Finance Chapter 5

financial institutions have to disclose what information because of truth in savings law

1. fees on deposit accounts 2. the interest rate 3. the annual percentage yield 4. other terms and conditions

main tax advantages of ee bonds

1. interest earned is exempt from state and local taxes 2. you dont have to pay federal income tax on earnings until the bonds are redeemed

some mistakes made when managing current cash needs

1. overspending (using credit cards) 2. having not enough liquid assets like cash 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 investing it

writing checks

1. record date 2. write name of person who will get it 3. record amount of check in figures 4. write the amount of the check in words 5. sign it 6. write reason for payment

some institutions charge fees for what

a transaction fee for each deposit or withdrawal

share draft

a type of interest earning checking account at a credit union

travelers checks

allow you to make payments when you are away from home

3. a special endorsement

allows you to transfer a check to someone else with the words "pay to the order of" followed by the name of the other person then your signature

interest earning checking accounts

also called NOW accounts (negotiable order of withdrawal) usually requires minimum balance- if it goes below that you wont earn interest and have to pay fee

investment companies - offer what, and also called what

also called mutual funds, offer banking type services

EE bonds

also called patriot bonds, may be purchased from amounta ranging from 25-5,000 d0llars (50,10,000 dollar face value) electronic ee bonds are purchased at face value, meaning you pay 50 for a 50 dollar bond

certified check

personal check with guarantgeed payment; amount of the check is deducted from your balance when financial institution certifies the check

online banking concerns

potential privacy, security violations atm fees can become costly difficulty depositing cash, checks overspending online scams

stored value cards

prepaid cards, like IDs for shool lunches, some often have activation charges and inactivity fees

how to determine correct balance?

prepare bank reconciliation to account for differences

earnings on savings measured how

rate of return (yield)

inflation

rate of return you earn should be compared with inflation rate

compounding

refers to interest that is earned on previously earned interest

share account

regular savings account at a credit union

types of checking accounts

regular, activity account, interest earning accounts

rate of return

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

most saving plans at banks etc are insured by agents that are affiliated with the federal government, WHY

this prevents a loss of money due to the failure of the insured institution

online banking benefits

time and money saving convenient for comparing no paper trail for identity thieves transfer access for loans email notice for due dates

profits of mutual savings bank goes where

to depositors, usually have to pay rates on savings this is unlike the profits of other types of financial institutions

second

to identify you as the authorized person, you sign again

the time deposits are viewed as

an attractive and safe savings alternative

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

each check you deposit requires what

an endorsement

managing CDs- when you save with a CD or roll over (buying new one at maturity) what should you do

assess all earnings and costs

promotional CDs

attempt to attract savers with gifts or special rates

balance on there will differ from what

balance in your checkbook

each month you receive what

bank statement

online payments

banks and internet companies are serving as third parties to facilitate online bill payments like paypall, make sure you consider all fees before doing these things

why will they differ?

because checks might not have been cleared, or some deposits might not have been cleared by the bank. also, interest earned may or may not be on there

asset management account

called cash management account, provides complete financial services program for single fee

debit card

cash card; activates ATM transactions; can also be used to make purchases

automatic teller machine (ATM)

cash machine; provides various banking activities and other types of transactions such as buying transit passes, postage stamps, and gift certificates

common payment choices

cash, check, credit card, debit card

activity accounts

charge a fee for each check written, and sometimes a fee for each deposit, in addition to a monthly service charge, but dont have to maintain a minimum balance

state banks

chartered by state government

national banks

chartered by the federal government

cashiers check

check of a financial institution; can purchase one by paying the amount of the check plus the fee

money market fund

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

convenience of a 24 hour automatic teller is better why

considered against service fees of banks near home

online banking

continuing to expand

unlike accounts at most banks, savings and loan associations and credit unions, investment company accounts are not WHAT

covered by federal deposit insurance

3. borrowing

credit alternatives are from short term accounts like credit cards and cash loans to long term like a home mortgage

debit card is in contrast to what

credit card, because you're spending your own money in debit rather than borrowing additional money

payment methods (electronic payments)

debit card transactions, online payments, stored value cards, smart cards

TIS- truth in savings

defines annual percentage yield (APY) as the percentage rate expressing the total amount of interest that would be received on a 10 deposit based on the annual rate and frequency of compounding for a 365 day period

FDIC insures what

deposits of up to 250,000 per person per financial institution; a joint account is considered to belong proportionally to each name on the account

I bonds

earns combined rate consisting of 1. fixed rate for the life of the bond 2. inflation rate that changes every year

smart cards

electronic wallets are similar to atm cards, they have info with account balances, transaction records, insurance info, etc

ee bonds increase in value how often

every month, as interest raetes accrues monthly and compounds semianually

money market ACCOUNTS at banks and credit unions are covered by

federal deposit insurance

mutual savings banks

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

savings and loan associations

financial institution that traditionally specialized in savings accounts and mortgage loans

opening a checking account

first decide the owner of the account

penalty on removing money from CD (certificate of deposit)

for cd of one year or less, penalty is usually 3 months of interest more than a year- more than 6 months

can purchase money order in a similar manner

get it from stores, post offices, and financial institutions

yield on savings usually will be

greater than the stated interest rate

2. a restrictive endorsement

has the words "for deposit only" followed by your signature, which is useful when you are depositing checks

2. indexed CDs

have earnings based on the stock market

stop payment order is used for what

if check is lost or stolen

i bonds are sold where

in the same denomination as ee bonds, but are purchased at face value, not discount

4. other financial services

insurance protection, investment for the future,real estate purchases and tax help you might need in the future

savers with a regular savings account receive what

monthly or quarterly statement with a summary of transactions, the regular savings account allows you to withdraw money as needed

debit card transactions

most can be used in 2 ways 1. with your signature like credit card 2. with PIN number, like an atm

evaluating checking accounts- restrictions

most common limitation is the amount you have to keep on deposit to earn interest or avoid service charge

making deposits

need a deposit ticket

best advice with coverage

never keep more than the coverage limit in one financial institution

each time interest is added to savings, what happens

next interest amount is computed on the new balance in the accont

HH bonds

no longer sold, were current income bonds with interest deposited electronically to your bank account the interest was taxed as current income on persons federal tax return but exempt from state and local taxes

both money market accounts and money market funds do what

offer earnings based on current interest rates, and both have minimum balance restrictions and allow check writing

commercial banks

offer full range of financial services, including checking, savings, and lending along with other services to people, businesses, and government agencies. they are organized as corporations with individual investors

how many people can write checks on an individual account

one person

mortgage companies

organized mainly to provide loans to purchase homes

APY formula

100 (interest/principal)

ex of rate of return

100 dollar savings account that earned 5 dollars after a year, rate of return would be 5% divide interest earned (5) by amount in savings (100$)

example

100 in savings account that earns 6 percent compounded annually will increase 6 dollars after a year but the same 100 in a 6 percent account compounded daily will earn 6.19 a year

a joint account has how many owners

2 or more

how many common endorsement forms

3

series ee bonds continue to earn interest for

30 years

types of cds

4 types

types of financial services

4 types

make sure you report fraud within how many days

60, if you wanna protect your right to not be charged for the transaction

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

for i bonds, every 6 months what happens

a new fixed base rate is set for new bonds

money market FUNDS are

a product of investment companies

if there is a delay between time that interest is earned and the time it is added to your account, that means what

it wot be available for immediate use

1. a blank endorsement

just your signature,should be only used when you are actually depositing or cashing a check, since check can be cashed by anyone once its been signed

consolidated financial services has potential of

keeping track of money in single location, less monthly and quarterly statements, lower fees for maintaining a large balance with one financial institution, simplified tax reporting with all dividends and interest on one form, ease of communicating financial situation to family members

trust

legal agreement that provides for the management and control of assets by one party for the benefit of another; most commonly created through a commercial bank or a lawyer

more than 2 days

liable for up to 500

higher returns for long term savings come at the cost of what

liquidity- the inability to get your money fast

no fee checking account requires non interest bearing 500 minimum balance means what

lost interest of nearly 400 dollars at 6 percent compounded over 10 years

life insurance companies

main purpose is to provide financial security for dependents

certified checks, cashiers checks and money orders allow you to do what

make a payment that the recipient knows is valid

finance companies

make loans to consumers and small businesses is main function- loans have short and intermediate terms with higher rates than most other lenders

the service is convenient but costly

many overdraft plans make loans on 50 or 100 increments, so an overdraft of just 1 dollar might trigger a 50 dollar loan and maybe a fee of 18%

1. rising rate or bump up CD

may have higher rates at various intervals

do not allow financial institution to do what

roll over money into another CD for the same term because if interest rates drop you might want to consider a shorter maturity

1. savings

safe storage of funds for future use is basic need- called time deposits- include money in savings accounts and certificates of deposit to select a savings deposit is usually based on the interest rate earned, liquidity, safety and convenience

main difference between the 2 is what

safety

money market accont

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

first

sign travelers checks when you purchase iten

both individual and joint accounts require what

signature card- record of the official signatures of the people authorized to write checks on the account

bonds can be purchased by who

someone who is 24, and must be issued in the names of one or both parents

callable CDs

start with higher rates and usually have long term maturities, as high as 10-15 years, benefit of federal deposit insurance

bank statement does what

summarizes deposits, checks paid, interest earned, and fees like service charge and check printing

remember what

taxes are not withheld from savings and investment income

2. payment services

the ability to transfer money to other parties checking accounts and other payment methods called demand deposits discussed later

what do you write on deposit ticket

the amounts of cash and checks being deposited

redeemed series ee bonds can be exempt from federal income tax if

the funds are used to pay tuition and fees at a college

the more frequent the compounding, what

the higher your rate of return will

this payment requires you to sign how many times

twice

additional interest payment for i bonds is recalculated when

twice a year, based on the current annual inflation rate

deposit ticket

used for adding funds to your checking account

credit union

user owned non profit cooperative financial institution that is organized for the benefit of its members

regular checking account

usually have monthly service charge that you can avoid by keeping minimum balance in the account, some places waive it if you keep a certain amount in your account

regular savings account

usually involves low or no minimum balance

liquidity allows you to do what

withdraw money on a short notice without a loss of principal or fees

endorsement

your signature on the back of the check- to authorize the transfer of the funds into your account

if card is lost and you notify in 2 days

youre liable for 50 bucks