FIN C.4

services offered by banks and other financial institutions

1. savings (time deposits) 2. payment services 3. borrowing 4. other financial services

regular savings accounts

passbook or statement accounts; involve a low or no minimum balance and allow you to withdraw money as needed.

EE bonds

purchased at face value; increase in value every month as interest accrues monthly and compounds semiannually.

rate of return

the percentage of increase in the value of savings as a result of interest earned; also called yield.

annual percentage yield (APY)

the percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365-day period.

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.

overdraft protection

an automatic loan made to checking account customers to cover the amount of checks written in excess of the available balance in the checking account.

HH bonds

current-income bonds; interest is taxed as current income.

mutual savings bank

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

commercial bank

a financial institution that offers a full range of financial services to individuals, businesses, and government agencies.

savings and loan association (S&L)

a financial institution that traditionally specialized in savings accounts and mortgage loans.

regular checking account

usually have a monthly services charge that you may avoid by keeping a minimum balance in the account.

share draft accounts

usually require a minimum balance.

I bonds

earns a combined rate consisting of a fixed rate for the life of the bond, and an inflation rate that changes twice a year.

types of CDs

rising-rate or bump-up CD; stock-indexed CDs; callable CDs; promotional CDs.

bank reconciliation

1. compare checks written with those reported as paid on statement; subtract from the bank statement the total of the checks written but not yet cleared 2. determine whether any deposits made are not on the statement; add the amount of the outstanding deposits to the bank statement balance 3. subtract fees or charges on the bank statement and ATM withdrawals from your checkbook balance 4. add any interest earned to your checkbook balance.

when interests rates are falling, you should..

1. use short-term loans to take advantage of lower raters when you refinance the loans 2. select long-term savings instruments to "lock in" earnings at current high rates.

money market account

a savings account offered by banks, savings and loan associations, and credit unions that requires a minimum balance and has earnings based on market interest rates.

certificate of deposit (CD)

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

activity accounts

charge a fee for each check written and sometimes a fee for each deposit in addition to a monthly service charge.

deposit institutions

serve as intermediaries between suppliers (savers) and users (borrowers) of funds. include commercial banks, S&Ls, mutual savings banks, and credit unions.

mistakes made when managing current cash needs

1. overspending 2. having insufficient liquid assets to pay current bills 3. using savings or borrowing to pay for current expenses 4. failing to put unneeded funds in an interest-earning savings account or investment plan

automatic teller machine (ATM)

a computer terminal used to conduct banking transactions; also called a cash machine.

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 access card used in computerized banking transactions; also called a cash card.

compounding

a process that calculates interest based on previously earned interest.

credit union

a user-owned, nonprofit, cooperative financial institution that is organized for the benefit of its members.

nondeposit institutions

offer various financial services. include life insurance companies, investment companies, brokerage firms, credit card companies, finance companies, and mortgage companies.

main tax advantages of Series EE bonds

1. the interest earned is exempt from state and local taxes 2. you do not have to pay federal income tax on earnings until the bonds are redeemed.

when interests rates are rising, you should..

1. use long-term loans to take advantage of current low rates 2. select short-term savings instruments to take advantage of higher rates when they mature.

money market fund

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