Chapter 5 Personal Finance
Maximum insurance coverage for single, joint, per account.
$250,000 Sharing account w/ another person DOESN'T change maximum coverage Coverage increases if you have more than one account. Ex. 2 accounts = $500,000 (combined)
CD laddering
A strategy in which an investor divides the amount of money to be invested into equal amounts to certificates of deposit (CDs) with different maturity dates; it decreases both interest rate and re-investment risks.
stored-value cards
a payment card with a monetary value stored on the card itself, not in an external account maintained by a financial institution, that is usually issued in the name of an individual account holder
certified check
a personal check draw on your checking account on which your financial institution imprints the word "certified," signifying that the account has sufficient funds to cover its payment $10-20 fee
credit cards
a plastic card with imprinted numbers and a magnetic strip, issued by a bank or business authorizing the holder to use it as payment instead of cash to buy goods or services on credit
debit cards
a plastic payment card that provides the cardholder electronic access to his/her bank account at a financial institution
bump-up CD
a savings certificate entitling the bearer to take advantage of rising interest rates with a one-time option to "bump up" the interest rate received
average-balance account
a service fee is assessed only if the average daily balance of funds in the account drops below a certain level during the specified time period 157-158
gift card
a stored value card that often has an activation fee, expiration date(no shorter than 5 years), and an inactivity fee if there are no transactions within a year
mutual savings banks
a type of thrift institution that also accepts deposits and makes housing and consumer loans
savings institutions (aka thrift institutions)
accept deposits and provide mortgage and personal loans to individuals
commercial banks
accepts a deposit in checking and savings accounts and provides transactional services such as accepting deposits, making business loans, and offering basic investment products
student checking account
account offered by credit unions and banks that is better for students than another type of bank account, usually because they offer excellent benefits, including a low minimum balance, minimized fees, and free online bill pay
payable on death (POD) or Totten trust
an arrangement between a bank or credit union whereby upon the death of the client the assets are immediately transferred to the designated beneficiaries
negotiable order of withdrawal (NOW) account
an interest-earning checking account at a depository institution
money market account (MMA)
any of a variety of interest-earning accounts offered by depository institutions that pays slightly high interest rates (compared with regular savings accounts) and offers some check-writing privileges 161
Savings Accounts
are "time deposits" meaning that the intent is for the money to stay on deposit rather than be available any time as with "demand deposits" in checking accounts.
online banks
banks that are regulated just like any other bank, even those they operate entirely over the internet, yet because they avoid the "bricks and mortar" costs of conventional institutions they often pay higher interest rates than other institutions.
variable-rate (adjustable-rate) certificates of deposits
certificates of deposit that pay an interest rate that is adjusted (up or down) periodically
financial services industry
companies that provide monetary asset management and other services
Monetary assets
convertible to cash
cashier's check
drawn on the account of the financial institution itself and thus, backed by the institution's finances $10-20 fee
liquidity
ease with which an asset can be converted to cash
depository institutions
financial institutions in the US that are legally allowed to offer checking and savings accounts to individuals and businesses as well as provide loans checking accounts savings accounts loans
time deposits
funds on deposit in a savings account (rather than demand deposits) require that account holders to give 30-60 days notice for withdrawals
Federal Deposit Insurance Corporation (FDIC)
insures deposits in banks with the Deposit Insurance Fund (DIF)
Mutual funds
investment companies that raise money by selling shares to the public and then invest that money in a diversified portfolio of investments (154) NOT ALL INSURED: AT RISK self contribution--> mutual fund --> growth in the value of the stock benefits mutual fund <---> benefits growth of the stock
3 types of joint ownership
joint tenancy: husband/wives, each person owns whole of asset. Don't need approval of other to dispose tenancy in common: 2+ own. Each retains control over a separate piece of property rights tenancy by the entirety: only for married. same as joint tenancy except one person can't transfer their interest in the property w/o consent of other spouse 165
Monetary asset management
the task of maximizing interest earnings and minimizing fees on all of your funds kept readily available for day-to-day living expenses, emergencies, and savings and investment opportunities
grace period
the time in days during which deposits or withdrawals can be made and still earn interest from a given day of the interest period
electronic funds transfer (EFTs)
when funds are shifted electronically among various account and to and from other people and institutions
mutual
you are a mutual owner you get something back for bank's received profit you share in risk and reward
monetary safety
your funds are free from financial risk
interest-rate risk
the risk that an investment's value will change due to a charge in the absolute level of interest rates
Types of Checking accounts
Demand Deposit Share Draft Tiered Interest Lifeline
bitcoin
A peer-to-peer experimental digital cash currency based on an open source cryptographic protocol that can be bought at an exchange and transferred through a computer or smart phone without an intermediate financial institution
prepaid cards
A plastic payment card that is easy to use and reloadable, and it may be used almost anywhere to buy online, make bill payments, get cash at ATMs, pay bills, get direct deposits, and make everyday purchases.
Guidelines for endorsing a check
1. only endorsed by the payee (person who owns) 2. a restrictive endorsement has "for deposit only" and can only be deposited by payee 3. special endorsement: "Pay to order of" can only be cashed at specific institution
physical checks
2: check number 10: routing number (9 digits) 11: account number 7: address of bank (picture on phone)
electronic benefit transfer (EBT) cards
An electronic system that allows state welfare departments to issue benefits via a magnetically encoded payment debit cards.
certificate of deposit (CD)
An interest-earning savings instrument purchased for a FIXED period of time, such as 6 months, or 1, 2, or even 5 years FIXED time deposit penalty for early withdrawal
How to issue a stop payment
Call bank or do it online. Need: check number, amt. & date on check, the person the check is payable to and reason for stop payment.
What happens when you write a check
Check is cashed/deposited by payee when institution pays funds required of check then it will be "cleared" checks are scanned/cleared electronically (instant fund transfer)
demand deposit account
Checking accounts that typically pay no interest
Minimum-Balance account Average-balance account
Minimum: Average: SEARCH BOOK p. 158
money market mutual funds (MMMFs)
Money market accounts offered by a mutual fund investment company (rather than at a depository institution) A liquid investment
investment certificates
NOT CDs. an investment product offered by an investment company or brokerage firm designed to offer a competitive yield to an investor. Avoid these
credit unions (CU)
Not-for-profit institutions that accept deposits and make loans, MEMBERSHIP REQUIRED. All share a common bond ex. same employer, work for or attend same school, or live in same community insured by NCUSIF administered by the National Credit Union Association (NCUA)
annual percentage yield (APY)
Return on total interest received on a $100 deposit for 365-day period, given the institution's simple annual interest rate and compounding frequency
savings and loan associations (S&Ls)
Thrift institutions that focus primarily on accepting savings and providing mortgage and consumer loans. focused on housing
community banks
Type of commercial bank that focuses on providing traditional banking services in their local communities where they obtain most of their core deposits locally and make many of their loans to local businesses relational transactions between bank and clients
Checking Accounts
Used for day-to-day spending with easy withdrawals and deposits Accessed through: Checks, Debit cards, & Electronic Transfers
fixed-time deposit
a certificate of deposit that has as specific time period that the savings must be left on deposit; otherwise a penalty is assessed for early withdrawal
money order
a checking instrument bought for a particular amount with a fee assessed based on the amount of the order
savings account (statement savings account)
a deposit account held at a bank or other financial institution that provides principal security and a modest interest rate
money market deposit account (MMDA)
a deposit account that requires a larger initial deposit to open (often $2,500) and requires a min. balance to be maintained, checks must be written for a min. amount, and only allows a limited number of checking transactions per month
checking account (transaction account)
a depository account held at a financial institution that performs transactions that allow for withdrawals and deposits
automatic billing (or auto renewal billing)
a feature that allows a vender to automatically charge a customer's credit/debit card or bank account on a regular basis through a recurring profile set up on the account
stop-payment order
a notice made by a depositor to his or her bank directing the bank to refuse payment on a specific check drawn by the depositor. $30-40 charge p. 158
stock brokerage firms.. insured by who?
licensed financial institutions that specialize in selling and buying stocks, bonds, and other investments and providing advice to investors protected by the Securities Investor Protection Corporation (SIPC), a non- government entity
money market fund (MMF)
money market account in a mutual fund rather than at a depository institution
non-sufficient funds (NSF)
not enough money in an account in order to honor a check drawn on that account Bank will charge $35+ for this results in an overdraft, bounced check, bad check
electronic money management
occurs whenever transactions are conducted without using paper documents
brokerage certificates of deposit
often pay the highest yields and are available through stockbrokerage firms
bots (chatbots)
online texting services offered by all financial institutions and other venders who provide information and services, which can conduct human-like conversation formerly reserved for people
joint accounts
owned by 2+ individuals
super NOW accounts
pay slightly higher interest rates than a regular checking account but place a limit on the number of checks that can be written each month
ATM cards
plastic cards to make purchases and withdraw money from ATMs that require use of a PIN number
insurance companies
provide property, liability, health, life, and other insurance products
Office of the comptroller of the Currency
regulates banks
individual accounts
solely owned by one person who has total control of the asset.
life line banking account
streamlined checking designed for low-income customers that has low balance requirements, no monthly fees, and is offered by large financial institutions as a way to offer basic banking services to the broad public
tiered interest
the combination of a base interest rate and a higher rate paid on interest-earning accounts SEARCH BOOK p 156
share draft account
the credit-union version of a negotiable order of withdrawal (NOW) account Pays interest
minimum-balance account
the customer must keep a certain amount in the account throughout a specified time to avoid a flat service charge 157-158
