Personal Finance Ch. 4

MMMFs have historically paid interest at rates of ___ percent to __ percent above those paid on regular savings accounts.

1 3

Why do banks: 1-Offer higher interest rate on savings than checking? 2- offer free checking w/ AMAs but have fees for checking in other accounts? 3- What are they really trying to do?

1- They're making more of a profit on the money in savings 2- They're simultaneously taking money on your behalf in mutual fund. Gives incentive to keep money in 3- make a profit off of you in both cases

the maximum insurance is $____ per ____

250,000 depositor

Notification within 2 business days after you discover the card missing limits your loss to $___. After 2 business days, you may lose up to $___(but never more than the amount that was withdrawn by the thief). If you don't report the loss within 60 days after your periodic statement was mailed, you can lose ___the money in your account. When reporting errors or unauthorized transactions, it's best to notify your bank by ___and follow up with a(n) ___.

50 500 all telephone letter

ETFs offer: - ___ - ___ linked to checking account - ___ deposits and payments

ATM debit card pre-authorized

A remote computer terminal that customers of depository institutions can use to make basic transactions 24 hours a day, 7 days a week.

Automated Teller Machine (ATM)

4 examples of depository institutions:

Commercial banks savings and loans (S&L) associations savings banks credit unions

The federal ___ describes your rights and responsibilities as an EFTs user. Under this law, you cannot ___ payment on a defective or questionable purchase, although individual banks and state laws have more lenient provisions. If there's an error, you must notify the bank within ___days of its occurrence. The bank must investigate and tell you the results within ___days. The bank can then take up to ___more days to investigate the error but must ___the disputed money to your account until the issue is resolved

Electronic Fund Transfer Act of 1978 stop 60 10 45 return

Systems using the latest telecommunications and computer technology to electronically transfer funds into and out of customers' accounts.

Electronic funds transfer systems (EFTSs)

insures accounts at banks, savings banks, and S&Ls

FDIC

pay the highest interest rate of any bank account on which checks can be written.

MMDAs

have become the most successful type of mutual fund ever offered. A mutual fund that pools the funds of many small investors and purchases high-return, short-term marketable securities.

MMMF

insures accounts at credit unions

NCUA

3 kinds of interest-bearing checking accounts:

Negotiated Order of Withdrawal (NOW) Accounts Money Market Mutual Fund (MMMF) Money Market Deposit Account (MMDA)

your best protection is to carefully guard the ___used to access your accounts.

PIN

The federal ___ helps consumers evaluate the terms and costs of banking products.The act places strict controls on bank advertising and on what constitutes a "free" account

Truth-in-Savings Act of 1993

Perhaps the best example of a banking service also offered by a nondepository financial institution is the ___. A comprehensive deposit account that combines checking, investing, and borrowing activities, offered primarily by brokerage houses and mutual funds. Works like a checking account, but combines all accounts. AKA:

asset management account (AMA) central asset account

MMMFs are non-___, liquid, ___ investment. check amounts usually have to be greater than $___. ___ insured, safer, ___-term

bank, checkable 500 not short

The Federal Reserve is keeping interest rates low as we come out of the recession to keep incentivizing people to ___and start ___and buy ___to help out the economy.

borrow businesses houses

The recent extremely low interest rates favor ___ and dampen the incentive to ___

borrowers save

Pre-authorized deposits and payments: Great resource for financial planning. 1- make ___ 2- pre-authorize ___ to occur on specified dates

budget transactions

The routine, day-to-day administration of cash and near-cash resources, also known as liquid assets, by an individual or family

cash management

Depositors can use ___privileges or ___ to access MMDA accounts. They receive a ___number (usually six) of free monthly checks and transfers but pay a fee on additional transactions

check-writing ATMs limited

A good way to keep your spending in line is to make all household transactions (even fun money or weekly cash allowances) using a tightly controlled___

checking account

Technically, only ___banks can offer non-interest-paying regular checking accounts

commercial

depository institution offering checking, savings, and some other financial products

commercial banks

MMDAs are popular with savers and investors because of their ___and ___, because deposits in MMDAs (unlike those in money funds) are federally insured. Most banks require a minimum MMDA balance of $___or more.

convenience, safety 1,000

Factors that typically influence the choice of where to maintain a checking account are ___,___,&___

convenience, services, and cost

When opening and using a checking account: Consider ___, not convenience. Is there a balance ___ fee on the account? The average daily balance/daily balance requirement is sometimes waived if ___ is used

cost transfer direct deposit

depository institution offering the same as commercial banks, but they're nonprofit. Members must belong to a common cause (teachers, veterans, etc). Aimed at benefiting members, so there's a higher interest rate of savings and checking. They're smaller and may not have a wide range of products

credit union

Although some banks use the average monthly balance in an account to determine whether to levy a service charge, most use the ___ procedure. This means that if your account should happen to fall just $1 below the minimum balance just once during the month, you'll be hit with the full service charge—even if your average balance is three times the minimum requirement.

daily balance

Specially coded plastic cards used to transfer funds from a customer's bank account to the recipient's account to pay for goods or services.

debit cards

A checking account held at a financial institution is a(n) ___, meaning, that the bank must permit these funds to be withdrawn whenever the account holder demands

demand deposit

Now that banks are offering a greater variety of products, including mutual funds, it's important to remember that only ___ accounts, including CDs, are covered by deposit insurance. ___ purchased through your bank are not protected by any form of deposit insurance

deposit securities

protects the funds you have on deposit at banks and other depository institutions against institutional failure. A type of insurance that protects funds on deposit against failure of the institution; can be insured by the FDIC and the NCUA.

deposit insurance

You put money into your checking account by ___funds; you withdraw it by writing a ___, using a(n) ___, or making a cash ___

depositing check debit card withdrawal

The ___ and the party to whom the check was written are often charged a fee for bad checks

depositor

The vast majority of financial transactions take place at ___ financial institutions—commercial banks (both brick-and-mortar and Internet), savings and loan associations (S&Ls), savings banks, and credit unions. Although they're regulated by different agencies, these financial institutions are commonly referred to as "banks" because of their similar products and services

depository

Financial institutions can be classified into two broad groups—___and ___—based on whether or not they accept deposits as traditional banks do

depository non-depository

What sets depository institutions apart from others is their ability to accept ___; most people use them for checking and savings account needs

deposits

As banks pay us less in interest, the banks are protected from ___. Lowers the interest rate on our ___. Unfortunately, it ___interest on savings. Those saving our money will invest in higher ___ investments in order to recoup the lost interest income and are more likely to lose our money.

failing national debt lowers risk

2 organizations that insure depository institutions:

federal deposit insurance corporation (FDIC) National credit union administration (NCUA)

Almost all commercial banks, S&Ls, savings banks, and credit unions are ___by U.S. government agencies

federally insured

High ___ of MMDAs can offset high ___

fees interest

The ___, as we know it today, comprises all institutions that market various kinds of financial products (such as checking and savings accounts, credit cards, loans and mortgages, insurance, and mutual funds) and financial services (such as financial planning, securities brokerage, tax filing and planning, estate planning, real estate, trusts, and retirement

financial services industry

Most banks pay ___interest rates on larger savings account balances

higher

Because savings deposits earn higher rates of ___, savings accounts are typically preferable to checking accounts when the depositor's goal is to accumulate money for a future expenditure or to maintain balances for meeting unexpected expenses

interest

The law also requires banks to pay ___on a customer's full daily or monthly average deposit balance. Banks are prohibited from paying interest on only the ___daily balance and from paying no interest if the account balance falls below the minimum balance for just 1 day. In addition, banks must notify customers ___days in advance before lowering rates on deposit accounts or CDs.

interest lowest 30

2 ways to cover overdrafts:

line of credit automatic transfer program

some assets are considered ___ because they're either held in cash or can be readily converted into cash with little or no loss in value

liquid

AMA drawbacks: there are fewer "branch" ___. However, AMAs are typically affiliated with ___networks, making it easy to withdraw funds. Yet ATM transactions are more ___; checks can take ___to clear; and some bank services, such as traveler's and certified checks, may not be offered. AMAs are not covered by ___insurance, although these deposits are protected by the Securities Investor Protection Corporation and the firm's private insurance.

locations ATM costly longer deposit

non-depository institution providing yet another alternative to bank savings accounts. offer money market mutual funds. provide small investors the benefits of professionally managed, multi-million dollar investment accounts

mutual fund

Other types of financial institutions that offer banking services, but don't accept deposits like traditional banks, are considered ___

nondepository institutions

If you fail to notify the bank of the error within 60 days, the bank has no ___under federal law to conduct an investigation or return your money

obligation

The result of writing a check for an amount greater than the current account balance.

overdraft

An arrangement between the account holder and the depository institution wherein the institution automatically pays a check that overdraws the account.

overdraft protection

for every 1 percent decline in interest rates for retirees, ___fund liabilities increase by about $180 billion

pension

___is the most common type of checking account. Traditionally, it pays no interest, and any service charges can be waived if you maintain a minimum balance

regular checking

a rented drawer in a bank's vault. Boxes can be rented for an average of about $30 per year, depending on their size. When you rent a box, you receive one key to it, and the bank keeps another key. The box can be opened only when both keys are used

safe-deposit box

Another aspect of cash management is establishing an ongoing ___ program, which is an important part of personal financial planning. This is not only a cushion against financial emergencies but also a way to accumulate funds to meet future financial goals

savings

depository institution offering the same things as commercial banks, but they're traditionally used for mortgage loans. often pay higher interest rate on savings. usually member banks and people vote

savings and loans associations

depository institution offering mainly savings, but also members are owners and receive a percent of products from bank. invest money for profit here

savings banks

AMA accounts are typically ___-term and can be ____. Require a(n) ___ balance

short sold minimum

2 non-depository institutions:

stock brokerage firm mutual fund

non-depository institution offering several cash management options, including money market mutual funds that invest in short-term securities and earn a higher rate of interest than bank accounts, special "wrap" accounts, and credit cards

stock brokerage firms

An order made by an account holder instructing the depository institution to refuse payment on an already issued check.

stop payment

AMAs distinguishing feature is that they automatically "___" excess balances—for example, those more than $500—into a higher-return MMMF daily or weekly. When the account holder needs funds to purchase securities or cover checks written on the MMDA, the funds are transferred back to the MMDA. If the amount of securities purchased or checks presented for payment exceeds the account balance, the needed funds are supplied automatically through a loan

sweep

Savings accounts/deposits are referred to as ___because they are expected to remain on deposit for longer periods of time than demand deposits

time deposits

Bank trust departments provide investment and estate planning advice. They manage and administer the investments in a trust account or from an estate. This is called ___

trust services

A typical AMA includes an MMDA with ___free checking, a(n) ___, use of ___, and brokerage and loan accounts

unlimited debit card ATMs

In addition to ___policies and deposit ___, the stated ___ and the method of ___interest paid on savings accounts are important considerations when choosing the financial institution in which to place your savings.

withdrawal insurance interest rate calculating