Chapter 7 & 8 Study Guide Resource
List the 3 government agencies that insure and audit financial institutions and what is the amount for each?
250,000 per person or per family. Credit Unions =non profit financial cooperatives owned by their members and governed by a board of directors. Usually there is a common bond among the members, such as belonging to the same organization or living in the same geographical area. Accept deposits from their members and use them to make short term loans. Deposits are regarded as purchases of shares, and all earnings of the credit union are paid out as dividends to members. Commercial Banks = this bank has tellers, safe deposit boxes, a vault, and ATMs. Some do not have physical branches and require customers to complete all transactions by phone or via internet. Usually pay higher interest rate on investments and deposits and charge lower fees. Savings & Loans = originally could only do savings and loans, no other services; usually emphasis on real estate financing
How is APY different from APR? Which tells you the most about how much you will earn on a savings account?
APR= annual percentage rate finance charge calculated as a percentage of the amount borrowed; APY= annual percentage yield, the actual interest earned when compounding is added
What happens if you use an ATM of another financial institution other than your own?
Additional fees may be assessed if the ATM used is not provided by the financial institution sponsoring the card
When do you record transactions in your check register and what transactions do you record? How often do you balance your check register?
All things regarding money. Every Time you have a transaction.
When opening a checking account, what feature should you ask for to help minimize the cost of accidentally bouncing a check?
Ask for check 21: when a check is written, the money will automatically withdrawn from a bank account which makes bouncing a check difficult.
What is the difference between banks, credit unions and savings institutions? Which one is Non profit?
Bank= private businesses that work to earn a profit by selling financial services; Credit Union-=NON PROFIT; a financial institution that provided banking services to its members who are people who share a common bond, such as a certain profession, church group, or labor union; Savings institutions= a financial institution that specializes in lending money to buy homes
Name the three types of endorsements checks can have and when you might want to use them?
Blank Endorsement= used when cashing or depositing your check; Restrictive Endorsements= write for deposit only and your name, safer method recommended if mailing or having someone else make a deposit for you; Special (Full) Endorsement= this method allows you to sign the check over to someone else (third party), write "pay to the order of" the other person's name and your signature
What are the four different types of checks and when would you use them (example for each)?
Cashier's Check= bank check drawn on the banks funds; Certified Check= your personal check on your account; Money order= purchased and written to payee; Travelers Checks= used when you don't want to carry a lot of cash
What is a CD when it comes to savings?
Certificate of deposit: a deposit in a savings institution that earns a fixed interest rate for a specified period of time; during the specified time period, you may not withdraw your money without paying a substantial penalty
Variations of checking accounts are Check Credit accounts/Open line of credit & Money Market Account. Explain these accounts and how they work.
Check Credit account/Open line of credit= actually a loan, you write checks up to loan limit, must pay back everything with interest; Money Market Account= interest bearing account, rate is just a little less than a CD, can write up to 3 checks per month, checks must be for a minimum of $250.00
What are the different types of services banks can offer?
Checking accounts, savings accounts, mortgages and other loans, and credit cards.
Which types of banks offer the most services?
Commercial Banks
At which financial institution are you considered a member? What is the advantage of this?
Credit Unions; if non-profit, the profit must be reinvested into the company to benefit members and it will be distributed to the members.
Explain the difference between a Debit Card and a Credit Card and an ATM card. Which of these can be combined into one card?
Debit Card= Plastic card that looks like a credit card, Electronically connected to a bank account, Money is automatically taken from the bank account when purchases are made, Requires a PIN (personal identification number), Confirms the user is authorized to access the account; Credit Card= a small plastic card issued by a bank, business, etc., allowing the holder to purchase goods or services on credit; ATM= card only used at an ATM; Debit can combined to both.
When looking at your check register, what does Debit stand for? What does Credit stand for? When do you enter a checkmark in your check register, and what does it stand for?
Debit: a money amount was subtracted from your running balance; Credit: a money amount was added to your running balance; you enter a checkmark when the bank got the check, deposit, or withdrawl you made, it will be on both your check register and your bank statement
What is direct deposit? What are the advantages?
Direct Deposit=depositing an employees pay into the employees bank account electronically, instead of using a paper paycheck; paper is reduced & saves money
What is an EFT? What is the name of the law which protects consumers in case of an error on an EFT? Give 3 examples of transactions considered EFTs.
Electronic Funds Transfer- the movement of funds from one account to another by computer; Electronic Fund Transfer Act (EFTA): law requires bank to inform customers of fees associated of EFTs, and the bank must offer customers a receipt to verify every electronic transaction; pay bills, transfer money, and adding online payees. Online Bill Pay, ATMs, and MOve money in Accounts.
What is the Rule of 72 & Explain how it works. How long it will take for your money to double?
It's easy to calculate using the Rule of 72. Simply divide 72 by the percentage of interest you earn on your savings
Name 5 other financial institutions you might deal with at some point in your life? Which of these institutions we discussed are very financially dangerous to deal with?
Life Insurance Company= protect your family financially; Mutual Funds= pools money from investors and invests money into the market; Investment Companies= brokers can assist you in purchasing stocks, mutual funds and money market accounts; Finance or Loan Companies= DANGEROUS, specialize in loans; Financial Supermarkets (FSI)= provide one stop shopping for all your financial service needs
Name the 4 types of checking accounts discussed in class and explain how they work. Remember: Check credit accounts are loans NOT checking accounts.
Minimum Balance Checking Account: balance restrictions are high, at no time during the statement cycle can your account balance drop below the specified amount. Negotiable Order of Withdrawal (NOW) Account: much larger minimum balance, the bank or credit union has the right to require at least 7 days written notice of a withdrawal, banks and service accounts can earn interest on the money you have deposited. Free checking: usually require a small deposit in order to open the account, no annual fee or low balance, some banks offer free checks for life
How does a check "clear"? What is a cancelled Check?
Money comes out of your account. Cancelled Check: a check with the bank´s stamp on it, indicating that it has been paid
If a credit union is Non Profit, where does the profit go?-
Must be reinvested in the company to benefit members and distributed to members
What are the Pros & Cons of Debit Cards? What is a PIN number and who do you give this out to?
Pros: Convenient, Can be used like a credit card, Does not allow overspending, Small, Allows a person to carry less cash. Cons: Can lose track of balance if transactions are not written down, Others can gain access to the account if the card is lost and PIN is know. Opens checking account up to credit fraud. You should never give away your pin number, as you could get your money stolen. PIN= secret code. NO ONE!
What is the difference between simple and compound interest? Which interest would benefit the consumer more? How often can compound interest be compounded?
Simple interest= determined by multiplying the interest rate by the principal by the number of periods (PxIxN); Compound interest= interest paid on interest previously earned, more frequently interest is added to an account, more often it is compounded the higher the APY will be; Simple interest is better for the consumer; The frequency at which the interest is compounded is established at the initial stages of securing the loan
What does FDIC stand for and what is their responsibility?
The Federal Deposit Insurance Corporation: they preserve and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000 by identifying, monitoring and addressing risks to the deposit insurance funds, and by limiting the effect on the economy
What services are available with online banking?
You can add online payees, may pay bills and transfer money, loans. budgeting. etc
How does automatic bill pay work?
You enter a person or company you want to pay and the service sends your funds electronically or prints out a paper check and mails it to the payee. You can receive, view, and pay an unlimited number of bills for up to a year in advance of the due date on one web site.
When a check or Debit is outstanding what does that mean?
it means that the bank has not got it yet
What are 6 things you should look at when choosing a financial institution?
security, location, interest rates, ATMs, online banking, lendings options
What does it mean to keep a running balance in your check register?
the current total of the checking account; calculated by adding or subtracting each transaction, make sure to keep this updated in your checkbook register
When a Credit or Debit Card has "See ID" Written in the signature box, what does that mean?
the customer is wanting you to check their ID to make sure that it matches up with the person who has there card; used for a safety reason because if the two people dont match up, the card was most likely stolen
What is the purpose of the Verification Number on a Credit or Debit Card & where is it found?
this is a three digit code is located on the back of the card in the signature area; Help ensure the card is in the cardholder's possession when making purchases; Prevents unauthorized use
What does it mean to reconcile your bank statement and how often do you do this?
you will balance your checkbook register to the balance shown on the statement; do this each month to ensure the correct balance in your checkbook, will help to avoid bouncing checks
