Chapter 4: Financial Services: Savings Plans and Payment Accounts

Vocabulary flashcards covering core banking institutions, financial services, savings accounts, digital payment methods, and account management procedures from Chapter 4.

Trust

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

Asset Management Account

A consolidated financial account (also called a cash management account) that provides a complete financial services program for a single fee.

Debit Card

A plastic card used for banking and purchase transactions that immediately deducts money from the user's checking account rather than borrowing funds.

Video Teller Machine (VTM)

A banking machine that provides personalized customer service through a face-to-face video connection to a bank representative.

Prepaid Debit Card

A card issued by financial institutions, card companies, or retailers that allows users to preload funds to pay for items without maintaining a traditional bank account.

Commercial Bank

A deposit institution organized as a corporation with investors (stockholders) that provides a full range of financial services including checking, savings, and lending.

Credit Union

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

Mutual Savings Bank

A financial deposit institution owned by its depositors that specializes in savings accounts and mortgages, distributing profits directly to depositors via higher savings rates.

Money Market Fund

A combination savings and investment product offered by investment companies that pools money from multiple investors to purchase short-term financial instruments, which is not federally insured.

Brokerage Firm

A nondeposit financial institution that employs investment advisers and financial planners to serve as agents for buying and selling stocks, bonds, and other investment securities.

Finance Company

A nondeposit financial institution that specializes in short- and intermediate-term loans to consumers and small businesses, typically at higher interest rates than banks.

Mortgage Company

A nondeposit financial institution organized primarily to originate and provide loans for home purchases.

Check-Cashing Outlet (CCO)

A high-cost financial service business that cashes checks for consumers without bank accounts, typically charging a fee between $1\%$ and $20\%$ of the check's value.

Payday Loan Company

A high-cost lending provider that offers small, short-term cash advances at extremely high interest rates, which can exceed an annual percentage rate of $700\%$.

Car Title Loan Company

A high-cost financial provider that grants cash advances secured by the borrower's car title, often charging interest rates exceeding $200\%$.

Regular Savings Account

A savings plan with low or no minimum balance requirements that allows easy withdrawal of funds on demand, referred to as a share account at credit unions.

Certificate of Deposit (CD)

A savings plan requiring a set amount of money to remain on deposit for a specified term (ranging from $30$ days to five or more years) to earn a stated interest rate, subject to an early withdrawal penalty.

Rising-Rate CD

A certificate of deposit that features contractually scheduled interest rate increases at specified time intervals, such as every six months.

Liquid CD

A certificate of deposit that permits the account holder to withdraw money prior to maturity without paying an early withdrawal penalty, typically requiring a minimum balance.

Indexed CD

A certificate of deposit whose interest earnings are tied directly to the performance of the stock market.

Money Market Account

A savings account offered by banks or credit unions requiring a minimum balance (usually $\$1{,}000$) with earnings based on market interest rates, offering limited check-writing privileges and federal deposit insurance.

Series EE Bond

A low-risk U.S. savings bond backed by the federal government, purchased and managed online in amounts starting at $\$25$, which must be held for at least one year before redemption.

I Bond

A U.S. savings bond purchased at face value starting at $\$25$ that earns interest based on a combination of a fixed rate and an inflation rate that resets every six months.

Rate of Return

The percentage of increase in the value of savings resulting from interest earned.

Compounding

The process of calculating interest earned on previously accumulated interest in addition to the original principal.

Truth in Savings Act

A federal law requiring financial institutions to disclose deposit account fees, interest rates, annual percentage yield (APY), and other account terms to consumers.

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 compounding frequency over a $365$-day term, calculated as $\text{APY} = 100 \left(\frac{\text{Interest}}{\text{Principal}}\right)$.

Liquidity

The ability to withdraw or convert assets to cash quickly without a loss of value or payment of penalty fees.

Smart Card

A digital wallet payment card embedded with a computer microchip capable of processing banking transactions and storing personal data, purchase records, or health information.

Stored-Value Card

A prepaid card designed for specific, dedicated transactions such as highway tolls, public transit fares, or telephone services.

Activity Account

A checking account with no minimum balance requirement that charges an individual fee for each check written and sometimes for each deposit made.

Interest-Earning Checking Account

A checking account that pays interest but requires a minimum balance to avoid monthly service charges; called a share draft account at credit unions.

Overdraft Protection

An automatic loan extension service provided by financial institutions that covers checks and withdrawals exceeding the account's available funds.

Certified Check

A personal check written by an account holder that the bank verifies and guarantees to have sufficient funds available for payment.

Cashier’s Check

A check issued directly by a financial institution, purchased by an individual who pays the face value plus an administrative fee.

Blank Endorsement

A check endorsement consisting solely of the payee's signature, converting the check into a bearer instrument that can be cashed or deposited by anyone.

Restrictive Endorsement

A check endorsement that limits further transfer by specifying the phrase 'for deposit only' along with the account holder's signature.

Special Endorsement

A check endorsement that transfers the right to receive funds to a designated third party using the phrase 'pay to the order of' followed by the new payee's name and the endorser's signature.

Remote Deposit Capture

A banking process enabling a customer to deposit a check by taking a photograph of it via a mobile app after writing 'for remote deposit', signing, and adding the account number.

Bank Reconciliation

The process of identifying and accounting for discrepancies between a monthly bank statement balance and an individual's checkbook ledger to determine the true account balance.