Chapter 4

Frequent mistakes when managing current cash needs include

(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; and (4) failing to place funds not needed for current expenses in a savings account or investment plan.

Deposit Institutions

-Commercial bank -Credit union -Savings & loan association -Mutual savings bank

Financial Services Research

-Services offered -Fees disclosure -Minimum balance -Savings rate sheet -Sample loan application -Sufficient deposit insurance

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.

selecting a financial institution: step 5

Balance your needs with the institutions you want to do business with

selecting a financial institution: step 4

Conduct 3 types of research: Talk to people who used it, look into services, policies, and fees, and visit the financial institution

Regular Savings Account Benefits

Low minimum wage, ease of withdrawal, and insured

Regular savings account Drawback

Low rate of return

payday loan companies

Many consumer organizations caution against using payday loans, also referred to as cash advances, check advance loans, postdated check loans, and delayed deposit loans. Desperate borrowers pay annual interest rates of as much as 780 percent and more to obtain needed cash from payday loan companies.

Pawnshops

Offer individuals a loan based on the value of the person's possessions, such as jewelry or other items.

Other Financial Service Providers

Pawnshops Check-cashing outlet Payday loan company Rent-to-own company Car title loan company

selecting a financial institution: step 3

Prepare a list of local, national, and online financial institutions

selecting a financial institution: step 2

Rank the top 3 or 4 specific features based on their importance to you

rent-to-own centers

Rental businesses offer big-screen televisions, computers, seven-piece bedroom sets, and kitchen appliances.

Car Title Loan Companies

When in need of money, people with poor credit ratings might obtain a cash advance using their automobile title as security for a high-interest loan.

The basic questions to ask when selecting a financial service provider are simple:

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?

ATM

a computer terminal that allows a withdrawal of cash from an account

Trust

a legal agreement that provides for the management and control of assets by one party for the benefit of another

Debit Card

a plastic card access card used in computerized banking transactions

money market fund

a savings-investment plan offered by investment companies, with earnings based on investments in various short-term financial instruments

Payment services

allow you to transfer money to pay expenses and for other daily business activities. Checking accounts and other payment methods are generally called demand deposits.

Credit unions

are user-owned, nonprofit, cooperative organizations.

check-cashing outlets

charge high fees (sometimes 2 or 3 percent) just to have a paycheck or government check cashed.

A major concern with prepaid debit cards has been the extensive number of ________

fees

Other financial services

include insurance, investments, tax assistance, and financial planning. A trust is a legal agreement that provides for the management and control of assets by one party for the benefit of another. This type of arrangement is usually created through a commercial bank or a lawyer. Parents who want to set aside certain funds for their children's education may use a trust.

Non-Deposit Institutions

life insurance companies, investment companies, brokerage firms, credit card companies, finance companies, mortgage companies

selecting a financial institution: step 1

list your most important features for a financial institution related to services, costs, convenience, and online

Commercial Banks

offer a full range of financial services, including checking, savings, lending, and most other services.

Mutual savings banks

owned by depositors, also specialize in savings accounts and mortgages.

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 savings plans.

Savings and loan associations

traditionally specialized in savings accounts and mortgages.

When interest rates rise

use long term loans to take advantage of current low rates select short term savings instruments to take advantage of high rates when they mature

When interest rates fall

use short term loans to take advantage of lower rates when you refinance the loans use long term savings instruments to "lock-in" earning at current high rates

Borrowing

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