Personal Finance: Chapter 5

Discount Rate

0.25%: The rate financial institutions are charged to borrow funds from the Federal Reserve Bank (% is variable)

I Bonds

1: Fixed rate for the life of the bond 2: An inflation rate that changes twice a year (every 6 months) Purchased at face value, and the redeem is exempted from federal tax if the funds are used to pay tuition and fees at college for yourself or a dependent

Prime Rate

3.25%: An indication of the rate banks charge large corporations

Share Account

A Regular Savings Account (usually involve a low or no minimum balance & usually withdrawal as needed) at a credit union

Cashier's Check

A check of a financial institution, purchased by paying the amount of the check plus a fee

Automatic Teller Machine (ATM)

A computer terminal used to conduct banking transactions (i.e. cash machine)

Mutual Savings Banks

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 to individuals, businesses, and government agencies

Savings and Loan Association (S&L)

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

Certified Check

A personal check with guaranteed payment

Debit Card

A plastic access card used in computerized banking transactions (i.e. cash card)

Compounding

A process that calculates interest based on previously earned interest

Credit Union

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

Traveler's Check

Allow you to make payments when you are away from home, & requires you to sign each check twice

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

Restrictive Endorsement

Consists of the words "for deposit only", followed by your signature (which is especially useful whiny are depositing checks)

Blank Endorsement

Just your signature, which should only be used when you are actually depositing or cashing a check (since a check could be cashed by anyone once it has been signed)

HH Bonds

No longer sold

EE Bonds ("Patriot Bonds" after 9/11)

Purchased at face value, ranging from $50-$5,000, & the redeem is exempted from federal tax if the funds are used to pay tuition and fees at college for yourself or a dependent

When Interest Rates are RISING

1: Long-term loans 2: Short-term savings

When Interest Rates are FALLING

1: Short-term loans 2: Long-term savings

Trust

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

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, & the are covered by Federal Deposit Insurance (FDIC insures up to $250,000)

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 rate

Money Market Fund

A savings-investment plan offered by investment companies, with earnings based on investments in various short-term financial instruments (NCUA insures up to $250,000 & NOT insured by FDIC)

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

Share Draft Account

An Interest-Earning Checking Account (usually require a minimum balance "NOW" accounts-negotiable order of withdrawal) at a credit union

Assest Management Account

An all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee (i.e. cash management account)

Activity Accounts

Charge a fee for each check written and sometimes a fee for each despot, in addition to a monthly service charge, but don't have to maintain a minimum balance

Rate of Return

The percentage of increase in the value of savings as a result of interest earned (i.e. yield)

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 (% = 100(interest/principal))

Regular Checking Accounts

Usually have a monthly service charge that you may avoid by keeping a minimum balance in the account