Money and Banking Unit test

advantages and disadvantages to interest bearing checking accounts

- An interest bearing checking account is a checking account that pays interest Disadvantages: - Some require you to keep thousands of dollars in your account while paying next to nothing (ex. 0.01 on $10,000) - If your balance dips below the minimum you will be charged a $25 monthly fee - By leaving your money in such a low paying account you're losing purchasing power Advantages: - You make interest on your checking account

difference between banks and credit unions

- Credit unions are a non for profit bank formed by people who have something in common, such as their workplace or profession - Credit unions tend to offer low-priced services than ordinary banks - Most banks are covered by Federal deposit insurance, which guarantees if the institution fails, up to $250,000 of your money is protected - Credit unions are covered by the NCUA which does the same thing as the FDIC

Recession

- Period of economic decline (usually 6-12 months) - Profits decrease, people laid off of jobs - People buy less

Steps using bank reconciliation

1. Check off cancelled checks, deposits, and ATM withdrawals 2. Add missing items from bank statement to your check register 3. What are your outstanding checks 4. complete reconciliation chart (bottom right corner) 5. Make sure ending balance matches your check register

Savings Account

A bank account that earns interest that is lower than inflation.

Stale Check

A bank may refuse to honor this check because it is over six months old.

Define monetary policy

Influencing the amount of money and credit in the economy

CD

certificate of deposit accounts are a savings certificate with a fixed maturity date, specified fixed interest rate and can be issued in any denomination aside from minimum investment requirements. A CD restricts access to the funds until the maturity date of the investment.

Credit Unions

- Credit unions tend to charge lower rates on loans and pay higher rates on savings accounts than ordinary banks. - They typically charge less for everything - Usually for communities or people in the same job

expansionary monetary policy

- Decrease Interest rates - increase Money supply - Helps get rid of high unemployment - Used during recession - Used when unemployment is high and there's a recession.

FDIC (Federal Deposit Insurance Corporation)

- Federal Deposit Insurance Corporation is an independent agency created to maintain stability and confidence in our financial system by insuring deposits up to $250,000.

list 3 services the Federal Reserve performs for banks

- Federal Reserve Banks distribute currency and coin to banks - The Federal Reserve helps clear millions of checks and check-like items written each day - The fed transfers billions of dollars in funds and securities - The fed Supervises and regulates financial institutions

What do you look for when choosing a bank?

- Free checking - Free nearby ATM access - Online and mobile banking

fees associated with ATM's

- If you use an ATM that is not owned by your bank you are charged a fee (average is $2) - The amount of the fee will be shown when you open the account but it will not warn you at the time of the transaction. - In addition to the fee your own bank will charge, you will have to pay a surcharge (average $3) to the other ATM owner - Make sure to count your cash because there rarely could be a malfunction at the ATM

contradictory monetary policy

- Increase interest rates - decrease Money supply - Helps during high inflation - Used when there's high inflation they want to restrict monetary policy

what to do when a fee was charged to your account

- Pick up the phone and call the bank to explain why the fee occured and why you think it should be erased

Inflation

- Prices increase to quickly for consumers - wages/income don't increase proportionally - This is measured by CPI- consumer price index

Money Market Account (MMA)

- Type of Savings account - Tend to pay a slightly higher interest, but usually have higher minimum balance requirements - MMAs are liquid and available from traditional banks alike - You should consider an MMA if it pays a higher interest rate than your banks savings account and the minimum balance required to avoid the monthly fees isn't much higher than the minimum required in a savings account.

Depression

- What a recession can turn into - Longer lasting and more devastating

CPI (Consumer Price Index)

- a measure of the overall cost of the goods and services bought by a typical consumer - Helps control inflation

checking account

- an account at a bank against which checks can be drawn against the money in your account

how to manage your checking account

- monitor your checking account balance by checking your account at least once a week to make sure you have enough money and to spot something that isn't right - Be wary of overdraft protection which protects you from the fees that can come from a bounced check. But sometimes its more expensive that the charges that it allegedly shields you from - link your accounts to avoid paying peed for being overdrawn or falling below minimum balance requirements - pay your bills online - use direct deposit for your paycheck

3 Components of Monetary Policy

1. Discount Rates: The interest rate the Fed charges local banks, when the local bank needs money, they go to the Fed. - Fed raises discount rates for the local banks which leads to the banks raising interest rates, then the people pay a higher interest rate. - Lower discount rate during Recession (HIGH unemployment) so local banks lower IR. and encourages people to buy - Raising interest rates causes people to buy less and lowering interest rates causes people to buy more 2. Reserve Requirements: How Fed prevents inflation by bringing more money into reserve banks and less into local banks 3. Open Market Operations: the selling and buying of bonds If there's inflation you sell government bonds If there's deflation you buy government bonds because the government has more money. - Fed increases reserve requirements because less loans. This means more money in the vault. - They raise requirements in bad times to take money out of circulation to control inflation. - When they decrease reserve requirements- gives banks more $$/more loans 3. Open Market Operations: the selling and buying of bonds - If there's inflation you sell government bonds - If there's deflation you buy government bonds because the government has more money.

Goals of Monetary Policy

1. Steady economic growth 2. Price stability- goal= 2 or 3% per year 3. High Employment

explain how banks earn profits

Most of money from loans, fee schedule, ATM banks

savings account

When looking for a savings account safety and access are the goal You want to find a risk free savings account with the best interest rate possible You also need an account that it liquid, meaning you withdraw your cash whenever you want without any penalty A traditional savings account is the simplest way to keep your money in the bank and earn interest on it Traditional savings accounts tend to pay a very low interest rate. Banks raise the rates on savings accounts when interest rates in the economy rise.

Why do you need a bank?

You need a bank because banks offer two services that are difficult to find elsewhere: a safe checking account and easy access to cash through ATMs

Traveler's check

a check for a fixed amount that can be cashed or used in payment after endorsement with the holder's signature. Often used when traveling in other countries.

Outstanding check

a check that has been written but it has not yet cleared on the bank account on which it was written.

Cancelled check

a check that has cleared the depositors account.

Certified check

a check that is guaranteed by the bank. Typically used for large purchases, such as a car or house sale, especially when you are selling your used car to a stranger.

NSF check

a check that was not honored by the bank on the grounds that the account does not contain sufficient funds. ... NSF is an acronym for "not sufficient funds."

Overdraft Charge

a fee charged when a withdraw from a bank account exceeds the available balance.

Minimum Balance Charge

a fee charged when you go below a minimum balance on a bank account.

Money Market Account

an interest-bearing account that typically pays a higher interest rate than a savings account, and which provides the account holder with limited check-writing ability.

define my rights under the Truth in Savings Act

designed to promote competition among financial institutions and make it easier to compare interest rates and fees related to deposit accounts.

Stop Payment Order

is a request made to a financial institution to cancel a check or payment that has not yet been processed.

know the primary goal and what you are looking for when completing a bank reconciliation.

Detects fraud/mistakes

CD's (Certificate of Deposit)

A savings product pays a fixed interest rate if you keep your money in it for a specific period of time (term) such as 1 year CDs pay better interest rates than savings or money market accounts With a CD you make a one time investment and earn interest the CDs term is complete, you can't continually add money to a CD You are giving up the liquidity you have with a savings or MMA in exchange for the CD's higher rate. If you take out money before the CD's term is complete, you will be hit with an early withdrawal fee CDs are best for money you know you wont need for a set amount of time When you lock yourself into a CD, you are placing a bet on interest rates

explain how a debit card and ATM's work

ATM: a machine that dispenses cash or performs other banking services when an account holder inserts a bank card. Fees are typically charged when you use an ATM machine not associated with YOUR bank. Debit Card: similar to a credit card, but unlike a credit card, the money comes directly from the user's bank account when performing a transaction.

three type of check endorsements and when to use them

Blank endorsement: Deposit a check, sign name on back and someone else can cash, least secure Restrictive endorsement: for deposit only sign your name, most secure Endorsement to a third party: "pay to the order_____" they sign, then who ever is cashing it signs below

the disadvantages of buying investments through your bank

Disadvantages: - Investments sold in banks are not protected by federal deposit insurance, meaning you can lose money that you put in them. - Banks tend to sell investments that charge higher commissions and expenses

explain how the Federal Reserve, inflation, unemployment, and economic growth are related/connected

The Federal Reserve controls economic growth by using contractionary or expansionary monetary policies. When using these policies inflation and unemployment are side effects. - When using contractionary: unemployment increases - while when using expansionary: inflation will increase. Selling Gov. bonds: Fed sells bonds to bank and takes money from bank and gives a piece of paper to bank to take $ out of the economy. - During inflation