Fin 339 Ch. 4

prepaid debit cards

Load money onto this card to spend major concern is fees resulted in lower consumer debt

trust

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

compounding

a process that calculates interest based on previously earned interest

non-deposit - brokerage firms

act as agent for buyers and sellers of financial products

overdraft protection

an automatic loan made to an account if the balance will not cover checks written

select financial institution step 5

balance your needs with information collected

what to consider when choosing a financial institution

best return; minimize costs; safety and rates

problematic financial businesses: payday loan companies

cash advances high interest rates

problematic financial businesses: check-cashing outlets

charge 1 - 20% face value

cashier's check

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

deposit institutions

commercial banks, savings and loan associations, mutual savings banks, credit unions

inflation

compare rate of return vs inflation rate

reconciling your checking account

compare written checks with those reported paid - subtract the total of all checks written but not yet cleared determine deposits not on the statement - add the amount to statement balance subtract fees or charges and ATM withdrawals from checkbook balance add any interest to your checkbook balance

select financial institution step 4

conduct research (talk with people who have used different ones; conduct online research; visit the institution)

credit card vs. debit card

credit card: delay payment, build credit history, major purchases debit card: limit spending to available funds, avoid future bills, obtain better protection

digital payments

debit card - immediate account debit online payments - paypal , venmo mobile transfers - apps are expanding - near-field communication - replace debit and credit cards stored-value cards - prepaid cards for telephone smart cards - digital wallets peer-to-peer payments

online and mobile banking

e-banks : provide payment, savings, and credit services ATM access: obtain cash, check out fees, transfer funds Debit card: deducts money directly from your account; lost card liability 50 - 500

US Savings bonds - I bonds

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

truth in savings requires disclosure of:

fees on deposit accounts interest rate APY = RATE PER PERIOD X # PERIODS

opening a checking account

individuals vs. joint account

non-deposit- life insurance companies

insurance plus savings and investments some offer financial planning and investing services

problematic financial businesses: rent-to-own centers

lease merchandise at high interest rates to low income customers

non-deposit institutions

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

sources of quick cash

liquidate savings or borrow (both reduce net worth)

select financial institution step 1

list most important features of institution

problematic financial businesses: pawnshops

loans on possessions higher fees used for quick cash

finance companies - non-deposit

make short and medium term loans to consumers higher rates

restriction and fees

minimum balance fee for additional transactions

non-deposit- investment companies

mutual funds money market funds

many types of businesses offer financial services that were

once exclusive to banks

common money management mistakes

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

beware of

package deals that include unneeded services

problematic financial businesses: car title loans

people with poor credit can use car titles as cash advance high interest

certified check

personal check with guaranteed payment

select financial institution step 3

prepare list of local, national, online institutions

mortgage companies - non-deposit

provide home mortgage loans

liquidity

quick availability of cash without significant loss in value

select financial institution step 2

rank top three or four features on importance to you

taxes

reduces interest earned on savings

interest-earning or share draft accounts (credit unions)

require a minimum balance

types of financial services

savings, payment services, borrowing, other financial services

credit card companies - non-deposit

specialize in short term loan

restrictions

such as a minimum balance

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

interest-earning checking accounts

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

fees

which increase and charges

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

asset management account

- Also called cash management account - Offered by investment companies and others - Provides a complete line of financial service program (online banking, credit card)

when interest rates are falling

- 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.

for successful financial planning, be aware of:

- consumer interest rates - rising consumer prices -information sources (Wall Street journal)

managing certificates of deposit

- investigate potential earnings and cost - do not allow financial institution to automatically roll over your money into another CD - consider creating a portfolio

smartphone app financial services

- text banking - mobile web banking - banking apps potential drawbacks; - privacy - security - fees

regular savings accounts

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

other financial service providers

-Pawnshop -Check-cashing outlet -Payday loan company -Rent-to-own center -Car title loan company

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

savings and loan associations

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

safety via FDIC and NCUA

FDIC insured up to 250,000 per person per institution

activity accounts

Fee charged for each check written, and sometimes for deposits

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

making deposits

3 types of endorsements -Blank endorsement=signature only -Restrictive endorsement="for deposit only" -Special endorsement="pay to the order of"

US Savings bonds - series EE

"patriot bonds" sold at half face value (50 -500) fixed-rate int. compounded semiannually penalty if redeemed within 5 years continues earning interest for 30 years potential tax advantages if use to pay tuition

regular checking accounts

-Monthly service charge usual -Minimum balance

non-bank financial service providers

-Retailer stores (prepaid debit cards, other services) -Online banking service provider (E*Trade Bank) -Online payment services (PayPal) -P2P (peer-to-peer) lending intermediaries

traveler's check

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

writing checks

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

credit unions

Nonprofit, member-owned financial cooperatives that offer the full variety of banking services to their members.

commercial banks

Organized as corporations Offer a full range of services including checking, savings, lending, and other services

rate of return or yield

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

money order

Purchase at financial institution, post office, store