Personal Finance Chapter 5

When comparing investment options, what tool should you use to find out which one will yield the biggest return?

APY= annual percentage yield

what are the adv/disadvantages of a savings account

Advantages: Liquid Safe—federally insured Earns higher interest than a Checking Account Disadvantages Minimum holding time Charges/fees Low interest rate Inconvenient

what are the adv/disadvantages of a checking account?

Advantages: Liquid, Safe, Low minimum balance, Convenient Disadvantages: minimum balance required, monthly fee, opportunity cost, interest less than alternatives

what are the adv/disadvantages of a asset management accounts?

Advantages: Monthly statements, coordination of money management, checks, high return, convenient. Disadvantages: Costly, minimum initial investment, not insured

what are the adv/disadvantages of a TBill

Advantages: Risk-free, exempt from state and local taxes, federal tax vary with current rates. Disadvantages: Low rate of return

what are the adv/disadvantages of savings bonds?

Advantages: Safe, affordable, no taxes, convenient, redeem at any bank, no commissions or fees. Disadvantages: Low liquidity, long maturity, semi-annual compounding.

what are the adv/disadvantages of a cD?

Advantages: Safe, fixed interest rate, convenient. Disadvantages: Early withdrawal penalty, fixed interest rate, minimum deposit required.

what are the adv/disadvantages of a mmmF?

Advantages: High interest rates, check writing, limited risk, convenient. Disadvantages: Administrative fees, minimum initial investment, not insured, minimum checks.

what are the adv(3)/disadvantages (2)of a money market deposit account?

Advantages: Safe, Earns interest, Check writing privileges Disadvantages: High minimum balances/penalties, low interest rates

U.S. Savings Bonds?

Bonds—Series EE and I bonds are safe, low risk savings products issued by the Treasury with low denominations.

At what level of government are savings account insured?

FDIC

Interest bearing checking accounts are called what?

NOW accounts

U.S. Treasury Bills or T-Bills?

T-bills—short-term debt issued by the federal government with maturities from 3-12 months.

Asset Management Accounts?

a comprehensive financial services package (checking account, credit card, MMFs, etc.) offered by a brokerage firm.

Savings account?

a deposit account that pays interest

Market Money Deposit Account?

alternative to savings account, variable interest rates, check and ATM access.

Checking accounts?

checking accounts are federally protected accounts in which you deposit your liquid funds so you can withdraw them.

Commercial banks offer ?

checking, savings, credit cards, safety deposit boxes, financial consoling, all type of lending services.

What are the 3 c's?

cost, convince, and consideration

FDIC

deposits at commercial banks

NCUA

deposits at credit unions

What are the 4 costs of banking?

fees, rates, minimum balances, per check charges

When funds are not able to be used elsewhere because they are required for say a minimum balance, this represents a special type of cost, What is that cost?

forced balance

What did the Truth and Savings Act of 1993 help investors do?

helps investors by having financial instutions report their rate of interest making it easier to compare rates

Why would a consumer need a cashier's check?

if they don't have a checking account

Money Market Mutual Funds?

investors receive interest on a pool of investments less an administrative (usually less than 1% of total investment)

Overdraft protection is?

is an automatic loan made to your checking account whenever your account doesn't contain enough cash to cover the checks that you have written against

What are the 5 banking conveniences?

location, access to ATM, ability to get a safety deposit box, direct deposit service, overdraft protection

What type of financial institution pools money together from investors and invest that money in stocks or bonds?

non deposit-type institution= mutual fund

What is a CD?

pays a fixed rate of interest while funds are on deposit for a period of time (30 days to years).

Describe the characteristics of savings and loans associations

services include and commercial banks are similar identical saving alternatives

Why are liquid assets important, what can they be used for?

so you don't have to use long term investments to pay for unexpected events ; so you have money incase of an emergency and can pay your bills and other living expenses.

When do you use the after tax return formula? what is the formula

to calculate which accounts are better in terms of a higher interest rate; after tax return formula = taxable return (1-margin)

Describe credit unions. Who can belong to them? What type of benefits do they offer?

unions established by wide varieties of groups ; members of the organization; efficient, higher interest rates, have lower fees, and have more favorable loan rates

MMMF

—not insured but diversified