Personal Finance Chapter 4
Series EE bonds
"Patriot Bonds"•Sold at half of face value•Penalty if redeemed within 5 years•Continues earning interest for 30 years•Potential tax advantages if used to pay tuition"
Evaluating Checking and Payment Accounts
-Restrictions, such as a minimum balance •Fees, which increase, and charges •Interest rate and computation method •Special services -Overdraft protection •Beware of "package" deals that include unneeded services
Bank Reconciliation
1. Compare written checks with those reported paid 2.Determine deposits not on the statement 3.Subtract fees or charges and ATM withdrawals from the checkbook balance 4.Add any interest to your checkbook balance
Writing checks
1. Record the date 2.Write the name of the person/organization receiving the check 3.Record the amount of the check in figures 4.Write the amount of check in words 5.Sign the check 6.Note the reason for the payment
APY=
100(Interest/Principal)
Pawn-shops
Based on value of tangible possesions, charge more then most FI's, for more low income people
Prepaid debit cards you pay...
Before
Cashier check
Check issued by FI
Deposit institutions
Commercial banks, Savings and loans associations, Mutual savings banks, and Credit Unions
When choosing types of financial institutions consider...
Determine the services you need, compare fees, consider the safety and rates for loans
I bonds
Earns a fixed rate plus an inflation rate •Twice-a-year inflation adjustment
Safety
FDIC prevents a loss of money due to the failure of the insured institution. Credit unions may obtain deposit insurance through the NCUA. (Provide deposit insurance for retirement accounts)
Activity Accounts
Fee charged for each check written, and sometimes for deposits
Savings and Loan Associations
Financial services comparable to a bank
Restrictive endorsement
For deposits only
Opening a checking account
Individual vs Joint
Restrictions and Fees
Interest will not be available for immediate use
Rent-To-Own Centers
Lease merchandise at high interest rates to low-income customers (TV's, Tables)
Non-Deposit institutions
Life insurance co's, Investment co's, Brokerage firms, Credit card co's, Finance co's, Mortgage co's
2 options to get more cash
Liquidate savings or borrow
Regular Checking Account
Monthly service charge usual-Minimum balance
Commercial banks
Offers a full range of financial services. National, regional, community, online
PayDay Loan companies
Online firms that provide instant, very short-term, unsecured cash advances of small amounts to customers who need cash immediately, and who are in employment and have payroll records. Loan rates 9-18%
Problematic Financial business
Pawnshops, Check Cashing Outlets, PayDay Loan Co's, Rent-To-Own Centers, Car Title Co's
Interest earning checking accounts usually...
Pay a low interest rate
Special endorsement
Pay to the order of
Car Title Loan Companies
People w poor credit ratings might use car title as security for a high interest rate loan
Certified Check
Personal check with garenteed payment
Store-Value Cards
Prepaid cards for telephone, transit, tolls, etc
Money Order
Purchase at financial institution, post office, store
Interest-Earning Checking (Share Draft accounts at CU)
Require a minimum balance
Blank endorsement
Signature only
Taxes
Taxes reduce interest on savings
Online/Mobile banking
Text banking, Mobile web banking, Banking apps (privacy problems)
Annual Percentage Yield
The amount of interest a saver should expect to earn
Selection of a savings plan is most often influenced by...
The rate of return, inflation, tax considerations, liquidity, safety restrictions, and fees
When interest rates are rising...
Use long term loans and select short term savings
When interest rates are falling...
Use short term loans and select long term savings
Liquidity allows you to...
Withdraw your money without a loss of value or fees
Trust (Financial Service)
a legal agreement that provides for the management and control of assets by one party for the benefit of another. Education
Money Market Account
a savings account that requires a minimum balance and earns interest that varies from month to month
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. (Penalty for early withdraw) (Beware of CD's offering gifts)
Money Market Fund
a savings-investment plan offered by investment companies, with earnings based on investments
"Loading"
adding funds to prepaid debit card
Travelers check
allows you to make payments away from home (sign twice)
Overdraft Protection
an automatic loan made to checking account customers for checks written in excess of their balance
Check Cashing Outlets
charge high fees (sometimes 2 or 3 percent) just to have a paycheck or government check cashed.
As inflation increases the...
interest rates offered to savers also increase
Asset Management Account
provides a complete financial services program for a single fee
Prime rate
rate banks charge large corporations
Compounding
refers to interest that is earned on previously earned interest
Brokerage firms
serve as an agent between buyer and seller of investment securities (stocks)
Credit card companies
specialize in funding short-term retail lending. (loans)
Rate of return
the percentage of increase in the value of your savings from earned interest
Credit Unions
user-owned, nonprofit cooperative organizations. Get the best reviews out of FI's