Module 12- Econ

Automated Teller Machine (ATM)

technology that allows a bank customer to make deposits and withdrawals electronically 24 hours a day from his or her bank account - sometimes it requires a fee

What is true about interest rates?

the APR includes interest rates and loan fees

You need _____ to calculate your monthly loan payment

the amount of money borrowed, the term, and the interest rate

A worker wants to cash their paycheck. At which of the following locations will it be least expensive to cash the check?

the bank that issued the paycheck

Annual Percentage Rate (APR)

the interest rate, compounded over one year and expressed as a percentage, charges for borrowing money

internet banking

the system that allows you to put in or take out money from a bank account by using the internet - a paycheck can be direct deposited and then rapidly used to pay bills online - can transfer funds between accounts, check their balances, reconcile their accounting software balance to the bank balance, and inquire about loan rates and financial instruments

finance charges

the total dollar amount paid to use credit—could include interest, service charges, application fees, and other costs for using credit instead of cash to purchase goods and services; can include transaction fees

Credit Limit/Credit Line

maximum amount of money you can borrow (revolving credit, approved for a specific maximum of credit) - The Consumer Federation of America suggests people carry credit lines no greater than 20% of their gross income

True or False: Almost every bank account features mobile deposit, a free service that allows you to deposit checks using your phone.

True

True or False: Consumer credit applies to people buying products or services that are not investments.

True

True or False: Unlike an investment account, there's no risk associated with a savings account.

True

noninstallment credit

Type of short-term loan in which the entire balance is expected to be paid at once

multi-service institutions

many institutions today offer a wide range of products to help you - most banks today offer investment services and financial advisors

reconciling

matching one's personal account records with the bank's records

Unbanked

people who don't have bank accounts

Underbanked

people who have savings or checking accounts but still use alternative financial products and services (business with check-cashing services and pawnshops)

What makes up a monthly loan payment?

principal and interest payments

overdrawn account/overdraft

results from writing a check for an amount that is greater than the balance in the account

Promotional Incentives

rewards offered by creditors to get borrowers to apply for credit with them - credit card companies may offer an incentive in the form of frequent airline flier miles, reward points, or cash back when items are charged on the card

A debit card can be connected to...

savings and checking accounts (or both)

_____ have the largest percentage of their business invested in mortgages and other loans, and their loans tend to have higher interest rates than other financial institutions.

savings and loans

risk-based lending companies

- payday loans - title loans - pawnbrokers *are not insured against fraud

Retailer store credit cards

- the benefit of these cards is convenience - the risk is that you may wind up spending more than you intend and find it hard to pay back what you owe

The FDIC covers up to _____ per depositor, per insured account (bank).

$250,000

Benefits of opening a checking or savings account

- Banks will provide a safe place to keep her money and offer relatively low fees for cashing checks - You can arrange for direct deposit (allows your employer to deposit a paycheck directly into your account)

Costs and Conditions of Both Secured and Unsecured Loans

- Can be available through personal loans - Can include finance charges, such as interest fees, service charges, annual fees, late charges, and some credit-related insurance premiums - May have application fees and credit check fees tied to APR - Generally include late payment fees

liability

- Credit card fraud carries a maximum liability of $50 - Debit card fraud must be notified with 48 hours of the transaction or you may face a charge up to $500 (if they do not notify their bank within 60 days, they are liable for the entire loss)

Costs and Conditions of Unsecured Loans

- Does not require collateral but attaches an upper limit to the loan so borrowers cannot get large amounts - Sometimes involves higher interest rates because there is greater risk for the lender - Requires most loans to be paid back within 10 to 15 years—or even less time - Involves high fees and may include a credit check and credit history - Requires no collateral, but if the loan is not paid, the borrower can be sued, or his or her wages can be taken

electronic banking

- For the check to be electronically converted, the account owner must have enough money in their checking account to cover the check - there are fewer errors in processing your check and it minimizes fraudulent transactions

Follow these steps to manage your credit card use

- Only buy what you can afford with your credit card. Treat it like a debit card so you keep track of how much money you're spending. - Your credit card doesn't have to be from the same bank where you keep your bank accounts. Shop around for the best deal. - Avoid cards with annual fees. There are many no-fee choices available. - Avoid using your credit card to withdraw cash as a cash advance at ATMs. The fees are incredibly high. - Contact your credit card company as soon as possible if your card is lost or stolen. Most credit cards have $0 fraud liability, so any unauthorized spending is not your responsibility.

steps to determine how the bank and the customer both know how much money the customer currently has

- Open and review your bank account statement as soon as you receive it. - Look for transactions that appear on the statement but that do not appear on the register. - If a transaction or fee was not added to the register, add it immediately. - Check off every transaction that appears in both the register and the bank account statement in the "reconciled" column. - After every transaction is reconciled, the register balance should match the bank statement balance.

Costs and Conditions of Secured Loans

- Requires collateral; may be able to borrow as much as the cost of the collateral - Involves lower interest rates because there is less risk for the lender - May allow for flexible payments over a long period and repayment of entire loan with no penalty—most have equal monthly payments over a specific period of time - Can last 15, 30, or 45 years - Involves average-cost fees; may include a title search and an appraisal to assure that the borrower can legally make the offer and that the collateral has worth - Brings a high risk of losing the collateral if the loan is not repaid

To get a decent loan, you'll need...

- a credit score of 640 or above - a monthly debt-to-income ratio of below 36%

credit union loans

- borrowers must be a member of that credit union to get a loan - may offer lower maximum loan amounts than banks - may offer lower interest rates due to lower overhead - approve loans quickly

credit card costs include

- fees for late bill payments - annual fees for having a card - overlimit fees for charging an amount over your credit limit - interest charged on balances and cash advances

bank loans

- varying interest rate - require good credit - offer major credit cards

the process of opening an account:

1. Choose a bank 2. Complete the application 3. Provide identification 4. Meet a banker 5. complete signature card

The FDIC was started in _____ to protect bank deposits.

1933

bank statement

A bank statement is a monthly record of what has happened with your bank account

Check cashing store

A business that cashes checks, giving the customer cash in exchange for a fee for the service.

commercial bank

A financial institution that accepts demand deposits and makes loans and provides other services for the public

Credit Union

A non-profit financial institution that is owned by its members and organized for their benefit. It offers higher interest rates on savings accounts and charges lower interest rates on loans than a traditional bank.

paying interest

A payment due date is at least 25 days after the close of each billing period - will be charged interest on cash advances and balance transfers on the transaction date - will not be charged interest on purchases if you pay your entire balance by the due date

Annual Fee

A yearly fee that's charged by the credit card company for the convenience of the credit card are charged for the customer's continued participation in an open-end credit plan

returned check fee

Amount of money a bank or business charges for a check written with insufficient funds

checking account

An account that allows quick access to funds for transactions - linked to ATM cards - has no limits on the number of transactions that can be completed per month

compound interest

Balances on credit cards—built up by purchases, fees, and cash advances—are charged interest. The interest is recalculated continuously, meaning that interest is charged on the original amount and the accumulated interest.

Costs and benefits of getting paid in cash

Cost: the chances are greater that they will lose their money Benefit: the earner will have immediate access to your money

Costs and benefits of getting paid by checks

Cost: the fees at check-cashing stores can be quite high (usually done when you don't have a bank account set up) Benefit: the money is certainly safer because only you can cash that check

Debit Card vs. Credit Card

Debit card: deducted from checking account Credit card: borrowing money to be repaid later.

electronic devices

Electronic financial services include direct deposit, wiring of funds, and electronic bill paying

Costs of Credit

Finance Charges, APR, annual fees, transaction fees, risk of loss of the asset

Intermediaries

Financial institutions serve as intermediaries, bringing people and organizations together to meet their financial needs.

Your friend is looking at getting a checking account. He needs to deposit cash regularly and really wants a branch presence. What do you recommend?

Get a check account offered by either a traditional bank or credit union.

Good debt vs. bad debt

Good debt: increased credentials, access to certain jobs, increased salary Bad debt: if a degree is not earned, if credentials do not fit with career or salary needed, if you over extend yourself

Risk of Loss of the Asset

If an item is used as collateral to secure the loan, failure to repay the debt could lead to the lender taking away the asset that was used as collateral.

carry a balance

If you do not pay the credit card company the full amount of your bill, the money you owe is the balance.

Financial Institution

It offers services that assist customers in the process of saving, spending, borrowing, and investing.

penalty charge

Over-the-limit fees may be charged to debit or credit cards. The fee is charged for exceeding the credit limit on the card - may opt out of the over-the-limit option (however, the card will be denied if they try to make a purchase over the credit limit) Late payment fee will be assessed against the account if the credit card company does not receive their monthly payment by the due date

Savings and Loans

Savings and Loans are banks that specialize in accepting savings deposits and making mortgage loans. They do not offer loans to commercial businesses.

How Long Will the Penalty APR Apply?

Six months - The Penalty APR will continue to apply until you begin making timely payments with no returned payments during the six months being reviewed - will apply to existing balances if payments are 60 days overdue

Annual Percentage Rate (APR)

The Annual Percentage Rate is a measure of the interest charged, expressed as a yearly rate. The APR takes into account the interest rate and the timing of the payments. Under Federal Truth in Lending laws, all lenders are required to disclose the APRs associated with an offer.

Title loan

The borrower gives the lender his/her automobile title in exchange for a set amount of cash. The lender holds the title until the loan is repaid. If the loan is not repaid as agreed, the lender keeps title to the item.

bank reconciliation

The process of matching your personal records to the bank's records is called reconciling

Finance Charges/Fees

The total cost of credit, including interest and transaction fees.

Which of the following is true about credit cards?

They come with rewards, are a great way to build up a credit score, most require a credit score of 600, unless you're a student, in which case the requirement is waived.

securities firms

They pair people and organizations that have money to invest with investors who need money to make their businesses grow; is not insured by the FDIC.

insurance company

They sell insurance policies to consumers. With an insurance policy, the consumer pays a fee (premium) for someone else to take on the risk of a potentially expensive disaster.

No fee/no balance credit card

This type of credit card does not charge an annual fee. The consumer pays all the charges on the bill (does not carry a balance) every month.

Opening a bank account

To open a bank account you need to choose a bank, meet with a banker, fill out an application, provide an ID, and complete a signature card

debit card purchases

When you use a debit card to make a purchase, the money is removed from your checking account as soon as the transaction clears

savings account

a bank account that earns interest and is used to hold the money you are saving - low risk of getting your money lost or stolen - no debit cards are tied to savings, but can still be connected to it - good for emergency funds - insured by the Federal Deposit Insurance Corporation

pawn broker

a legal business that makes high-interest loans based on the value of personal possessions pledged as collateral

secured loan

a loan backed by collateral, something valuable such as property

unsecured loan

a loan that doesn't require any collateral - will come with a higher interest rate and less favorable terms

payday loans

a loan where a borrower gets a cash advance based on his paycheck. These loans generally must be repaid on the next payday

a short term loan comes with _____

a lower interest rate and less interest paid over the life of the loan

payday loan stores

a non-bank institution that provides loans by having the consumer write a check for the loan, plus a fee. The consumer returns next payday to repay the loan; if not, the store cashes the check

installment closed-end credit

a way for buyers to finance their purchases; credit is extended to a specific purchase, such as a car loan. The borrower pays the credit in installments over a period of time

Annual Fee

a yearly fee charged for having certain credit cards—it can be avoided by choosing cards that do not have this fee

brick-and-mortar

actual buildings, such as stores and warehouses (physical bank or credit union)

Checking accounts...

allow people to deposit and withdraw their money over a short period of time

bank accounts...

allow people to manage their money on a day-to-day basis

Savings accounts...

allow people to save money over the long term and earn extra money, called interest. They can earn more interest by depositing their money into a money market account

Check Clearing for the 21st Century Act (Check 21)

allows a receiving bank to make an electronic image of a paper check and electronically send the image to the paying bank for instant payment instead of waiting days for the paper check to find its way back to the sender.

Account disclosure agreement

an agreement that describes the terms and conditions of your credit or debit card account. These may include interest rates, fees, incentives, and other conditions for use of the card

If a bank fails, funds up to the coverage amount will be transferred to _____, or the depositor will receive a check.

another FDIC bank

_____ offer check cashing and checking accounts.

banks, credit unions, and savings and loans

transaction fee

cash advance fees, late payment fees, balance-transfer fees, over-limit fees, and any other feed credit card companies charge for services

transaction fees/brokerage

cash advance fees, late payment fees, balance-transfer fees, over-limit fees, and any other fees credit card companies charge for services

revolving open-end credit

credit provided up to a specified maximum amount based on income and credit history; interest is charged each month on the remaining balance No monthly minimum payment is required for revolving credit, but finance charges are calculated on unpaid balances

A _____ is regulated by the NCUA.

credit union

_____ are owned by account holders.

credit unions

Three major types of financial institutions:

deposit-taking institutions that accept and manage deposits and make loans- these include commercial banks, credit unions, and savings and loans; insurance companies and pension funds; and brokerage funds, underwriters, and investment funds

One way to get quicker access to money from your paycheck is through...

direct deposit

Difficulties for the Unbanked

face higher fees for transactions and on electronic bill pay services

True or False: Deposits at a credit union are insured by the FDIC.

false

True or False: The FDIC covers safe deposit boxes.

false