Personal Finance Chapter 4

what is the maximum insurance amount provided by both the FDIC and the national credit union admin? (slide 13)

$250,000 per depositor.

what are the types of electronic funds Transfer systems (EFTSs)? (slide 20)

-ATM service -debit cards linked to checking's accounts -pre-authorized deposits and payments -banking by phone -online banking and bill payment services.

The FDIC oversees and manger two separate insurance funds that apply to banks and savings association. what are these two funds and what do they protect? (homework problem 4)

-Banks insurance Fund (BIF) provides coverage for commercial banks -Savings association insurance Fund (SAIF) insures deposits in savings associations.

what are the types of interest paying accounts? (slide 16)

-NOW accounts -Money Market deposit accounts (MMDAs) -Money market mutual funds (MMMFs)

What are characteristics of Certificate of despite (CD)? (slide 6)

-Usually pays an attractive interest rate, which can very depending on the size and maturity of the CD. -CD do not have any check-writing privilege's

what are some characteristics of savings banks? (slide 12)

-located primarily in new England -offered interest-paying checking's accounts -rates similar to savings and loan associations -most are mutual associations.

what are the two ways to express the interest rates? (slide 30)

-nominal rate. -effective rate

what are some characteristics of saving and loan associations? (slide 11)

-offer services similar to commercial banks -may pay slightly more on savings deposits -channel depositors savings into mortgage loans

what are some examples of pre-authorized deposits. (slide 20)

-paychecks -social security payments -pensions checks There are also pre-authorized payments: -loans -utilities

what are the two types of interest? (slide 29)

-simple interest -compound interest

A remote computer terminal at which bank customer can make deposits, withdrawals, and other types of basic transactions. (slide 20)

ATMS

comprehensive deposit accounts that combine checking's, investing, and borrowing activates. offered by brokerage house and mutual funds. They are not FDIC ensured. But they are SIPC ensured. (slide 18)

Assets management accounts (AMAs)

mutual savings banks are insured by who? (homework problem 4)

BIF

funds left on deposit in a financial institution for a stipulated period of time where penalty is imposed for early withdrawals of the funds. (slide 6)

Certificate of deposit CD

Funds that remain on accounts for a given time period, early withdrawal incur an interest penalty. (slide 35)

Certificates of deposits (CDs)

coded plastic cards that permits cash withdrawals at ATMs or allow a transfer of funds from your checking's account to the recipients accounts. (slide 20)

Debits cards

legally allowed to accept monetary deposits from customers. How is this regulated? (slide 10)

Depositary financial institution, -federal deposit institution are regulated by federal deposit insurance corporation (FDIC)

what are the types of financial institutions? (slide 10)

Depository or nondepository

primarily a savings vehicle that pays market rates of interest, offers limited check-writing privilege, and requires a fairly large (usually $1000) minimum deposits. There are offered by banking intuitions and a federally insured. (slide 6)

Money market deposit account (MMDA)

federally chartered credit unions are insured by who? (homework problem 4)

NCUSIF

What are the implications of low interest rates from personal finances? (slide 8)

Pros: -reduce cost of financing Cons: -reduce income to retirees and pension funds -substation of debt for equity

expected to remains untapped for a longer period of time than demand deposit. usually has a fee or limit to withdrawing (slide 14)

Time deposits.

a popular saving vehicle issued by the US Treasury. They are sold in denominations as low as $50 and are purchased for half their face value. (slide 7)

U.S. Saving bonds (EE).

short-term, highly marketable securities issued in various maturities of 52 weeks or less by the US treasury. typically offer competitive short-term interest rates. (slide 7)

US Treasury Bill (T-Bill)

debts and securities issued by the US treasury, sold at a discount $1000 mini, needs at least 1 year or less to mature. Tax free (slide 35)

Us treasury Bills.

verifying the accuracy of one's checking's account balance in relations to the ban's records as reflected in the bank statement. (slide 26)

account reconciliation

what is the formula for future value of an savings account? (Homework Problem 8)

amount invested * future value factor (remember to subtract the number of periods from each other)

how are services offered by assets management accounts different from other types of accounts? (slide 18)

automatically "sweep" excess balances into a higher-return MMMF on a daily or weekly basis. These funds could be transferred back if the customer needs funds.

allows customer to make many types of banking transactions using their phones (slide 20)

bank by phone accounts

Find the compound interest and effective: if our initial deposit ($1,000) and interest rate (5%) stays the same, but the interest is compounded semiannually (twice a year). (slide 32)

basically total up simple interest to find the compound interest.

the coin and currency in ones possession (slide 6)

cash

activity that involves the day to day administration of cash and near cash liquid resources by an individual or family. (slide 5)

cash management.

what is a method to pay yourself first? (Homework Problem 7)

have your savings contributions automatically withheld from your paycheck and directly into your savings account.

when is effective rate greater than nominal rate? (slide 30)

if interest is compounded more frequently than once a year

what should you do with investments if you expect interest rates to increase or decrease in the near future? (Homework Problem 7)

increase: invest short term investments so that you can reinvest quickly when interest rates increase decrease: invest long-term investments so that you can lock in the higher interest rates before they decrease

what is the formula for simple interest? (slide 31)

interest = principal * rate * time

cash and other assets that can be converted easily into cash with little or no loss in value. (slide 5)

liquid assets.

individually-secured container, usually held within a larger bank vault. It is used to store personal document and valuables. Boxes are rented by the year and charges vary based on the size of the box. (slide 23)

safe-deposit boxes

a standard saving account pays a relatively low rate of interest and does not permit withdraws of funds by check. (slide 6)

savings accounts

paid on the initial amount of the deposit. Give an example of $100 and 10% each year. (slide 29)

simple interest. EX: However with compound interest, you can $10 in the first year, but in the second year you can earn $11 (calculated as (100+10) x 10%) interest.

an order made by an account holder instructing the depository institution to refuse payment on an already issued check (slide 24)

stop payment.

who administers and managers the national credit union share insurance fund? (homework problem 3)

the national credit union administrations (NCUA)

what are some of the rules in the electronic funds transfer act of 1978? (slide 22)

-cannot stop payment on a defective or questionable purchase -the bank needs to investigate 60 days after error -notification within 2 days error loss is limited to $50s -notification after 2 days of error loss could be up to $500. -after 60 days you lose all money in account.

what are examples of financial products? (slide 9)

-checking and savings accounts -credit cards -loans and mortgages -insurance -mutual funds

personal check guaranteed by the bank on which it is drawn. (slide 27)

certified check

Itemized listing of all transactions in one's checking's account. (slide 26)

monthly statement.

sold by financial institution that can be used for making purchases and exchanging for local currencies. (slide 27)

traveler's check

what are the types of liquid assets? (slide 6)

-cash -checking account -savings account -money market deposit accounts (MMDA) -money market mutual fund (MMMF) -Certificate of Deposit (DC) -T-bills -US saving bonds (EE)

what are the types of special checks? (slide 27)

-cashier's check -traveler's check -certified check

what are the four other methods of savings beside checking's and saving accounts? (slide 35)

-certificates of deposit (CDs) -US treasury Bills -series EE Bonds -I saving bonds

what are examples of services offered by commercial banks? (slide 11)

-checking accounts -saving vehicles -credit cards -loans -trust services -safe deposit boxes -travelers checks -checking-cash privilege's

what are the types of financial institutions that cab carry deposit insurance to protect their depositors and pay the same interest rate? (Homework problem 2)

-commercial banks -savings and loan association -credit unions -mutual savings banks

what are the types of depository financial institutions? (slide 11-12)

-commercials banks -savings and loan associations (S&Ls) -saving banks -credit unions

what are things to consider when opening a checking account? (slide 24)

-convivence -service offered -fees and changes for accounts and other services

what are tips for establishing a saving's program? (slide 28)

-deposit money into savings accounts, using check or debit card. -utilize direct deposits and automic transfers -creating emergency fund -set aside funds for financial goals -make suitable choices based on goals and time horizon

what are characteristics of Money market deposit accounts? (slide 16)

-federally insured -have access to fund with check writing and ATMS -required minimum balance and limit of transfers.

what are examples of financial services? (slide 9)

-financial planning -securities brokerage -tax filing and planning -real estate -trusts -estate planning

what are the two factors that influence interest? (slide 34)

-frequency of compounding -interest rate paid

what are characteristics of interest-paying accounts? (slide 15)

-include NOW (negotiable order of withdrawal), share draft, money market deposit accounts, and money market mutual funds -are offered by banks, saving banks, S&Ls, and credit unions -offered by companies that are not FDIC insured.

what are characteristics of Series EE Bonds? (slide 36)

-interest is paid when they are cashed in or before maturity -issued in denominations from $25 to $10,000, price is 50% of face amount -interest is exempt from state and local taxes

what is the difference between I savings bonds and Series EE bonds? (slide 36)

-issued at face value -is adjusted for inflation.

what are some characteristics of commercial banks? (slide 11)

-largest type of traditional financial institution -offer full array of financial services (see next card) -only financial institution to offer noninterest-paying checking's accounts

what are some characteristics of credit unions? (slide 12)

-provide financial products and service to people with a common tie -nonprofit, member-owned financial cooperation's -interest rates higher than other institutions.

what date does the bank reconciliation helps in terms of the actual balance? how often should you reconcile your bank account? (homework problem 6)

-reconciliation date -monthly

what are the types of checking accounts? (slide 15)

-regular checking accounts -interest-paying checking accounts.

what are examples of nondepository institutions? (slide 10)

-stock brokages firms -muntal funds -life insurance companies -finance companies

what are factors that should be considered when identifying appropriate savings vehicles? (slide 34)

-the length of time you can leave your money on deposit -the level of past interest rates -the liquidity, convenience and safety characteristic of the account being considered.

what are the steps in Bank reconciliation? (Homework Problem 6)

1) have the statement of account and account ledger side by side 2) cross of anything you see twice (these are the transactions that are accounted for) 3) put the balance per bank statement at the top of the reconciliation 4) next put in the deposits in transit 5) add the deductions such as the Check and ATM numbers 6) total all of the deductions to get total withdrawals 7) ending balance + deposit in transit - total with drawls deductions = adjust bank balance / balance per books

what are the two major functions of cash management? (slide 5)

1) making sure that adequate funds are available to meet both planned and unplanned expenditures 2) establishes saving program protect against financial emergencies and accumulate funds to meet financial goals.

a savings vehicle that is actually a mutual funds and, like money market deposit accounts, offers checking-writing privilege's. These are offered by investment companies and are not federally insured. (slide 6)

Money market mutual funds (MMMF)

are checking accounts on which the financial institution pay interest. have no legal minimum balance, offers unlimited check writing privilege's. (slide 16)

NOW accounts negotiable order of withdrawal accounts.

payable to a thirds party that is drawn by a bank on itself in exchange for the amount specified and a service fee. What is this term back by? (slide 27)

cashier's check -backed by the creditworthiness of the institution.

a substitute for cash offered by commercial banks and other financial institution, such as credit union. (don't need to carry around cash). (slide 6)

checking account

what is the difference between checking's and saving accounts? (slide 14)

checking's is considered a demand deposit account. While savings is considered a time deposit account.

what are examples of depositary financial institutions? (slide 10)

commercial banks, savings and loans, saving banks, and credit unions.

earned in each subsequent period is determined by applying the nominal rate of interest to the sum of the initial deposit and the interest earned in each prior period. Give an example of $100 and 10% each year. (slide 29)

compound interest. EX: For example, if you have $100 initial deposit and the interest rate is 10%, with simple interest, you earn $10 (calculated as 100 x 10%) every year.

if sufficient funds, banks must pay amount of check of ATM withdrawal upon demand of customer. (slide 14)

demand deposit

annual rate of return actually earned. what is the formula for this term? (slide 30)

effective rate. Formula: dollar amount of interest earned over the year / amount of money deposited.

are offered by investment companies and pool the funds of many small investors to purchased high-return, short-term marketable securities offered by the government, corporations, and commercial banks. Not FDIC ensured (slide 17)

money market mutual funds.

institutions where depositors are the owners and this receiver a portion of the profits in the form of interest on their savings (slide 12)

mutual associations.

named or stated interest rate. (slide 30)

nominal rate

financial institution that don't accept deposits. why can they accept deposits? (slide 10)

nondepository -they receive the publics money because they offer services.

what are regular checking accounts? (slide 15)

offered by commercial banks pays no interest

enable one to handle nearly all account transactions from a personal computer 24/7. (slide 21)

online banking and bill payment services.

Results of writing a check for an amount greater than the current account balance (the account holder bounces a check) (slide 24, HW problem 1)

overdraft

depository institution automatically pays a check that overdraws the account (slide 24)

overdraft protection

making saving activities your first priority by paying yourself, or making contributions to your savings account before you pay any other obligations. what is an advantage of this strategy? (Homework Problem 7)

pay yourself first -ensures that funds will be saved as opposed to savings only if sufficient funds remain after all other bills are paid and any impulse purchases are made.

an automatic deposit made directly into your checking's accounts on a regular basis. (slide 20)

pre-authorized deposits

what is interest rates on MMMF dependent on? (slide 17)

returns earned on its investment, which changes with overall credit conditions.

provide investment and estate planning advice (slide 23)

trust services