Chapter 4: Savings Plans and Payment Accounts

mutual savings bank

a financial institution that is owned by depositors and specializes in savings accounts and mortgage loans

a regular savings account usually does NOT have

a high balance requirement overdraft protection a high rate of interest

stop payment order

a request that a bank or other financial institution not cash a particular check

another name for an asset management account is

cash management account

asset (cash) management account

provides a complete financial services program for a single fee

What is the typical maximum liability for unauthorized use of credit and debit cards?

$50

How long do you have to report unauthorized use of a card?

60 days

deposit ticket

A written record of money put into a checking account

____ and ____ bonds are a type of federal savings bond

I and EE

an ATM is also known as

a cash machine

what is the major difference between money market accounts and funds?

accounts are covered by federal deposit insurance

regular savings account

allows consumers to deposit or withdraw money at any time and to earn interest on deposited funds; called "share accounts" at credit unions

indexed CDs

have earnings based on the stock market

compounding

interest that is earned on previously earned interest

to achieve long-term financial goals, many people trade off _____ for a higher return

liquidity

savings

provides safe storage of funds for future use

Selection of a savings plan is often influenced by

rate of return, inflation, tax considerations, liquidity, restrictions, and fees

rate of return/yield

the percentage of increase in the value of savings as a result of interest earned

the _____ offers several programs for buying savings bonds

treasury department

Deposit institutions

serve as intermediaries between suppliers (savers) and users (borrowers) of funds

commercial banks

the largest and oldest of all financial institutions, relying mainly on checking and savings accounts as sources of funds for loans to businesses and individuals

Credit Unions

Nonprofit, member-owned financial cooperatives that offer the full variety of banking services to their members

savings and loan association

a depository institution that has traditionally obtained most of its funds by accepting savings deposits, which have been used primarily to make mortgage loans

certified check

a personal check that the bank guarantees or certifies to be good

Certificate of Deposit

a savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate

money market fund

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

Annual Percentage Yield

amount of interest that a $100 deposit would earn, after compounding, for one year

overdraft protection

an automatic loan made to an account if the balance will not cover checks written

demand deposits

balances in bank accounts that depositors can access on demand by writing a check

Time deposits are also known as

certificates of deposits (CD's)

What factors influence financial services?

changing interest rates, rising consumer prices, etc.

Penalties for early withdrawals of CDs

1 yr or less: three months interest 1-5 years: six months interest >5 years: up to 25% of the total interest to maturity on the account

After-Tax Savings ROR

1) Determine your top tax bracket 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

tax advantages of EE bonds

1) interest earned is exempt from state and local taxes 2) federal income tax on earnings is not due until the bonds are redeemed

procedure for proper check writing

1) record the date 2) write the name of the recipient 3) record the amount of the check in numerals 4) write the amount of the check in words 5) sign the check 6) note the reason for payment

ATSROR example

1) you are in the 28% tax bracket 2) 1.0-.28 = 0.72 3) if the yield on your savings account is 6.25%, 0.0625*0.72 = 0.045 4) answer = 4.5%