Your Money and Credit-Test Two-Morris

Sources of Quick Cash

-Liquidate savings a. Savings account b. CD c. Mutual Fund -Borrow a. Credit card advance b. Personal loan *Both options reduce net worth

Pawnshops

-Loans on possessions -Higher fees; 3% per month common -Used for quick cash

Finance Companies

-Make short and medium term loans to consumers -Higher rates

Restrictions and Fees (Savings Plans)

-Minium balance -Fee for additional transactions

Regular Checking Accounts

-Monthly service charge usual -Minimum balance

Investment Companies

-Mutual Funds -Money Market Fund a. combination savings and investment plan b. not covered by FDIC

Series HH Bonds

-No longer sold -Current income bonds -Pays interest every six months -Interest direct deposited and taxed as current income

ATM access

-Obtain cash, check account balances, and transfer funds -Check out the fees *involved with online banking

Common mistakes made when managing current cash needs

-Overspending (impulse buying, using credit) -Insufficient liquid assets -Using savings or borrowing to pay for current expenses -Failing to put unneeded funds in an interest bearing or investment account

Regular Savings Accounts

-Passbook savings (most liquid) -Statement accounts -Low minimum balance -Easy withdrawal -Insured -Low rate of return -Credit Union=share accounts

Problematic Financial Businesses

-Pawnshops -Check-cashing outlets -Payday loan companies -Rent-to-Own Centers -Car Title Loans

Rate of Return or Yield

-Percentage increase in value due to interest -Frequency of compounding (calculates interest based on previously earned interest) increases return

Concerns of Online Banking

-Potential privacy, security violations -ATM fees can become costly -Difficulty depositing cash, checks -Overspending due to easy access -Online scams, "phishing," and e-mail scams

Liquidity (Savings Plans)

-Quick availability of cash -Without significant loss in value

Automatic Payments Transfer Funds

-Recurring payments such as for utilities -Remember to deduct them from your register *involved with online banking

Managing Electronic Savings Bonds

-Registration: a. Single owner b. Co-owners with a primary owner c. With a beneficiary -Treasury Direct a. Establish an account at the Treasury website b. 24/7 access to buy manage and redeem electronic bonds

Certificates of Deposit (CD)

-Required minimum deposit -Required time on deposit -Penalties for early withdrawal -Take care when rolling over -Various CD types a. Rising-rate or bump b. Stock-indexed c. Callable d. Promotional *becoming less liquid

Evaluating Checking and Payment Accounts

-Restrictions, such as a minimum balance -Fees, which increase, and charges -Interest rate and computation method -Special services=overdraft protection -Beware of "package" deals that include unneeded services

Types of U.S. Savings Bonds

-Series EE -Series HH -I Bonds

Financial Services Research

-Services offered -Fees disclosure -Minimum balance -Savings rate sheet -Sample loan application -Sufficient deposit insurance

Traveler's Check

-Sign each check twice -Electronic traveler's checks-prepaid travel card with ability to get local currency at an ATM

Trust

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

Interest-Earning or Share Draft (@ Credit Unions) Checking Accounts

Require a minimum balance

"Truth in Savings Act"

Requires a disclosure of: -Fees on deposit accounts -Interest Rate -Annual Percentage Yield (APY)

FCVA

Sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments.

Consumer Credit

The use of credit for personal needs (except a home mortgage). -A major force in our economy

Types of Financial Services

a. Savings b. Payment Services c. Borrowing d. Other Financial Services

Taxes (Savings Plans)

Reduces interest earned on savings

Series EE Bonds

-"Patriot Bonds" -Sold at half of face value -Face values $50-$5,000 -Fixed-rate interest compounded semiannually -Penalty if redeemed within 5 years -Continues earning interest for 30 years -Potential tax advantages if used to pay tuition

Cash Management Account

-Also called asset management account -Offered by investment companies and others to provide a complete line of financial serves program, which include: a. Checking account and ATM card b. Credit card c. Online banking d. Line of credit for quick cash loans e. Access to a variety of investments

Cashier's Check

-Bank check -Check from a financial institution; you pay the face amount, plus a fee

Non-Deposit Institutions

-Life insurance companies -Investment companies -Brokerage firms -Credit card companies -Finance companies -Mortgage companies

Use a Debit Card to...

-Limit spending to available funds -Avoid future bills -Avoid interest or annual fee -Obtain better protection

Payday Loan Companies

-Cash advances -Check advance loans -Postdated check loans -Delayed deposit loans -High interest rates

Other Payment Methods

-Certified Check -Cashier's Check -Money Order -Traveler's Check

Check-Cashing Outlets

-Charge 1-20% of check's face value -1-3% is average -AKA: Currency Exchanges

Types of Financial Institutions

-Commercial Banks -Savings and Loan Associations -Mutual Savings Banks -Credit Unions

Electronic Payments

-Debit Card Transactions=immediate account debit -Online Payments=PayPal, MyCheckFree -Stored-Value Cards=prepaid cards for telephone, transit, tolls, etc. -Smart Cards="electronic wallets"

Annual Percentage Yield

-Defined as the "total percent" -Total percent is based on annual interest and frequency of compounding -APY=Rate per period X # periods per year -Will be higher if compounded more than once -More compounded=higher yield

Use a Credit Card to...

-Delay payment -Build a credit history -Buy online -Major purchases -Earn rewards

Before choosing a financial institution

-Determine the financial services you need before choosing a financial institution -Compare fees and convenience -Consider the safety and rates for deposits and loans at different institutions

I Bonds

-Earns a fixed rate plus an inflation rate -Twice-a-year inflation adjustment

Safety via FDIC and NCUA (Savings Plans)

-FDIC insured up to $250,000 per person per financial institution -Up to $250,000 for certain retirement accounts

Money Market Accounts and Funds

-Floating interest rate -Allows limited check writing -Higher minimum balance -Money market accounts are covered by the FDIC, but money market funds are not -Money market accounts=bank -Money market funds=investment company; higher interest rate; risk premium-no FDIC

Life Insurance Companies

-Insurance plus savings and investments -Some offer financial planning and investing services

Mobile Banking

-Text banking -Mobile web banking -Banking apps

Benefits of Online Banking

-Time and money savings -Convenience for transactions, comparing rates -No paper trail for identity thieves -Transfer access for loans, investments -E-mail notices of due dates

Online Banking

-Traditional banks have online serves -Web-only banks (E*Trade Bank) -Services provided: a. Direct deposit b. Automatic payments transfer funds c. ATM access d. Debit card

Bank Reconciliation

1. Compare written checks with those reported paid (subtract the total of all checks written but not yet closed) 2. Determine deposits not on the statement (add the amount to the statement balance) 3. Subtract fees or charges and ATM withdrawals from the checkbook balance 4. Add any interest to your checkbook balance

Five Steps to Selecting a Financial Institution

1. List features most important to you 2. Rank the top 3-4 most important features 3. List local, national, and online institutions 4. Conduct research: -talk with friends -online research -personal visit 5. Balance your needs with information collected

Writing Checks

1. Record the date 2. Write the name of the person/organization receiving the check 3. Record the amount of the check in figures 4. Write the amount of check in words 5. Sign the check 6. Note the reason for the payment

Basic questions to ask before choosing a financial institution

1. Where can I get the best return on my savings? 2. How can I minimize my costs for financial services? 3. Will I be able to borrow money if I need it?

Making Deposits

3 types of endorsements -Blank endorsement=signature only -Restrictive endorsement="for deposit only" -Special endorsement="pay to the order of"

ATM

A computer terminal used to conduct banking transactions.

Mutual Savings Bank

A financial institution that is owned by depositors and specializes in savings accounts and mortgage loans.

Mutual Savings Banks

A financial institution that is owned by depositors and specializes in savings accounts and mortgage loans. -Profits go back to depositors by paying a higher rate on savings

Commercial Bank

A financial institution that offers a full range of financial services to individuals, businesses, and government agencies. -Organized as corporations -Offer a full range of services including checking, savings, lending, and other services

Savings and Loan Association

A financial institution that traditionally specialized in savings accounts and mortgage loans. -Checking accounts, specialized savings plans, loans and financial planning and investment services

Open End Credit

A line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment. -Use as needed until line of credit max reached -Credit cards -Department store cards -You pay interest and finance charges if you do not pay the bill in full when due -Revolving Check Credit -Bank Line of Credit

Interest

A periodic charge for the use of credit

Debit Card

A plastic access card used in computerized banking transactions; also called a "cash card" or "ATM card."

Debit Card

A plastic access card used in computerized banking transactions; also called a cash card. -Deducts money directly and immediately out of your account -Lost card liability $50-$500

Revolving Check Credit

A prearranged loan from a bank for a specified amount; also called a bank line of credit.

Compounding

A process that calculates interest based on previously earned interest.

Money Market Account

A savings account offered by banks, savings and loan associations, and credit unions that requires a minimum balance and has earnings based on market interest rates.

Certificate of Deposit

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.

Credit Union

A user-owned, nonprofit, cooperative financial institution that is organized for the benefit of its members. -Lower fees and lower loan rates

Collateral

A valuable asset that is pledged to ensure loan payments.

Brokerage Firms

Act as agent for buyers and sellers of financial products. Obtain their earnings through the commissions and fees charged for various services

Asset Management Account

An all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee; also called a "cash management account."

Credit

An arrangement to receive cash, goods, or services now and pay for them in the future. -Based on trust in people's ability and willingness to pay bills when due

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.

Interest Earning Checking Accounts

Checking accounts paying low interest

Inflation (Savings Plans)

Compare the rate of return vs. the inflation rate

Activity Checking Accounts

Fee charged for each check written, and sometimes for deposits

Financial Services and Economic Conditions

For successful financial planning, be aware of: -Prime rate=rate banks charge large corporations -Consumer interest rates -Rising consumer prices

Opening a Checking Account

Individual vs. joint account

Other Financial Services

Insurance, investment, real estate purchases, tax assistance, trusts, and financial planning

Simple Interest

Interest computed on principal only and without compounding. -The dollar cost of borrowing -Interest=principal x rate x time

Rent-to-Own Centers

Lease merchandise at high interest rates to low-income customers

Payment Services

Offer an ability to transfer money to others for daily business activities -Checking accounts=demand deposits -Automatic payments

Closed End Credit

One-time loans that the borrower pays back in a specified period of tie and in payments of equal amounts. -Mortgage, automobile, and installment loans for furniture, appliances, and electronics -3 most common types of closed-end credit 1. Installment sales credit 2. Installment cash credit 3. Single lump-sum credit

Direct Deposit

Paychecks and other regular income. *involved with online banking

Certified Check

Personal check with guaranteed payment

Mortgage Companies

Provide home mortgage loans

Savings

Provides safe storage of funds for future use. -Time deposits -Savings and certificates of deposit

Money Order

Purchase at financial institution, post office, store

Credit Card Companies

Specialize in short term loans

Capital

The borrower's assets, or net worth.

Character

The borrower's attitude toward his or her credit obligations.

Capacity

The borrower's financial ability to meet credit obligations.

Line of Credit

The dollar amount, which may or may not be borrowed, that a lender makes available to a borrower.

Conditions

The general economic conditions that can affect a borrower's ability to repay a loan.

Rate of Return

The percentage of increase in the value of savings as a result of interest earned; also called "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.

Minimum Monthly Payment

The smallest amount you can pay and remain a borrower in good standing.

Finance Charge

The total dollar amount paid to use credit. -Includes interest costs and fees, such as service charges, credit-related insurance premiums, or appraisal fees

Borrowing

Used by most people at some time during their lives. you can borrow for the short-term (credit cards) or the long-term (home mortgage).

Interest Rates and Financial Decisions

When interest rates are rising: -use long-term loans to take advantage of current low rates -select short-term savings instruments to take advantage of higher rates when they mature When interest rates are falling -use short-term loans to take advantage of lower rates when you refinance the loans -select long-term savings instruments to "lock in" earnings at current high rates