Personal Finance Chapter 4

Series EE bonds

"Patriot Bonds"•Sold at half of face value•Penalty if redeemed within 5 years•Continues earning interest for 30 years•Potential tax advantages if used to pay tuition"

Evaluating Checking and 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

Bank Reconciliation

1. Compare written checks with those reported paid 2.Determine deposits not on the statement 3.Subtract fees or charges and ATM withdrawals from the checkbook balance 4.Add any interest to your checkbook balance

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

APY=

100(Interest/Principal)

Pawn-shops

Based on value of tangible possesions, charge more then most FI's, for more low income people

Prepaid debit cards you pay...

Before

Cashier check

Check issued by FI

Deposit institutions

Commercial banks, Savings and loans associations, Mutual savings banks, and Credit Unions

When choosing types of financial institutions consider...

Determine the services you need, compare fees, consider the safety and rates for loans

I bonds

Earns a fixed rate plus an inflation rate •Twice-a-year inflation adjustment

Safety

FDIC prevents a loss of money due to the failure of the insured institution. Credit unions may obtain deposit insurance through the NCUA. (Provide deposit insurance for retirement accounts)

Activity Accounts

Fee charged for each check written, and sometimes for deposits

Savings and Loan Associations

Financial services comparable to a bank

Restrictive endorsement

For deposits only

Opening a checking account

Individual vs Joint

Restrictions and Fees

Interest will not be available for immediate use

Rent-To-Own Centers

Lease merchandise at high interest rates to low-income customers (TV's, Tables)

Non-Deposit institutions

Life insurance co's, Investment co's, Brokerage firms, Credit card co's, Finance co's, Mortgage co's

2 options to get more cash

Liquidate savings or borrow

Regular Checking Account

Monthly service charge usual-Minimum balance

Commercial banks

Offers a full range of financial services. National, regional, community, online

PayDay Loan companies

Online firms that provide instant, very short-term, unsecured cash advances of small amounts to customers who need cash immediately, and who are in employment and have payroll records. Loan rates 9-18%

Problematic Financial business

Pawnshops, Check Cashing Outlets, PayDay Loan Co's, Rent-To-Own Centers, Car Title Co's

Interest earning checking accounts usually...

Pay a low interest rate

Special endorsement

Pay to the order of

Car Title Loan Companies

People w poor credit ratings might use car title as security for a high interest rate loan

Certified Check

Personal check with garenteed payment

Store-Value Cards

Prepaid cards for telephone, transit, tolls, etc

Money Order

Purchase at financial institution, post office, store

Interest-Earning Checking (Share Draft accounts at CU)

Require a minimum balance

Blank endorsement

Signature only

Taxes

Taxes reduce interest on savings

Online/Mobile banking

Text banking, Mobile web banking, Banking apps (privacy problems)

Annual Percentage Yield

The amount of interest a saver should expect to earn

Selection of a savings plan is most often influenced by...

The rate of return, inflation, tax considerations, liquidity, safety restrictions, and fees

When interest rates are rising...

Use long term loans and select short term savings

When interest rates are falling...

Use short term loans and select long term savings

Liquidity allows you to...

Withdraw your money without a loss of value or fees

Trust (Financial Service)

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

Money Market Account

a savings account that requires a minimum balance and earns interest that varies from month to month

Certificate of deposit

a savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate. (Penalty for early withdraw) (Beware of CD's offering gifts)

Money Market Fund

a savings-investment plan offered by investment companies, with earnings based on investments

"Loading"

adding funds to prepaid debit card

Travelers check

allows you to make payments away from home (sign twice)

Overdraft Protection

an automatic loan made to checking account customers for checks written in excess of their balance

Check Cashing Outlets

charge high fees (sometimes 2 or 3 percent) just to have a paycheck or government check cashed.

As inflation increases the...

interest rates offered to savers also increase

Asset Management Account

provides a complete financial services program for a single fee

Prime rate

rate banks charge large corporations

Compounding

refers to interest that is earned on previously earned interest

Brokerage firms

serve as an agent between buyer and seller of investment securities (stocks)

Credit card companies

specialize in funding short-term retail lending. (loans)

Rate of return

the percentage of increase in the value of your savings from earned interest

Credit Unions

user-owned, nonprofit cooperative organizations. Get the best reviews out of FI's