Chapter 4: Financial Services, Savings Plans, & Payment Accounts (Finance)

Regular Savings Accounts

-Passbook savings -Statement accounts -Low minimum balance -Easy withdrawal -Offered at banks, savings and loan associations, and other financial institutions -Credit Union = share accounts

Evaluating Checking & Payment Accounts

-Restrictions, such as a minimum balance -Fees, which increase, and charges -Interest rate and computation method -Special services (Overdraft protection) -Beware of "package" deals that include unneeded services.

A failure to reconcile your bank account each month can result in not knowing:

-Your exact spending habits for wise money management. -If the correct deposit amounts have been credited to your account. -Any unauthorized ATM withdrawals. -If your bank is overcharging you for fees. -Errors that your bank may have made in your account.

Check Cashing Outlets

-charge 1-20% of check's face value -1 through 3% is average (currency exchanges)

cash availability type of financial needs include?

-check cashing -ATM/ debit cards -travelers checks -foreign currency exchange

Payment services type of financial services?

-checking account -online payments -cashier's checks -money orders

an asset management account includes programs such as?

-checking account & ATM card -credit card -online banking -line of credit for quick cash loans -access to a variety of investments

Borrow

-credit card advance -personal loan

I Bonds

-earns a fixed rate plus an inflation rate -twice a year inflation adjustment

Investment services type of financial services?

-individual retirement accounts (IRAs) -brokerage service -Investment advice -mutual funds

Pawnshops

-loans on possessions -higher fees; 3% per month common -used for quick cash

Certificates of deposits require?

-minimum deposit -time on deposit -penalties for early withdrawal -take care when rolling over

Series HH

-no longer sold -current income bonds -pay interest every 6 months -interest direct deposited and taxed as current income

Each year, __________ account for a smaller and smaller portion of payments in our society. While___________ is being used less, checking accounts are still the common source for most debit card transactions and online payments.

-paper checks -check writing

Savings services type of financial services?

-regular savings account -money market account -certificates of deposits -u.s savings bonds

What are the pros of online banking?

-time and money savings -convenience for transactions, comparing rates -no paper trail for identity thieves -transfer access for loans, investments -E-mail notices of due dates

When interest rates are RISING what financial services decisions should be considered?

-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

Opening a checking account

Individual vs. joint account

Life Insurance Companies

Insurance plus savings and investments; Some offer financial planning and investing services

Financial Companies

Make short and medium term loans to consumers; higher rates

U.S. Saving Bonds are all?

Series EE Series HH I bond

Many types of businesses offer financial services that were once exclusive ______?

banks

Savings & Loan Associations

checking accounts, specialized savings plans, loans, and financial planning and investment services

Restrictive Endorsement

for deposit only

Trust

is a legal agreement that provides for the management and control of assets by one party for the benefit of another.

Rent To Own Centers

lease merchandise at high interest rates to low income customers

Special Endorsement

pay to the order of

Online Payments

paypal, mycheckfree, google wallet, paynear me

Stored Value Cards

prepaid cards for telephone, transit, tolls

Mortgage Companies

provide home mortgage loans

Taxes

reduces interest earned on savings

Interest Earning or Share Draft Accounts (credit unions)

require a minimum balance

Time deposits & savings and certificates of deposit fall under what type of financial services?

savings

Blank Endorsement

signature only

Credit Card Companies

specialized in short term loans

In order to get a hold of a U.S. savings bond you must establish an account at _________ to buy manage and redeem savings account.

treasury direct

Provide an example pertaining to interest earning checking accounts?

using you debit card a certain amount of times each month

Series EE

-"Patriot -Sold at half of face value -Face values $50 --$5,000 -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

Annual Percentage Rate (APR)

-"total percent" -Total percent is based on annual interest and frequency of compounding. -APY = Rate per period × # periods per year

Mobile Transfers

-Apps are expanding. -Near field communication -Replace debit and credit cards

There are 3 types of endorsements when making deposits which are?

-Blank Endorsement -Restrictive Endorsement -Special Endorsement

Payday Loan Companies

-Cash advances -Check advance loans -Postdated check loans -Delayed deposit loans -High interest rates

A credit Card should be used to?

-Delay payment -Build a credit history -Buy online -Major purchases -Earn rewards

Safety via FDIC & NCUA

-FDIC insured up to $250000 per person per financial institution -up to $250000 for certain retirement accounts -FDIC; NCUA -availability of deposit insurance -risk

Truth in Savings requires disclosure of?

-Fees on deposit accounts -Interest rate -Annual percentage yield (APY)

Prepaid Debit Cards

-Have become fastest growing payment method -Being used instead of traditional banking services -Issued by traditional financial institutions, retailer, and non bank companies -Used in store, online, and person to person -Major concern is fees! -Use of prepaid cards has resulted in lower consumer debt since it is "pay before" not "pay later."

A Debit Card should be used to?

-Limit spending to available funds -Avoid future bills -Avoid interest or annual fee -Obtain better protection

Regular Checking Accounts

-Monthly service charge usual -Minimum balance

Rate of Return or Yield

-Percentage increase in value due to interest -Frequency of compounding increases return

There are various type of CD for certificates of deposit that include?

-Rising rate or bump up -Liquid -Zero coupon -Indexed -Callable -Promotional CDs ( beware of these)

Traveler's Check

-Sign each check twice -Electronic traveler's checks prepaid travel card with ability to get local currency at an ATM

How do you manage certificates of deposit?

-When first buying or rolling over a CD (buying a new one at maturity), investigate potential earnings and costs. -Do not allow your financial institution to automatically roll over your money into another CD for the same term. -Consider creating a CD portfolio with CDs maturing at different times.

Inflation

-compare rate of return vs. inflation rate -higher consumer prices result in lower buying power of interest earned on savings

Evaluating Savings Plans include?

-compounding -truth in savings requires disclosure -rate of return -inflation -taxes -liquidity -safety -restrictions, fees

For successful financial planning, be aware of:

-consumer interest rates -rising consumer prices -information sources (the wall street journal, the financial times, bloomberg businessweek, forbes, fortune)

Credit services type of financial services?

-credit cards, cash advances -auto loans, education loans -mortgages, education loans -mortgages -home equity loans

What are some digital payments?

-debit card transactions -online payments -mobile transfers -stored value cards -smart cards -peer to peer payments

Restriction & fees

-minimum balance -fee for additional transactions

What are some potential drawbacks when using smartphone app financial services?

-privacy -security -fees

Liquidate savings

-savings account -CD -mutual fund

Basic questions to ask before choosing a financial institution include?

1. where can I get the best return on my savings? 2. how can I minimize my costs for financial services? 3. will I be able to borrow money if I need it? (safety and rates should also be considered)

Reconciling your checking account

1.Compare written checks with those reported paid.(Subtract the total of all checks written but not yet cleared.) 2.Determine deposits not on the statement. (Add the amount to the statement balance.) 3.Subtract fees or charges and ATM withdrawals from the checkbook balance. 4.Add any interest to your checkbook balance.

How to write a Check?

1.Record the date. 2.Write the name of the person/organization receiving the check. 3.Record the amount of the check in figures. 4.Write the amount of check in words. 5.Sign the check. 6.Note the reason for the payment.

Compounding

A process that calculates interest based on previously earned interest

Certificates of Deposit

A savings plan requiring that a certain amount be left on deposit for a stated time period (ranging from 30 days to five or more years) to earn a specific rate of return

Cashier's Check

Check from a financial institution; you pay the face amount, plus a fee

Activity Accounts

Fee charged for each check written, and sometimes for deposits.

Money Market Accounts & 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.

Asset Management Account (cash management account)

Offered by investment companies and others to provide a complete line of financial services program

Certified Check

Personal check with guaranteed payment

Money Order

Purchase at financial institution, post office, store

Mutual Savings Banks

Specialize in savings accounts and mortgage loans; Owned by their depositors, with profits going back to depositors by paying a higher rate on savings

Credit Unions

User owned, nonprofit, and provide comprehensive financial services; lower fees and lower loan rates

Brokerage Firms

act as agent for buyers and sellers of financial products

Money Market fund

combination savings & investment plan; not covered by FDIC

Deposit institutions in financial institutions include?

commercial banks savings & loan associations mutual savings banks credit unions

Debit Card

deducts money directly and immediately out of your account

Debit Card Transactions

immediate account debit

Non-Deposit institutions in financial institutions include?

life insurance companies investment companies brokerage firms credit card companies finance companies mortgage companies

Investment Companies

mutual funds & money market fund

Commercial Banks

organized as corporations; offer a full range of services including checking, savings, lending, & other services

What are some common mistakes that people do when managing daily money needs?

-overspending (impulse buying, using credit) -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

Problematic financial businesses include?

-pawnshops -check cashing outlets -payday loan companies -rent to own centers -car title loans

What are the cons of online banking?

-potential privacy, security violations -ATM fees can become costly -overspending due to easy access -online scams, "phishing," and email scams

Liquidity

-quick availability of cash -without significant loss in value -ease with which savings can be withdrawn

Types of Financial Services include?

-savings -payment services -borrowing for the short or long term -other financial services;Insurance, investment, real estate purchases, tax assistance, trusts, and financial planning -asset management account

List the smartphone app financial services programs:

-text banking -mobile web banking

Interest Earning Checking Accounts

-these are checking accounts paying low interest -some institutions offer high rate accounts to customers who meet certain requirements

When interest rates are FALLING what financial services decisions should be considered?

-use short term loans to take advantage of lower rates when you refinance the loans -select long term savings instruments to "lock in" earnings at current high rates

What are 2 sources that define quick cash?

liquidate savings borrow

ATM Access

obtain cash, check account balances, & transfer funds; check out the fees

checking accounts = demand deposits & automatic payments fall under what type of financial services?

payment services

Car Title Loans

people with poor credit can use car titles as a cash advance; high interest, usually exceeding 200%

E-Banks & E-Branches

provide payment, savings, & credit services

Other than sourcing quick cash, liquidate savings and borrowing both?

reduce net worth

Smart Cards

"digital wallets"

What is the cost of the lost card liability?

$50-$500