Personal Finance Chapter 5: Savings Plans and Payments Accounts

What are examples of deposit financial institutions?

- Commercial Banks - Savings and Loan Associations - Mutual Savings Banks

What are the benefits of U.S. savings bonds?

- Low Risk - Guaranteed by the federal government

What are the main types of savings plans offered by financial institutions?

- Regular Savings Accounts - Certificates of Deposit - Money Market Accounts and Funds - Savings Bonds

What factors are commonly considered when selecting a checking account?

-Restrictions -Fees and Charges -Interest -Special Services

What are the major categories of financial services?

1. Savings 2. Cash Availability and Payment Services 3. Borrowing 4. Investments and other Financial Services

What factors do consumers usually consider when selecting a financial institution?

1. Services 2. Costs, Fees, Earnings 3. Convenience 4. Online, Mobile Banking

Automatic Teller Machine (ATM)

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

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.

How does a money market account differ from a money market fund?

A money market account is insured and a money market fund is not.

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.

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.

Credit Union

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

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.

Share Draft Account

An interest-bearing checking account at a credit union.

What is the relationship between financial services and overall financial planning?

Financial planning is the plan put in place to achieve financial satisfaction and financial services help you complete that plan.

Why shouldn't you select financial services only on the basis of monetary factors?

Services vary from provider to provider and it is not only monetary factors that matter.

Share Account

A regular savings account at a credit union.

Money Market Fund

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

How do inflation and taxes affect earnings on savings?

As inflation increases, interest rates increase. Taxes reduce interest earned on savings.

How do changing economic conditions affect the use of financial services?

Economic conditions affect interest rates.

What is the relationship between compounding and the future value of an amount?

The number of times compounded determines the future value.

Rate of Return

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

Annual Percentage Yield

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.

Are checking accounts that earn interest preferable to regular checking accounts? Why or why not?

Yes, this allows money to continue to grow.

When would you prefer a savings plan with high liquidity over one with a high rate of return?

You would prefer a savings plan with high liquidity if you need to access the money in a short period of time.