Ch.4 Savings Plans and Payment Accounts.
Payment Alternatives 3 main categories:
- Digital Paymentsdebit and credit cardss, online mobile transfers, store value cards ( prepaid) and smart cards (digital wallet.) - Checking accounts: regular checking account, activity checking account, and interest earning checking account - Other: certified check, cashiers check, money order, money transfer service, travlers checks.
Frequent mistakes when managing current cash needs are:
- Overspending due to impulse buying and overusing credit. - having insufficient liquid assets to pay current bills - using savings or borrowing to pay for current expenses - failing to place funds not needed for current expenses in a savings account or investment plan.
Basic questions to ask when selecting a financial service provider are:
- Where can I get the best return on my savings? - How can I minimize the cost of checking, payment seervices and other fees? -Will I be able to borrow money if I need to?
Types of financial services
-Cash availability -Payment services -Savings services -Credit services -Investment services -Other services
Other financial service providers
-Pawnshop -Check-cashing outlet -Payday loan company -Rent-to-own center -Car title loan company
non-bank financial service providers
-Retailer stores (prepaid debit cards, other services) -Online banking service provider (E*Trade Bank) -Online payment services (PayPal) -P2P (peer-to-peer) lending intermediaries
The Truth in Savings Act requires financial institutions to disclose the following:
1: fees on deposit accounts 2: the interest rate 3: the annual percentage yield 4: other terms and conditions of the savings plan.
Automatic Teller Machine (ATM)
A computer terminal used to conduct banking transactions; also called a cash machine
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.
Sources for quick cash
First, you could reduce current spending or reduce amounts saved. Second, for needed funds you could withdraw money from personal savings or investment account and finally, you might obtain a credit care cash advance or a personal loan. .
Commercial Banks
Offer a full range of financial services including, checking, savings, lending and most other services.
Early penalty for withdrawl of CD funds:
One year or less - 3 months of interest. More than one year- 6 months of interest. 5 year CD - 20-25% of the total interest to maturity of the account.
Annual Percentage Yield (APY)
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.
certified check
a personal check that the bank guarantees or certifies to be good
Certificate of Deposit (CD)
a savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate ( ranging from 30 days to 5+ years)
overdraft protection
an automatic loan made to an account if the balance will not cover checks written
Deposit Institutions
commercial banks, savings and loan associations, mutual savings banks, credit unions
Non-deposit Institutions
life insurance companies, investment companies, brokerage firms, credit card companies, finance companies, mortgage companies
Selection of a savings plan is influenced by:
rate of return, inflation, tax considerations, liquidity, safety, restrictions and fees.
rate of return
the percentage of increase in the value of your savings from earned interest divide the interest earned by the amount in the savings account.
regular savings account
usually involve a low or no minimum balance and allow you to withdraw money as needed
