Finance: Chapter 5 review
the factors that cause you to use financial institutions
Changing interest rates rising consumer prices other economic factors influence financial services
Deposit institutions include: (safe)
Commercial banks, S&L, mutual savings banks, credit unions
When deciding which financial institution to choose, consider...
The services offered Costs, fees, rates, and earnings Convenience online , mobile banking capabilities.
savings and loan association (S&L)
a financial institution that traditionally specialized in savings accounts and mortgage loans but now offers many of the same services as commercial banks
trust
a legal arrangement that allows one person to manage another person's property
debit card
a plastic access card used in computerized banking transactions; also called a cash card
compounding
a process that calculates interest based on previously earned interest
share account
a regular savings account at a credit union
certificate of deposit
a savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate
money market fund
a savings-investment plan offered by investment companies, with earnings based on investments in various short-term financial instruments
credit union
a user-owned, nonprofit, cooperative financial institution that is organized for the benefit of its members
overdraft protection
an automatic loan made to checking account customers to cover the amount of checks written in excess of the available balance in the checking account
Compound
each time interest is added to your savings, the next interest amount is computed on the new balance in the account.
Shorter compounding periods result in _______ yields
higher
automatic teller machine (ATM)
A computer terminal used to conduct banking transactions; also called a cash machine
money market account
A savings account offered by banks, savings and loan associations, and credit unions that requires a minimum balance and has earnings based on market interest rates.
APY when the number of days in the term is 365 or where the account does not have a stated maturity, the APY formula is simply
APY = 100 (Interest/Principal)
Annual percentage yield (APY) formula
APY = 100[(1 + Interest/Principal)^365/days in term − 1]
asset management account
An all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee; also called a cash management account.
share draft account
An interest-earning checking account at a credit union
after tax rate of return
Interest rate × (1 − Tax rate)
nondeposit institutions
Investment companies(mutual funds), Brokerage firms, Finance companies, Credit card companies, Mortgage companies
When choosing a savings account, consider...
Rate of return (higher = good) Inflation (higher = bad) Taxes (higher = bad) Liquidity (depends, but high is usually good) Safety (high is good) Restriction/fees (high is bad)
savings accounts include:
Regular savings, Certificate of deposit, Bonds,
the three types of checking accounts
Regular, activity, and interest-earning accounts.
When choosing a checking account, consider...
Restrictions Fees and charges Special services interest
annual percentage yield
The percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365-day period.
mutual savings bank
a financial institution that is owned by depositors and specializes in savings accounts and mortgage loans
commercial bank
a financial institution that offers a full range of financial services to individuals, businesses, and government agencies
Rate of return is determined by
interest/the amount in the savings account
Deposit institutions include: (unsafe)
pawnshops, Check cashing outlets, Payday loans (cash advances), Rent to own centers, Car title loans.
rate of return
the percentage of increase in the value of your savings from earned interest; also called yield