Managing Checking and Savings Accounts
Ronald's gross income is $60,000, and his living expenses consume 75 percent of his gross income. According to financial experts, Ronald should set aside ____ to cover emergencies.
Correct Answer $11,250 to $22,500
Darla had $750 in her checking account when her debit card was stolen. Assuming the thief made $525 in purchases with the card, how much could she save by reporting the stolen ATM card immediately rather than waiting more than three months before reporting the theft? $50 $500 $475 $525
Correct Answer $475
Absent-minded Alfred lost his debit card on May 1. He reported it missing the next day; however, $600 had been already purchased with the card without the use of his PIN number. According to the Electronic Funds Transfer Act, how much of this $600 loss is Alfred responsible for? $0 $50 $600 $500
Correct Answer $50
According to financial advisers, a person with monthly living expenses of $2,500 should maintain readily accessible savings of at least
Correct Answer $7,500.
Which of the following forms is used to notify you of the taxable interest you have earned in a given year from a checking or savings account? 1099 Form 1040 Form W-4 Form W-2 Form
Correct Answer 1099 Form
Some stored value cards can be "reloaded" with additional funds.
Correct Answer True
Because certificates of deposit require that the deposited funds remain on deposit for a specified period of time they are subject to fixed withdrawal risk. systemic risk. market risk. interest rate risk.
Correct Answer interest rate risk.
Certificates of deposit (CDs) tend to pay higher rates of interest than money market accounts because
Correct Answer the investor agrees to leave his or her money in the CD for a specified period of time while he or she has free access to the
Monetary asset management focuses primarily on funds kept readily available for investments.
False
Money deposited in mutual funds is insured by the federal government.
False
NOW accounts get their name because they are considered demand deposits.
False
Which of the following types of payment instruments could you get at your local post office?
Money order
A checking account is sometimes called a transaction account.
True
A mutual fund is an investment company that raises money by selling shares to the public and then invests that money in a diversified portfolio of investments.
True
A share draft account is the credit union version of a NOW account.
True
A stock brokerage firm is a licensed financial institution that specializes in selling and buying stocks, bonds, and other investment alternatives.
True
Acceptance for a lifeline banking account is dependent on one's income and net worth.
True
Checking accounts that pay no interest are called NOW accounts.
True
Checks allow you to transfer funds from your account to other people and organizations.
True
College students who are independent of their parents may qualify for very low-cost lifeline banking accounts.
True
Commercial banks typically offer the widest variety of financial services.
True
Today, even stock brokerages and insurance companies provide certain products for use in monetary asset management.
True
Unlike other providers of financial services, depository institutions can both take deposits and make loans to consumers.
True
When you use a debit card, funds are instantaneously removed from your account.
True
Deposits in credit unions with federal charters are insured through the National Credit Union Share Insurance Fund (NCUSIF).
True
If your checking account balance drops to less than perhaps $50 at any point during a month you would likely be better off with a minimum deposit account in order to avoid fees.
Correct Answer False
In community property states, the rights of the husbands and wives are unequally protected.
Correct Answer False
In general, the shorter the maturity time on a certificate of deposit, the higher the rate of interest that will be paid.
Correct Answer False
The safest type of endorsement on a check is a blank endorsement.
Correct Answer False
Money market mutual funds that buy only U.S. government securities are virtually risk-free.
Correct Answer True
Writing a "bad check" can be very expensive because of fees assessed by both the bank and the payee.
Correct Answer True
Wise money managers should select the savings option that avoids excessive fees. pays the highest annual percentage yield (APY). all of these. avoids excessive penalties.
Correct Answer all of these.
In monetary assert management, safety means the speed and ease with which an asset can be converted to cash.
False
One can increase the amount of money covered by FDIC insurance by dividing his or her money among different branch offices of the same depository institution.
False
Share draft accounts at credit unions are generally more expensive than NOW accounts at commercial banks.
False
In community property states, most of the money and property acquired during a marriage are legally considered the property of the individual who bought it. both spouses. the husband. the wife.
Correct Answer both spouses.
CD laddering is a technique that smoothes out the fluctuations in interest rates and lowers inflation rate risk.
Correct Answer True
Checks mailed to the bank for deposit should always be endorsed with a restrictive endorsement.
Correct Answer True
Completing a signature card is part of the process when opening a checking account.
Correct Answer True
Electronic benefits transfer (EBT) cards are used by the government to pay military personnel and provide Social Security and other government benefits.
Correct Answer True
Electronic funds transfers (EFTs) move money electronically between accounts rather than by check or cash.
Correct Answer True
Fixed-time deposits specify a period of time that the savings must be left on deposit.
Correct Answer True
Funds on deposit in a savings account are considered time deposits rather than demand deposits.
Correct Answer True
If one believes interests rates will move lower in the months ahead, he or she should invest in long-term, fixed-rate savings investments.
Correct Answer True
If the balance on either a super NOW account or a money market deposit account falls below a specified level, the account generally earns interest at the lower rate paid on a regular NOW account.
Correct Answer True
If you have an automatic overdraft loan agreement with your bank, money will be borrowed from your MasterCard or Visa as a cash advance when you write a bad check.
Correct Answer True
Institutions have a rule requiring that savings account holders give 30 to 60 days' notice for withdrawals.
Correct Answer True
Institutions usually have a rule requiring that time deposit account holders give 30 to 60 days notice for withdrawals, although this restriction is seldom enforced.
Correct Answer True
Interest rates on longer-term CDs are usually higher than the comparable rates on shorter-term instruments.
Correct Answer True
It is possible to lose money on a certificate of deposit if the early withdrawal penalty is greater than the interest earned.
Correct Answer True
Money market deposit accounts are normally federally insured whereas money market mutual funds are not federally insured.
Correct Answer True
Money withdrawn from a CD before the end of the specified time period is subject to interest penalties.
Correct Answer True
Most homeowner's and renter's insurance policies partially cover the liability for theft of both debit and credit cards.
Correct Answer True
Periodically, you should conduct an account reconciliation in which you compare your records with your bank's records.
Correct Answer True
Retail transaction fees can be assessed when you make a purchase via a point-of-sale terminal at a retail store.
Correct Answer True
The Truth in Savings Act requires depository institutions to disclose a standardized rate of interest so that depositors can easily compare various savings options.
Correct Answer True
The interest rate in force when a CD is purchased typically remains fixed for the entire term of the deposit.
Correct Answer True
The more frequent the compounding, the greater the effective return for the saver.
Correct Answer True
Time deposits are savings that are expected to remain on deposit in a financial institution for an extended period.
Correct Answer True
To be legally responsible for only the first $50 of unauthorized use, one must report an ATM card missing within two days after the loss or theft of the card.
Correct Answer True
When you sign up for electronic banking services, the depository institution must inform you of your rights and responsibilities in a written disclosure statement.
Correct Answer True
While the majority of certificates of deposit pay a fixed rate of interest, variable-rate certificates of deposit are available.
Correct Answer True
Your first line of defense against unauthorized use of your banking accounts is prompt examination of your periodic statement provided by your banking institution.
Correct Answer True
A stock brokerage firm is a licensed financial institution that all of these. offers money market mutual fund accounts. buys and sells stocks and bonds. provides investment alternatives.
Correct Answer all of these.
Electronic funds transfers (EFTs) can transfer funds electronically. are paperless. can be used in place of checks. all of these.
Correct Answer all of these.
Interest paid on deposits in financial institutions is based on how much money is on deposit and all of these. the interest rate applied. how the balance is determined. the frequency of compounding.
Correct Answer all of these.
Which type of bank agreement will result in the lowest fees? pay the bounced check fee itself. an automatic overdraft loan agreement. An "opt-in" overdraft-bounce protection agreement.
Correct Answer an automatic funds transfer agreement.
A personal identification number (PIN) is required when using a(n) point-of-sale (POS) terminal. stored-value card. automated teller machine (ATM). automated teller machine and point-of-sale terminal.
Correct Answer automated teller machine and point-of-sale terminal.
The fairest method for calculating interest on an account used ____ method for determining the balance to which the interest rate is applied.
Correct Answer average daily balance
Brokered certificates of deposit are available through stockbrokers.
Correct Answer True
Bump-up CDs allow savers to bump up the interest rate once to a higher market rate.
Correct Answer True
Special concerns for blended families include determining who assumes financial responsibility for biological offspring and stepchildren. handling resentment over alimony and child-support payments. managing unequal assets, incomes, responsibilities, and debts. (all of these)
Correct Answer (all of these)
Which of the following is (are) required to withdraw money from an automated teller machine (ATM)? ATM card and personal identification number Credit card Personal identification number Debit card
Correct Answer ATM card and personal identification number
Which of the following is not a benefit of a savings account? A grace period is given for withdrawals so that interest can still be earned on the money as though it were still in the account. The account provides principle security and a modest interest rate. Depository institutions are required to disclose a uniform, standardized rate of interest so that depositors can easily compare their options. Account holders must give 30 to 60 days' notice for withdrawals.
Correct Answer Account holders must give 30 to 60 days' notice for withdrawals.
Which of the following is a reason why you should reconcile your bank accounts regularly? You or your bank may have made a computational error. All of these Fees may have been assessed lowering your balance below what you think you have on deposit. Checks you have written may not have cleared your account.
Correct Answer All of these
How can a person transfer money out of his or her checking account? All of these. Write a check. Use a debit card. Make electronic funds transfers.
Correct Answer All of these.
Which of the following could incur fees and penalties on a checking account? The account balance falls below a set minimum amount. The account holder uses an ATM not owned by the financial institution. A customer asks the financial institution to not honor a particular check. All of these.
Correct Answer All of these.
Which of the following is the least expensive way of protecting yourself from fees should you overdraft your checking account. An automatic overdraft loan agreement An automatic funds transfer agreement Paying the overdraft-bounced check fee Opt-in overdraft-bounce protection
Correct Answer An automatic funds transfer agreement
Which of the following accounts could accurately be called a money market account? Series EE savings bond Share draft account Asset management account NOW account
Correct Answer Asset management account
To reduce interest rate risk and smooth out interest rate fluctuations when purchasing certificates of deposit (CDs) you can engage in grace period management. money-market arbitrage. CD laddering. CD layering.
Correct Answer CD laddering.
Molly went to her bank, gave the teller $200 plus a small fee, and received a check drawn on the financial institution itself. What kind of checks were these? Traveler's checks Cashier's checks Certified checks Money orders
Correct Answer Cashier's checks
The regulator of commercial banks and saving banks is the Securities and Exchange Commission. Home Loan Bank Board. Comptroller of the Currency. Federal Deposit Insurance Corporation.
Correct Answer Comptroller of the Currency.
A personal identification number is not needed for which of the following forms of electronic funds transfers? Debit cards Point-of-sale transactions ATM transactions Direct deposits
Correct Answer Direct deposits
"Opt-in" overdraft-bounce protection can be very helpful if the institution will honor your debit card even if you have insufficient funds.
Correct Answer False
A long-term, fixed-rate certificate of deposit would be most appropriate when interest rates are moving up.
Correct Answer False
ATM cardholders are liable for only the first $50 of unauthorized use if they notify the issuing company within five business days after the loss or theft of their card or PIN.
Correct Answer False
ATM transaction fees can be assessed when you make a purchase via a point-of-sale terminal at a retail store.
Correct Answer False
ATMs can be used to withdraw funds from a money market mutual fund.
Correct Answer False
An automatic funds transfer agreement is usually the most expensive way to avoid bad check fees.
Correct Answer False
Demand deposits are savings that are expected to remain on deposit in a financial institution for an extended period.
Correct Answer False
Everyone should use an asset management account to simplify their monetary asset management.
Correct Answer False
Everything else being the same, an investor would prefer an asset management account that "sweeps" weekly rather than daily.
Correct Answer False
Fees of no more $10 are generally charged for money orders, certified checks and cashier's checks.
Correct Answer False
Funds on deposit in a savings account are considered demand deposits.
Correct Answer False
It is highly recommended that CD investments be made at local institutions, even though some yield may be sacrificed.
Correct Answer False
It is not required for an ATM or a POS terminal to provide a written receipt.
Correct Answer False
Most homeowner's and renter's insurance policies cover your liability for theft of debit cards but not credit cards.
Correct Answer False
One should accumulate enough savings to cover living expenses for six to nine months.
Correct Answer False
The best banking account PIN numbers and passwords are those that are easy to remember.
Correct Answer False
The term money market account describes a variety of high-interest earning accounts that normally have unlimited check-writing privileges.
Correct Answer False
There are no fees charged for a stop-payment order.
Correct Answer False
Time deposits specify a period that the savings must be left on deposit, such as six months or three years.
Correct Answer False
When a bank offers a "free" checking account, that means there are no fees for writing bad checks or using another bank's ATM.
Correct Answer False
When a customer uses a debit card to pay for a purchase, funds must be paid as of the next due date on the account.
Correct Answer False
Your losses from a stolen ATM card are unlimited if you fail to report unauthorized use within 30 days after your statement is mailed to you.
Correct Answer False
Which of the following does not apply to monetary assets? All of these High liquidity High return Low risk
Correct Answer High return
Which of the following is not a technique for reducing the risk whenever you conduct banking transactions on-line? Regularly change your password and keep it to yourself. Leaving the browser window open when finished making transactions. Avoid using someone else's computer to manage your account. When finished, always hit the log off button at the top of the page instead of just closing the browser window.
Correct Answer Leaving the browser window open when finished making transactions.
Because the focus is on building a relationship you can wait until after "popping the question" to discuss financial issues.
Correct Answer True
Which of the following ideas will not help you discuss money with more confidence and candor? Learn to manage financial disagreements. Be honest and talk regularly. Make it clear that your needs and wants are more important than your spouse's. Get to know yourself.
Correct Answer Make it clear that your needs and wants are more important than your spouse's.
Which of the following are examples of monetary assets? Real estate, money market accounts, interest-earning checking accounts Savings accounts, interest-earning checking accounts, and corporate stock Money market accounts, cash on hand, and certificates of deposit Cash on hand, corporate stock, and insurance
Correct Answer Money market accounts, cash on hand, and certificates of deposit
Bob and Tina Cisneros want to build a $10,000 emergency fund. Which of the following would be the most appropriate choice for the emergency fund? Two-year certificate of deposit Series EE U.S. savings bonds Money market deposit account NOW account
Correct Answer Money market deposit account
Andy and Marjorie have very little will power when it comes to spending. They want to put their savings in an instrument that cannot be accessed by their ATM card. Which instrument would meet this criterion? Money market mutual fund Savings account NOW account Super NOW account
Correct Answer Money market mutual fund
List the money market accounts according to the interest rate generally paid on each account (from highest to lowest). Super NOW account, money market deposit account, and money market mutual fund Money market deposit account, money market mutual fund, and super NOW account Money market mutual fund, money market deposit account, and super NOW account Money market deposit account, super NOW account, and money market mutual fund
Correct Answer Money market mutual fund, money market deposit account, and super NOW account
Which of the following statements is true regarding mutual savings banks? Holding savings is the only financial service provided by mutual savings banks. Mutual savings banks provide financial services nationwide. Accounts in mutual savings banks are not federally insured. Mutual savings banks are quite similar to savings banks.
Correct Answer Mutual savings banks are quite similar to savings banks.
State-chartered credit unions are often insured by SAIF. NCUSIF. MSB. FDIC.
Correct Answer NCUSIF.
Which of the following could be the most expensive way of protecting yourself from fees should you overdraft your checking account? An automatic funds transfer agreement Paying the overdraft-bounced check fee Opt-in overdraft-bounce protection An automatic overdraft loan agreement
Correct Answer Opt-in overdraft-bounce protection
Which of the following is the best advice for people who want to start saving regularly?
Correct Answer Pay yourself first.
Which of the following is not a benefit of a savings account? Builds funds for large, irregular expenses Protection against inflation A way to save for your child's education A way to achieve short-term savings goals
Correct Answer Protection against inflation
Which type of cash management instrument could also be used by a college student to access his or her meal plan? Stored-value card Stored-value card Credit card Debit card
Correct Answer Stored-value card
Amy and Lance are newlyweds. This is Lance's second marriage. Because of problems that occurred before his divorce (his ex-wife took all the money out of their joint accounts), he is more cautious than most about setting up joint accounts. Which type of account would you recommend for Amy and Lance? Trustee account Joint tenancy account with right of survivorship Tenancy by the entirety Tenancy in common
Correct Answer Tenancy by the entirety
Jack and Jill have trouble keeping their checking account balanced. Because they never know how much is really in their account, they have an automatic funds transfer agreement with their bank. When Jack or Jill writes a bad check, what will happen?
Correct Answer The needed funds will automatically be transferred from their savings account.
Which of these is a reason many people say they cannot save? Not having a credit card precludes them from purchasing essentials Their belief that spending is better when inflation is low Their belief that they have no money left over at the end of the month The high annual percentage yields (APYs) for savings accounts
Correct Answer Their belief that they have no money left over at the end of the month
Which of the following sets NOW accounts apart from other checking accounts? They are safer. They pay interest. They are time deposits. They can be accessed by a debit card.
Correct Answer They pay interest.
A cashier's check is drawn on the account of the financial institution itself.
Correct Answer True
A check with a blank endorsement contains only the payee's signature on the back.
Correct Answer True
A grace period is the time period in days during which deposits or withdrawals can be made and still earn the same interest as other savings from a given day of the interest period.
Correct Answer True
A joint account that gives each owner access to the account (without the other's signature) is called a joint tenancy account with right of survivorship.
Correct Answer True
A money order is a checking instrument bought for a particular amount.
Correct Answer True
A payable-on-death designation can be used to set up an individual account that automatically goes to another person when you die.
Correct Answer True
A person whose income is dependent on commissions generally needs more readily available emergency funds than a salaried employee.
Correct Answer True
A stop-payment order works only if the check has not yet cleared your financial institution.
Correct Answer True
A tenancy by the entirety account may be opened only by spouses.
Correct Answer True
An asset management account is a multiple-purpose, coordinated package that provides a wide variety of financial services.
Correct Answer True
A lifeline checking account is accurately described as an account that: assesses monthly fees depending on the maximum balance in the account. can be accessed using a debit card. always pays interest. assesses no charges for ATM transactions.
Correct Answer can be accessed using a debit card.
A ______ is a firm that notifies all companies with which you have debit and credit cards in the event that the cards are lost. truth-in-savings service money-market fund. account monitoring service. card registration service
Correct Answer card registration service
A check drawn on a financial institution, backed by the financial institution's finances, and made out to a specific payee is called a
Correct Answer cashier's check.
Common financial services offered by depository institutions include checking, lending, and savings. checking, real estate sales, and savings. legal advice, savings, and life insurance. credit cards, stock brokerage, and tax preparation.
Correct Answer checking, lending, and savings.
Depositors are the owners of credit unions. mutual savings banks. credit unions and mutual savings banks. savings banks.
Correct Answer credit unions and mutual savings banks
Savers should select an institution that calculates interest monthly. quarterly. annually. daily.
Correct Answer daily.
A checking account that does not pay interest is called a
Correct Answer demand-deposit account.
Both commercial bank and savings bank accounts are insured by the FDIC through a fund called the savings bank insurance fund. fiduciary trust fund. bank insurance fund. deposit insurance fund.
Correct Answer deposit insurance fund.
Having your pay sent directly to your bank rather than receiving a written check is a type of direct deposit. shared accounting. NOW account. check cancellation.
Correct Answer direct deposit
A customer who wanted to directly transfer funds from his or her bank account to a retailer's bank account would use a(n) credit card. check. automated teller machine. electronic funds transfer.
Correct Answer electronic funds transfer
If Gus believes interest rates are going to fall in the near future and remain low for several years, Gus should now
Correct Answer invest in a long-term, fixed-rate certificate of deposit.
Which of the following certificates of deposit is not covered by bank deposit insurance offered by the FDIC? bump-up certificate of deposit variable-rate certificate of deposit investment certificate brokered certificate of deposit
Correct Answer investment certificate
Characteristics of a savings account include that
Correct Answer it permits the frequent deposit or withdrawal of funds.
Husbands and wives who own a checking or savings account together would most likely want to set up the account with: a payable on death designation. tenancy in common. periodic tenancy. joint tenancy.
Correct Answer joint tenancy.
A POS terminal is an electronic computer terminal located at a store or other merchant location that allows the customer to use a personal check. make purchases. make a cash withdrawal. get a cash advance.
Correct Answer make purchases.
Checks you write and present for payment can clear your bank in as little as minutes. one day. hours. three days.
Correct Answer minutes.
The monetary asset management service provided by a mutual fund is a money market mutual fund accounts. savings accounts. money market mutual fund accounts. All of these.
Correct Answer money market mutual fund accounts.
An individual checking or savings account can be set up to go automatically to another person when the depositor dies if it is set up as a(n) estate account. obituarial account. joint tenancy account. payable at death account.
Correct Answer payable at death account.
Your bank will regularly (usually monthly) provide a compilation of your recent account activity, which is called a(n) periodic statement. account ledger. reconciliation. receipt.
Correct Answer periodic statement.
Which of the following might be used by an employer to pay an employee? preloaded debit card stored-value card ATM card prepaid card
Correct Answer preloaded debit card
The primary reason for giving a child an allowance is to encourage the child to get a job at an early age. have a way to withhold a privilege in order to control the child's behavior. teach the child about how to manage money. pay the child for work around the house.
Correct Answer teach the child about how to manage money.
A person who is a joint owner of an ____ account should understand that his/her share of the assets in the account are distributed to the heirs of the deceased according to the terms of his/her will. joint tenancy with right of survivorship tenancy in common and tenancy by the entirety tenancy by the entirety tenancy in common
Correct Answer tenancy in common
When an account pays one rate of interest on a minimum amount on deposit and a higher rate of interest on additional deposits, this is called ____ interest. variable tiered none of these compound
Correct Answer tiered
The Truth in Savings Act requires depository institutions to offer life-line banking. provide federal deposit insurance on savings accounts. pay at least 3.5 percent interest on savings. use the annual percentage yield (APY) in advertising.
Correct Answer use the annual percentage yield (APY) in advertising.
Credit unions typically offer the widest variety of financial services.
False
Credit unions with federal charters have their accounts insured through the FDIC. Correct Answer
False
Stock brokerage firms are federally insured institutions.
False
The total protection an individual might have with any institution, including all its branches, is $250,000 with no more than $125,000 each on single-ownership and joint accounts.
False
Liquidity is the speed and ease with which an asset can be converted to cash.
True
Monetary asset management includes setting money aside in a savings account for use later when spending or investing.
True
Mutual savings banks are called "mutual" because the depositors own the institution and share in the earnings.
True
NOW accounts and share draft accounts with tiered interest will pay higher interest rates on larger balances.
True
NOW accounts may pay slightly higher interest rates on larger balances.
True
Stock brokerage firms earn commissions on clients' stock transactions.
True
The goal of monetary asset management is to maximize interest earnings and minimizing fees while keeping funds safe and readily available.
True
The interest rate you earn on your checking and savings account can vary with the amount you have in the accounts.
True
The only reason to have a checking account is so that one has an account for writing checks.
True
The primary focus of mutual savings banks is to accept deposits from consumers and provide mortgage and consumer loans.
True