Personal Financial Literacy - Chapter 12

National Credit Union Savings Insurance Fund

(NCUSIF) A major federal insurer that provides deposit insurance on the first (1st) $250,ooo deposited in a credit union account.

Price Level Stability

A goal of the Federal Reserve System to ensure that inflation or deflation does not occur.

Federal Deposit Insurance Corporation (FDIC)

A major federal insurer that provides deposit insurance on the first (1st) $250,000 deposited in a bank account.

Inflation

A sustained increase in the general level of prices. During a time of inflation, most things become more expensive and the purchasing power of money decreases.

Cashier's Check

A type of check that is written to a specific payee but charged against a bank instead of an individual account.

Check

A written order from an individual to a bank that instructs the bank to pay money to another party.

Checking account

An account into which a person deposits money and from which a person withdraws money by writing checks or using a debit card.

Electronic Funds Transfer (EFT)

Authorization for someone to access a bank account for payment or deposit.

Services include safety deposit boxes, cashier's checks, money orders, and traveler's checks.

Besides checking accounts, what services are typically offered by banks?

Traveler's Checks

Checks paid for in advance and written by a large financial institution with no payee specified.

A sustained increase in the overall level of prices. Inflation erodes the purchasing power of your money and makes it cost more to buy the things you normally buy.

Describe inflation.

Debit card

Enables one to withdraw cash from an ATM or to pay directly for goods or services at stores and restaurants.

Depository Institutions

Financial institutions that provide traditional checking and savings accounts for individuals and businesses; also provide loans. Include commercial banks, savings banks, and credit unions.

Negotiable order of withdrawal (NOW) accounts

Function much like checking accounts except they pay a small amount of interest on money in the account. Require a minimum balance in order to earn interest.

Credit union

Functions similarly to a bank, but has nonprofit status and is owned by its members.

Money Orders

Functions similarly to a cashier's check. It is purchased for cash so that the recipient can trust its worth.

A credit union functions similarly to a bank. But, unlike a bank, a credit union has nonprofit status and is owned by its members.

How does a credit union differ from a bank?

Nondepository Institutions

Institutions that provide certain financial services but do not accept traditional deposits. Include insurance companies, finance companies, and securities firms and investment companies.

Automatic Teller Machines (ATMs)

Provides banking customers with access to financial transactions in a public space without the need for a bank teller.

Safety Deposit Box

Small containers located inside a bank vault used to store valuable paperwork such as wills and legal documents and small objects such as jewelry and rare coins.

Check Register

Small ledger for keeping track of your account balance.

Federal Reserve System

The central bank of the United States

Discount Rate

The interest rate the Federal Reserve System charges to banks when it loans them money.

Fiat money

The money currently used in the United States. It has value because the government orders that it must be accepted as payment.

Monetary policy

The raising or lowering of the money supply to achieve some goal.

Bank Drafts

Used to authorize someone to withdraw money from a bank account automatically to satisfy some financial obligation.

Personal Identification Number (PIN)

Usually four-digit numbers you need to memorize in order to use your debit card.

Bank drafts are an authorization to take money out of your bank account automatically to satisfy some financial obligation. Bank drafts are an example of an electronic funds transfer. An EFT occurs when you authorize someone to access your bank account for payment or for deposit.

What is the difference between a bank draft and an electronic funds transfer?

The Fed changes the money supply.

What is the main tool the Fed uses to influence the economy?

They enable you to carry less cash, keep records, and mail payments securely.

Why are checking accounts useful?

If people lose confidence in the safety of their deposits, they may withdraw money in a panic, and that can damage even healthy banks.

Why is it important to give people confidence in the safety of their deposits?