Fin 339 Ch. 4
prepaid debit cards
Load money onto this card to spend major concern is fees resulted in lower consumer debt
trust
a legal agreement that provides for the management and control of assets by one party for the benefit of another
compounding
a process that calculates interest based on previously earned interest
non-deposit - brokerage firms
act as agent for buyers and sellers of financial products
overdraft protection
an automatic loan made to an account if the balance will not cover checks written
select financial institution step 5
balance your needs with information collected
what to consider when choosing a financial institution
best return; minimize costs; safety and rates
problematic financial businesses: payday loan companies
cash advances high interest rates
problematic financial businesses: check-cashing outlets
charge 1 - 20% face value
cashier's check
check from a financial institution; you pay the face amount, plus a fee
deposit institutions
commercial banks, savings and loan associations, mutual savings banks, credit unions
inflation
compare rate of return vs inflation rate
reconciling your checking account
compare written checks with those reported paid - subtract the total of all checks written but not yet cleared determine deposits not on the statement - add the amount to statement balance subtract fees or charges and ATM withdrawals from checkbook balance add any interest to your checkbook balance
select financial institution step 4
conduct research (talk with people who have used different ones; conduct online research; visit the institution)
credit card vs. debit card
credit card: delay payment, build credit history, major purchases debit card: limit spending to available funds, avoid future bills, obtain better protection
digital payments
debit card - immediate account debit online payments - paypal , venmo mobile transfers - apps are expanding - near-field communication - replace debit and credit cards stored-value cards - prepaid cards for telephone smart cards - digital wallets peer-to-peer payments
online and mobile banking
e-banks : provide payment, savings, and credit services ATM access: obtain cash, check out fees, transfer funds Debit card: deducts money directly from your account; lost card liability 50 - 500
US Savings bonds - I bonds
earns a fixed rate plus an inflation rate twice a year inflation adjustment
truth in savings requires disclosure of:
fees on deposit accounts interest rate APY = RATE PER PERIOD X # PERIODS
opening a checking account
individuals vs. joint account
non-deposit- life insurance companies
insurance plus savings and investments some offer financial planning and investing services
problematic financial businesses: rent-to-own centers
lease merchandise at high interest rates to low income customers
non-deposit institutions
life insurance companies, investment companies, brokerage firms, credit card companies, finance companies, mortgage companies
sources of quick cash
liquidate savings or borrow (both reduce net worth)
select financial institution step 1
list most important features of institution
problematic financial businesses: pawnshops
loans on possessions higher fees used for quick cash
finance companies - non-deposit
make short and medium term loans to consumers higher rates
restriction and fees
minimum balance fee for additional transactions
non-deposit- investment companies
mutual funds money market funds
many types of businesses offer financial services that were
once exclusive to banks
common money management mistakes
overspending; insufficient liquid assets; using savings or borrowing to pay for current expenses; failing to put unneeded funds in an interest bearing savings or investment account
beware of
package deals that include unneeded services
problematic financial businesses: car title loans
people with poor credit can use car titles as cash advance high interest
certified check
personal check with guaranteed payment
select financial institution step 3
prepare list of local, national, online institutions
mortgage companies - non-deposit
provide home mortgage loans
liquidity
quick availability of cash without significant loss in value
select financial institution step 2
rank top three or four features on importance to you
taxes
reduces interest earned on savings
interest-earning or share draft accounts (credit unions)
require a minimum balance
types of financial services
savings, payment services, borrowing, other financial services
credit card companies - non-deposit
specialize in short term loan
restrictions
such as a minimum balance
when interest rates are rising
use long-term loans to take advantage of current low rates, select short-term savings instruments to take advantage of higher rates when they mature
interest-earning checking accounts
usually, these are checking accounts paying low interest some institutions offer high-rate accounts to people who meet certain requirements
fees
which increase and charges
certificates of deposit
A savings plan requiring that a certain amount be left on deposit for a stated time period (ranging from 30 days to five or more years) to earn a specific rate of return
asset management account
- Also called cash management account - Offered by investment companies and others - Provides a complete line of financial service program (online banking, credit card)
when interest rates are falling
- Use short-term loans to take advantage of lower rates when you refinance the loans. - Select long-term savings instruments to "lock in" earnings at current high rates.
for successful financial planning, be aware of:
- consumer interest rates - rising consumer prices -information sources (Wall Street journal)
managing certificates of deposit
- investigate potential earnings and cost - do not allow financial institution to automatically roll over your money into another CD - consider creating a portfolio
smartphone app financial services
- text banking - mobile web banking - banking apps potential drawbacks; - privacy - security - fees
regular savings accounts
-Passbook savings -Statement accounts -Low minimum balance -Easy withdrawal -Insured -Low rate of return -Credit Union = share accounts
other financial service providers
-Pawnshop -Check-cashing outlet -Payday loan company -Rent-to-own center -Car title loan company
mutual savings banks
-specialize in savings accounts and mortgage loans -owned by their depositors, with profits going back to depositors by paying a higher rate on savings
savings and loan associations
Checking accounts, specialized savings plans, loans and financial planning and investment services
safety via FDIC and NCUA
FDIC insured up to 250,000 per person per institution
activity accounts
Fee charged for each check written, and sometimes for deposits
money market accounts and funds
Floating interest rate Allows limited check writing Higher minimum balance Money market accounts are covered by the FDIC, but money market funds are not
making deposits
3 types of endorsements -Blank endorsement=signature only -Restrictive endorsement="for deposit only" -Special endorsement="pay to the order of"
US Savings bonds - series EE
"patriot bonds" sold at half face value (50 -500) fixed-rate int. compounded semiannually penalty if redeemed within 5 years continues earning interest for 30 years potential tax advantages if use to pay tuition
regular checking accounts
-Monthly service charge usual -Minimum balance
non-bank financial service providers
-Retailer stores (prepaid debit cards, other services) -Online banking service provider (E*Trade Bank) -Online payment services (PayPal) -P2P (peer-to-peer) lending intermediaries
traveler's check
-Sign each check twice -Electronic traveler's checks-prepaid travel card with ability to get local currency at an ATM
writing checks
1. Record the date 2. Write the name of the person/organization receiving the check 3. Record the amount of the check in figures 4. Write the amount of check in words 5. Sign the check 6. Note the reason for the payment
credit unions
Nonprofit, member-owned financial cooperatives that offer the full variety of banking services to their members.
commercial banks
Organized as corporations Offer a full range of services including checking, savings, lending, and other services
rate of return or yield
Percentage increase in value due to interest Frequency of compounding increases return
money order
Purchase at financial institution, post office, store