Personal Finance Chapter 5

Checking Account

A consumer would use or need a cashier's check if they didn't have a ____ ____.

NOW Accounts

Interest bearing checking accounts are called what?

money market mutual funds

Mutual funds that invest in short term notes of very high denomination

US Savings Bonds

Safe, low risk savings products issued by the US Treasury Department. When you buy them, you are making a loan to the federal government. i. Advantages 1. Safe 2. Affordable 3. No taxes (exempt from federal if used for education) 4. Convenient 5. Redeem at any bank 6. No sales commissions or fees ii. Disadvantages 1. Low liquidity 2. Long maturity 3. Interest compounds only semi-annually 4. Limits on how many you can buy per year 5. Other investments may earn more

Mutual Fund

What type of financial institution pools money together from investors and invest that money in stocks or bonds?

Annual Percentage Yield

When comparing investment options, what tool should you use to find out which one will yield the biggest return?

cash management

____ ______ is deciding how much to keep in liquid assets and where to keep it.

certified check

A ____ ____ is a personal check that has been certified a being good by the financial institution on which it's drawn

Savings Accounts

Allows you to keep your money in a safe, federally insured financial institution while it earns guaranteed fixed return or interest. i. Advantages: 1. Liquid 2. Federally insured 3. Earns higher interest than checking accounts ii. Disadvantages: 1. Minimum holding time or balance 2. Charges/fees 3. Low interest rate 4. inconvenient

Money Market Deposit Accounts

An alternative to the savings accounts offered by commercial banks. You deposit your money in a bank and have access to it through an ATM or by writing a limited number of checks i. Advantages: 1. Safe 2. Earns interest 3. Check-writing privileges ii. Disadvantages: 1. High minimum balance 2. Interest rates below alternatives

Asset Management Accounts

An asset management account is a comprehensive financial services package offered by a brokerage firm, and, recently some investment banking institutions. i. Advantages 1. Monthly summary statements 2. Automatic coordination of money management 3. Unlimited check writing 4. High return 5. Convenient ii. Disadvantages 1. Costly 2. Minimum initial investment 3. Not federally insured

negotiable order of withdrawal

Another name for an interest-bearing checking account is a _____ _____ __ ______ account

Federal

At what level of government are savings accounts insured?

Certificate of Deposit

Savings alternative that pays a fixed rate of interest while keeping your funds on deposit for a set period of time, which can range from 30 days to several years. Good place to hold your money until you want to do something else with it. i. Advantages: 1. Safe 2. Fixed interest rate 3. Convenient ii. Disadvantages: 1. Penalty for early withdrawal 2. Fixed interest rate 3. Minimum deposit required

US Treasury Bills

Short term notes of debt issued by the federal government, with maturities ranging from 4 weeks to 12 months i. Advantages: 1. Risk free 2. Exempt from state and local taxes 3. Federal taxes vary with current rates ii. Disadvantages 1. Low rate of return

NCUA

The federal agency that insures accounts at credit unions

Cost, Consideration, Convenience, Safety

What are the four C's of banking?

Overdraft Protection

____ ____ is an automatic loan made to your checking account whenever your account doesn't contain enough cash to cover the checks that you've written against it

online banking

____ _____ gives you access to your accounts, and the ability to conduct business transactions, through the internet, a mobile phone, or some other online device.

deposit type financial institutions

_____ ____ _____ ____ provide traditional checking and savings accounts; commonly referred to as "banks"

Credit Unions

_____ _____ are established by a wide variety of organizations such a churches, universities, trade unions, and corporations. They are open only to members of that organization and are quite similar to commercial banks and S&Ls. Because of their tax-exempt status as not-for-profit organizations, they are generally more efficient, pay higher rates, have lower fees, and have more favorable loan rates than commercial banks.

Savings and Loans Associations

_____ and commercial banks have become very similar, with both offering almost identical savings alternatives. However, ____ often earn one-quarter percent more than savings accounts at competing commercial banks,

money market deposit account

a ___ ____ ____ ___ is an alternative to the savings accounts offered by

certificate of deposit

a ______ __ _____ is a savings alternative that pays a fixed rate of interest while keeping your funds on deposit for a set period of time, which can range from 30 days to several years.

cashier's check

a check drawn on the bank or financial institutions account

asset management account

a comprehensive financial services package offered by a brokerage firm and recently some investment banking institutions

demand deposit

a non interest bearing checking account is actually a _____ _____

safety deposit box

a storage unit at a bank or other financial institution in which valuables and important documents are stored for safekeeping

money order

a variation of the cashier's check except it's generally issued by the US Postal Service or many other non-banking institutions.

Five Banking Conveniences

a. Location b. Access to ATMs c. Availability of safety deposit boxes d. Availability of direct deposit services e. Availability of overdraft protection These are all what?

savings account

allows you to keep your money in safe, federally insured financial institution while it earns a guaranteed fixed return or interest

money market deposit account

an alternative to savings accounts offered by commercial bank; this provides a rate of interest that varies with the current market rate of interest

traveler's check

checks issued by a large financial institution that are sold through local banking institutions and are similar to cashier's checks, except they don't specify a specific payee and they come in specific denominations

annual percentage yield

converts interest rates compounded for different periods into comparable annual rate. This allows you to easily compare interest rates

after tax return

the actual return you earn on taxable investments once taxes have been paid

Money Market Mutual Fund

Draws together savings of many individuals and invests those funds in a very large, credit worthy debt issued by the government or large corporations i. Advantages 1. High interest rates 2. Check-writing privileges 3. Limited risk due to shore maturity of investments 4. Convenient ii. Disadvantages 1. Administrative fees 2. Minimum initial investment 3. Not federally insured 4. Minimum check amount

Checking Accountss

Federally protected account in which you deposit your liquid funds so you can withdraw them quickly and easily by means of a written check or debit card. i. Advantages: 1. Liquid 2. Safe 3. Low minimum balance 4. Convenient ii. Disadvantages: 1. Minimum balance required 2. Monthly fee 3. Opportunity cost 4. Pays less than some other alternatives

non deposit type

Financial institutions that traditionally did not provide checking and savings accounts are called __ ______ ___ financial institutions