Chapter 4

what influences financial services offered?

Changing interest rates, rising consumer prices, and other economic factors influence financial services

What is safety?

Most savings plans at banks, savings and loans associations, and credit unions are insured by agencies affiliated with the federal government.

What is a money market account?

A money market account is a savings account that has a higher interest rate than a regular savings account. They are low-risk investments and are a great place to keep your emergency fund. Both money market accounts and money market funds offer earnings based on current interest rates, and both have minimum-balance restrictions and allow check writing. The major difference is in safety. Money market accounts at banks and credit unions are covered by federal deposit insurance. This is not true of money market funds, which are products of investment companies.

What is an annual percentage rate?

A standardized measure for interest rates and other costs of the loan. Example the interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365 day period. APY

How to figure out the after-tax savings rate of return

1. Determine your top tax rate for federal income taxes 2. Subtract this rate, expressed as a decimal, from 1.0 3. Multiply the result by the yield on your savings account 4. This number, expressed as a percentage, is your after tax rate of return

What are frequent mistakes when managing current cash needs?

1. Overspending due to impulse buying and overusing credit 2. having insufficient liquid assets to pay current bills 3. using savings or borrowing to pay for current expenses 4. failing to place funds not needed for current expenses in a savings account or investment plan

Saving plans can be grouped into four main categories

Regular savings accounts certificate of deposit U.S savings bonds Money Markey account/funds

What is a debit card?

Removes money directly from a checking account. You are spending the finds directly. - Some credit card issuers use the same rules for lost or stolen debt cards for credit cards : a $50 maximum. You are not liability for fraudulent purchases up to 60 days

What are different types of CDs

Rising-rate or bump Cds may have higher rates at various intervals, such as even six months. beware of ads that highlight higher rates in the future. This rate may be in effect only for the last few months of an 18- 24-month CD Liquid CDs offer an opportunity to withdraw money without a penalty Zero-coupon CD is purchased at a deep discount. Your initial deposit grows to maturity Indexed CDs have earning based on the stock market Callable Cds start with higher rates and usually have long maturities, as high as 10 to 15 years. If the interest rate drops, a bank may close the account

what are basic questions to ask when selecting financial Service

Where can I get the best return on my savings? How can I minimize the cost of checking, payments services, and other fees? Will I be able to borrow money if I need to?

What is a Prepaid Debit or Gift Cards?

You add funds before using, extensive fees are often associated with prepaid debit cards

What is a Certificate of deposit?

a deposit that earns a fixed interest rate for a specified length of time. A penalty is imposed on early withdrawals

Compounding Interest

figuring interest earnings on both the original amount and any previous interest that has been added to the balance

when evaluating a savings plan it is often influenced by

rate of return Inflation Taxes Liquidity Safety Restrictions, Fees

What does mobile banking provide?

the benefits of convenience and savings along with instant information access. Concerns of Privacy, security of data, ease of overspending, costly fees, and online scams must also be considered. compared to an automatic teller machine (ATM)

What is liquidity?

the ease with which an asset can be converted into the economy's medium of exchange

Examples of deposit insitutions

- Commercial banks offer a fuller range of services including savings, lending, and most other services - Saving and loan associates traditionally specialized in savings accounts and mortgages. -Mutual savings banks, owned by depositors also specialize in savings accounts and mortgages -Credit unions are user-owned, nonprofit, cooperative organizations.

Examples of nondepository institutions

- Life insurance companies provides financial security for dependents with various insurance polices, some containing savings and investment features -Investment companies, also called mutual funds, which offer a money market fund- a combination savings- investment plan Brokerage firms - employ investment advisers and financial planners, and serve as an agent for buying and selling stocks, bonds, and other investment securities -credit card companies, which specialize in funding short-term retail lending - Finance companies, provide loans to consumers and small businesses - Mortgage companies organized primarily to provide loans for home purchase

What are the types of financial services that financial services offer to meet your needs?

1. Savings provides safe storage of funds for future use. Commonly referred to as time deposits, money in savings accounts and certificates of deposit are examples of saving plans 2. Payment services allow you to transfer money to pay expenses and for other business activities. Checking accounts and other payment methods are called demand deposits 3. Borrowing is used by most people at some time during their lives. Credit alternatives range from short-term accounts, such as credit cards and cash loans, to long-term borrowing , such as a home mortgage. 4. Other financial services include insurance, investments, tax assistance, and financial planning. A trust is a legal agreement that provides for the management and control assets by one party for the benefit of another.

How to cope when you need more cash than you have available?

1. You could reduce current spending or reduce amounts saved 2. you could withdraw money from a savings or investment account 3. you might obtain credit card cash advance or a personal loan

What is the truth in savings act require financial institutions to disclose?

1. fees on deposit accounts 2. the interest rate 3. the annual percentage yield 4. other terms and conditions of the savings plan

what is a regular savings account?

Involve low or no minimum balance and allow you to withdraw money as needed Money market account/funds

What is an asset management account?

It provides a complete financial services program for a single fee

What is a Deposit Institution?

It serves as the intermediary between suppliers ( savers) and users (borrowers ) of funds.

What are US Savings Bonds?

Series EE bonds are the most common, involving greater than $25. These bonds were originally in a paper format and purchased for set values ranging from $25 to $5,000, with maturity values of $50 to $10,000. Today, EE bonds are bought and managed online and may be purchased for any amount. EE bonds increase in value as interest is earned monthly and compound semiannually. If you redeem the bonds before five years, you forfeit the interest. After there is no more penalty The tax advantages of a series EE 1. the interest earned is exempt from state and local taxes 2. federal income tax on earnings is not due until the bonds are redeemed. With the I bond, you earn interest based on a fixed rate and an inflation rate

What steps to take in selecting financial institution

Step 1. Identify your most important feature for a financial institution Step 2. Rank he top features based on importance and your life situation Step 3. Prepare a list of local, national, and online banks and credit unions step 4. conduct online and in-person research

Inflation

The rate of return you earn on your savings should be compared with the inflation rate When inflation was over 10 percent, people with money in savings accounts earning 5 or 6 percent were experiencing a loss in the buying power of that money