accounts

• Savings Accounts
• Regular savings accounts, traditionally called
  passbook accounts, are ideal if you plan to make
  frequent deposits and withdrawals. These
  accounts
• Require little to no minimum balance
• Allow you to withdraw money on demand
• The trade-off for this convenience is that the
  interest you earn will be low compared with other
  savings plans.
• Earn more money on your deposits
• Usually use money only on things you saved for
• Can be linked to an ATM/Debit card

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Certificates of Deposit

• A two-party negotiable instrument that is a
  special form of note created when a depositor
  deposits money at a financial institution in
  exchange for the institutions promise to pay
  back the amount of the deposit plus an
  agreed-upon rate of interest upon the expiration
  of a set time period agreed upon by the parties.