Lesson 15

credit union

A credit union is privately owned and controlled by its members. Credit unions differ from banks and other financial institutions because members who have accounts in the credit union are the owners of the credit union. They elect their board of directors in a democratic system. Credit unions offer similar savings products as other financial institutions; the interest rates offered at credit unions are often slightly higher.

money market account

A deposit account that is considered a savings account for some purposes but upon which checks can typically be written. This type of account usually requires that a fairly high minimum balance be maintained to avoid fees. Since the account is not considered a transaction account, it is subject to the regulations on savings accounts: only six withdrawal transactions to third parties are permitted per month, only three of which may be paid by check. Banks are required to discourage customers from exceeding these limits, either by imposing high fees on customers who do so or by closing their accounts.

thrift (or savings and loan)

A financial institution that specializes in accepting savings deposits and making mortgage loans. The depositors and borrowers are often members with voting rights and have the ability to direct the financial and managerial goals of the organization. It is possible for a savings and loan to be stock based and even publicly traded. This means, however, that it is truly no longer an association and that depositors and borrowers no longer have any managerial control.

certificate of deposit (CD)

A financial product commonly offered to consumers by banks, thrift institutions, and credit unions. CDs are insured and thus virtually risk free. They have a specific, fixed term (often three months, six months, or one to five years) and, usually, a fixed interest rate. It is intended that the CD be held until maturity, at which time the money can be withdrawn together with the accrued interest.

passbook savings

An account that pays interest but cannot be used directly as money (for example, by writing a check). These accounts let customers set aside a portion of their liquid assets that could be used to make purchases while earning a monetary return.