Personal Finance Lap 3

Things to remember with automatic payments:

- with authorization, funds are withdrawn from your account - make sure there are sufficient funds in your account - check you bank statement to make sure the transfer is correct

Steps to compare financial institutions are:

1) stop by the bank for brochures and speak to a rep 2) study the brochures and talk to your parents 3) research website for info 4) open a checking/savings account to manage you money

What benefits does direct deposit have?

it saves time, money, and effort; it is also a safe place to keep your money

What are some factors that affect your selection of a savings plan?

rate of return (compounding and annual percents rate (%)), inflation, tax considerations, liquidity, safety, restrictions and fees

Checking account interest:

rates and compunding

3 types of checking accounts are:

regular checking account, activity accounts, interest-earning accounts

What are some types of savings plans?

regular savings accounts, certificate of deposits (CDs), money market accounts, US savings bonds

What is a stop payment order?

request made to a certain bank or other financial institution to not cash a particular check

What are Certificates of Deposits (CD)?

savings alternative in which money is left on deposit for a stated period of time to earn a specific rate of return

If a check is lost or stolen, you can ask the bank to issue a ___________________.

stop payment order

What is a credit union?

A nonprofit financial institution that is owned by its members and organized for their benefit

You can purchase Series EE _____ bonds from the ______ government.

savings; federal

The amount of money a bank can lend is affected by the reserve requirement set by the ________________________.

Federal Reserve

What are ATMs used with?

a debit card

What is a savings and loan association (S + L)?

a financial institution that traditionally specialized in savings accounts and mortgages, but now offers many of the same services as commercial banks

What is a commercial bank?

a for-profit institution that offers a full range of financial services, including checking, savings, and lending

What is a debit card used with?

a pin (ex: 1234)

What is a bank reconciliation?

a report that accounts for the differences between a bank statement and checkbook balance

What is a money market account?

a savings account that requires a minimum balance and earns interest that varies from month to month

What is an endorsement?

a signature of the payee

What is a debit card?

a cash card that allows one to withdraw money or pay for purchases with a checking or savings account

What info is on your bank statement?

deposits, checks you have written, ATM withdrawals, debit withdrawals, interest earned +fees

4 examples of plastic payments:

electronic payments, online payments, store-value cards, and smart cards

Three limitations of a CD:

$ must stay in account from 1 month to 5+ years, must pay penalty for withdrawing $ early, and a minimum deposit amount is usually required

What questions should you ask when choosing a financial institution?

- Does it have any special banking services you might need? - Where can you get the highest rate of interest? - Where can you obtain a checking account with low/no fees? - Does it have online banking services? - Will you be able to borrow money from the institution when you need it? - Does the institution have convenient locations? - Is the institution FDIC or SAIF insured? - Do you need an institution that offers free financial advice?

What are some questions to ask when evaluating a financial service?

- Is a higher interest rate on a certificate of deposit worth giving up liquidity? - Would you trade convenience of getting cash from the AM near your office to lower ATM fees? - Is it worth opening a checking account that has no fees, but dies not charge interest, if you must keep a minimum balance?

When comparing financial institutions ask these questions:

- Will you be able to borrow money form the institution when you need it? - Where can you obtain a checking account with little or no fees? - Where can you get the highest rate of interest on your savings? - Do you need a financial institution that offers free financial advice? - Does the institution have convenient locations? - Does it have online banking services? - Does it have any special banking services that you might need?

Checking account special services:

ATM, telephone banking, online banking, and overdraft protection

Analyze why it might be worth a person's time to open a checking/savings account at a bank rather than using a check-cashing outlet.

At a bank you will earn interest, your money is insured and safe

Why can ATMs have a charge/cost for using them?

Financial institutions make that decision to or not to charge depending on the user, location, etc.

Consider whether you would prefer to have a separate checking and savings account, or an interest-earning checking account. Explain.

I would prefer two separate accounts because I think it would be easier to manage your money b/c not everything is clumped together in one place. Also if something happens to one account (like your card being stolen), you still have a second account to fall back on.

What is annual percentage yield (apr)?

amount of interest that a $100 would earn after compounding for one year

What is direct deposit?

an automatic deposit of net pay to an employee's designated bank account

What is overdraft protection?

an automatic loan made to an account if the balance will not cover checks written

Use a ________ form to determine your true balance.

bank reconciliation

Types of Financial Institutions are:

commercial banks, savings and loan associations (S +L), Mutual Savings Banks, Credit Unions

What is an automated teller machine (atm)?

computer terminal that allows a withdrawal of cash from an account

Examples of non-depository institutions:

life insurance companies, investment companies, and finance companies

Banks make money by _____________.

making loans

Checking account restrictions:

minimum balance number of transactions

The FDIC insure _________ ______ ________ up to $25,000

money market accounts

Checking account fees and overcharges:

monthly fee printing, overdraft, stop payment fees

What types of business should you be careful of?

pawn shops, check cashing outlets, payday loans, rent-to-own centers

What is a rate of return?

percentage of increase in value of savings from earned interest

What is compounding?

the process in which interest is earned on both the principal and on any previously earned interest