Personal Finance Chapter 4

Cashier's Check

-check issued by financial institution

Restrictive Endorsement

-consists of the words for deposit only.

EE Bonds Tax

-interest earned is exempt from state and local taxes -federal income tax on earnings due when bond redeemed.

I Bonds

-interest rate based on two components 1)fixed rate for the life of the bond 2)inflation rate that changes twice a year -minimum is 25 -purchased face value

Blank Endorsement

-is just your sign which should be used only when you are depositing or cashing a check.

Certified Check

-personal check with guaranteed payment

EE Bonds

-purchased for any amount >25 -electronic for purchased online for face value -interest accrues monthly, compounded semiannually -not penalized after 5 years -interest earned for 30 years -

Rising-rate (Bump-up) CD

May have higher rates at various intervals, such as every 6 months.

Callable CD

-High Interest rates and long maturities. -If interest rates drop, bank can "call" (close) the account after a certain amount of time.

Travelers Check

-allow you to make payments when away from home -sign it twice

Special Endorsement

-allows you to transfer a check to someone else with the words pay to the order of followed by the name of the other person and then your signature.

Liquidity

-allows you to withdraw your money on short notice without a loss of value or fees.

Activity Account

-charge a fee for each check written and a monthly service charge, but do not require a minimum balance.

Types of Financial Services

1) Savings 2) Payment Services 3) Borrowing 4) Other Financial Services

Compounding

A process that calculates interest based on previous interest earned.

Money Market Account

A savings account offered by banks, savings and loan associates, and credit unions that requires a minimum balance and has earnings based on market interest rates.

Certificate of Deposit (CD)

A savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest.

Money Market Fund

A savings-investment plan offered by investment companies, with earnings based on investments in various short-term financial instruments.

Credit Union

A user-owned, non-profit, cooperative financial institution that is organized for the benefits of its members.

Liquid CD

Allow holders to withdraw money without penalty, however, most likely required to maintain minimum balance and have withdraw waiting period.

Asset Management Account

An all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee; aka Cash Management Account.

Overdraft Protection

An automatic loan made to checking account customers to cover the amount of checks written in excess of the available balance in the checking account.

Payment Services

Offer an ability to transfer money to others for daily business activities. Checking accounts and other payment methods are generally called demand deposits.

Savings

Provides safe storage of funds for future use. Commonly referred to as time deposits, money in savings accounts and certificates of deposit are examples of savings plan.

EE Bond Rules

-24 or older to purchase -issued in names of 1 or both parents names

Non-deposit Institutions

-Life insurance companies -Investment companies (mutual funds) -Brokerage firms -Credit Card companies -Finance companies -Mortgage companies

APY

100(Interest/Principal)

Mutual Savings Bank

A financial institution that is owned by depositors and specializes in savings accounts and mortgage loans.

Commercial Bank

A financial institution that offers a full range of financial services for individuals, businesses, and government agencies.

Savings and Loan Association (S&L)

A financial institution that traditionally specialized in savings accounts and mortgage loans.

Trust

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

Indexed CD

Have earnings based on the stock market.

Other Financial Services

Include insurance, investments, tax assistance, and financial planning.

Brokerage Firms

Serve as an agent between the buyer and seller for stocks, bonds, and other agents. Make money off of commission and fees.

Rate of Return

The percentage of increase in value of savings as a result of interest earned.

Annual Percentage Yield (APY)

The percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365-day period.

Borrowing

Used by most people at some point in their lives. Credit alternatives range from short-term accounts, such as credit cards and cash loans, to long-term borrowing, such as mortgage loans.

Zero-Coupon CD

Purchased at a deep discount with no interest payments.