Chapter 4 Financial Services: Savings Plans and Payment Accounts

Rate of Return

Percentage increase involve of savings. Increase with frequency of compounding

Types of Financial Services

Asset management account -Also called a cash management account -Offered by investment companies and others to provide a complete line of financial services program, which include: -Checking account and ATM card -Credit Card -Online banking -Line of credit for quick cash loans -Access to a variety of investments

Safety

Availability of deposit insurance Risk

Deposit Institutions

Commercial Banks -Organized as corporations -Offer a full range of services including checking, savings, lending, and other services Savings and loan associations -Checking accounts, specialized savings plans, loans, and financial planning and investment services Mutual Savings Banks - Specialize in savings accounts and mortgage loans -Owned by their depositor, with profits going back to depositors by paying a higher rate on savings Credi unions -User owned, nonprofit, and provide comprehensive financial services Lower fees

Liquidity

Ease with which sabnings can be withdrawn

Bank Reconciliation Example

First, subtract the uncleared checks from the online balance: -$1250 - 795.50-454.50 Now, add the interest and rewards balance to the spreadsheet total: $450 + $0.50 + $4.00 - $454.50 Will's checking account balance

Financial Services and Economic Conditions

For successful financial planning, be aware of -Prime rate - rate banks charge large corporations

Inflation

Higher consumer prices result in lower buying power of interest earned on salvage.

Evaluating Savings Plan

Inflation -compare rate of return vs. inflation rate Taxes -reduces interest earned on savings Liquidity -Quick availability of cash -without significant loss in value

Evaluating Savings Plans

Inflation compare rate of return vs inflation rate Taxes reduces interest earned on savings Liquidity quick availability of cash without significant loss in value

Liquid Accounts

Interest earning checking accounts -checking accounts paying interest Money market accounts and funds -floating interest rate -allows limited check writing -higher minimum balance -money market accounts are covered by the FDIC, but money market funds are not

Common Mistakes

MANAGING DAILY MONEY NEEDS Overspending Insufficient liquid assets Using savings or borrowing to pay for current expenses Failing to put unneeded funds in an interest bearing savings or investment account

Restrictions , fees

Minimum

Types of Financial Institutions

Non-Deposit Institutions Life insurance companies -Insurance plus savings and investments -Some offer financial planning and investing services Investment companies -Mutual funds money market fund -Combination savings and investment plans -Not covered by FDIC Brokerage Firms -Act as agent for buyers and sellers of financial products Credit Card companies -Specialize in short term loans Finance Companies -make short and medium term loans to consumers -Higher rates Mortgage companies -Provide home mortgage loans

Regular Savings accounts

Passbook savings Statement accounts Low minimum balance Easy withdrawal Insured Low rate of return Credit union - share accounts

Problematic Financial Businesses

Pawnshops -Loans on possessions -Higher fees; 3% per month common -used for quick cash Check cashing outlets -Charge 1-20% of checks face value -1-3% is average AKA: Currency exchanges Payday loan companies -Cash advances -Check advance loans -Postdated check loans -Delayed deposit loans -high interest rates Rent To Own Centers -Lease merchandise at high interest rates to low income customers

Managing Your Checking Account

Record the date Write the name of the person/organization receiving the check Record the amount of the check in figures Write the amount if check in words Sign the Check Note the reasons for the payment

US savings bonds

Registration -single owner -co-owners with a primary owner with a beneficiary Treasury Direct -establish an account at www.treasurydirect.gov -24/7 access ti buy manage and redeem electronic bonds

Commonly used savings plan

Regular Savings -Certificates of deposit -interest earning -checking accounts -money market accounts -money market funds -US savings bonds

Certificates of Deposit(CD)

Required minimum deposit Required time on deposit Penalties for early withdrawal Take care of when rolling over Various CD Types -Rising rate or bump up -Liquid (access any time you want) -Zero coupon -Indexed -Callable -Promotional

Truth un Savings Act

Requires disclosure of Fees on deposit accounts interest rate Annual percentage yield (APY) APY defined as the total percent total pervrnt

Truths in Savings Act

Requires disclosure of: Fees on deposit accounts Interest rate annual per

Evaluating Checking and Payment Accounts

Restrictions

Evaluating Savings Plans

Safety via FDIC and NCUA -FDIC, insured up to $250,000 per person per financial institution -up to $250000 for certain returemetna accounts www,fdic.gov Restrictions and fees -minimun balance -fee for additional transactions

Types of Financial Services

Savings -Time Deposits -Savings and certificates of deposit Payments Services -Checking accounts - demand deposits -Automatic payments Borrowing for the short - or long term Other financial services -Insurance, investment, real estate purchases, tax assistance, trust, and financial planning

U.S Savings Bonds

Series EE -patriot bonds -sold at half of face value -face values $50-$5000 -fixed rate interest compounded semiannually -penalty if redeemed within 5 years -continues earning interest for 30 years -potential tax advantages if used to pay tuition

US Savings Bonds

Series HH - No long sold current income bonds pays interests every six months

Taxes

Taxable interest reduces amount of earnings

Online Banking

Traditional and web only banks Services provided Direct Deposit -Paychecks and other regular income Automatic payments transfer funds -Recurring payments such as for utilities ATM access -obtain cash, check account balances, and transfer funds -Check out the fees Debit card -Deducts money directly and immediately out of your account -Lost card liability $56 -$500

Interest Rates and Financial Decisions

When interest rates are rising -Use long term loans to take advantage of current low rates. -select short term savings instruments to take advantage of higher rates when they mature When interest rates are falling -Use short term loans to take advantage of lower rates when your refinance the lions -Select long term savings instruments to lock in earnings at current high rates

Evaluate savings plans on the basis of

rate of return inflation tax