Chapter 5 - Managing Checking and Savings Accounts

Flashcards about managing checking and savings accounts.

What is the goal of managing checking and savings accounts?

To obtain the appropriate banking services for no or very low fees and with maximized interest.

What is monetary asset (cash) management?

It encompasses how you handle all your monetary assets, including cash on hand, checking accounts, savings accounts, certificates of deposits, and money market accounts. The goal is to maximize interest earnings and minimize fees while keeping funds safe and readily available for living expenses, emergencies, and saving and investment opportunities.

Name some good money habits related to managing checking and savings accounts.

Use a free, interest-earning checking account for your day-to-day spending needs. Open a money market account once you are building up savings on a regular basis. Use a pay-yourself-first approach as you begin to build other savings and investments. Establish ownership of financial accounts wisely.

What does the financial services industry comprise?

Companies that provide checking, savings, and money market accounts and possibly credit, insurance, investment, and financial planning services.

What are Commercial Banks?

Corporations chartered under federal and state regulations that typically offer a wide variety of financial services, such as checking, savings, loans, safe-deposit boxes, investment services, financial counseling, and automatic payment of bills.

What are Savings Banks (or S&Ls)?

Focus primarily on accepting savings and providing mortgage and consumer loans.

What are Mutual Savings Banks?

Similar to a savings bank but owned by the depositors, who share in the earnings.

Deposits at Commercial Banks, Savings Banks & Mutual Savings Banks are insured by what?

The Federal Deposit Insurance Corporation (FDIC)

Up to how much is each depositor insured at Commercial Banks, Savings Banks & Mutual Savings Banks?

$250,000 per insured bank.

What are Online Banks?

Banks that operate entirely over the internet and often pay higher interest rates because they avoid the costs of conventional institutions.

What are Federal Credit Unions?

Also accepts deposits and makes loans but operate on a not-for-profit basis and are owned by their members.

Deposits at Federal Credit Unions are insured by what?

The National Credit Union Share Insurance Fund (or NCUSIF)

Up to how much is each depositor insured at Federal Credit Unions?

$250,000 per insured Credit Union.

What are Mutual Funds?

Investment companies that raise money by selling shares to the public and then invest that money in a diversified investment portfolio.

What are Stock Brokerage Firms?

A licensed financial institution that specializes in selling and buying stocks, bonds, and other investment alternatives.

What do Insurance Companies do?

Provide property, liability, health, life, and other insurance products and may offer monetary asset services, such as money market accounts.

day-to-day spending

Checking accounts are used for with easy withdrawals and deposits.

liquidity

Checking accounts have , which is the speed and ease with which an asset can be converted to cash.

Negotiable Order of Withdrawal (NOW)

Interest-Earning Checking Account [or Account].

What are Student Checking Accounts?

A checking account offered by credit unions and banks that is better for students, usually because they offer excellent benefits, including a low minimum balance, minimized fees, and free online bill pay.

What is a Money market account?

Any of a variety of interest-earning accounts that pay relatively high interest rates and offer limited check writing privileges and generally require a higher minimum balance to earn interest and avoid monthly fees.

What are Minimum-balance accounts?

Requires that your balance never drop below a certain minimum or fees will be assessed.

What are Average-balance accounts?

Require that your average balance for the month be above a certain amount or fees will be assessed.

What are three ways to avoid Overdraft Fees?

Automatic Funds Transfer Agreement, Automatic Overdraft Loan Agreement, and Bounce Protection Agreement.

What is a Certified Check?

Is drawn on your account and is certified that the account has sufficient funds.

What is a Cashier’s Check?

Is drawn on the bank’s account from funds that you transfer into that account.

What are Money Orders?

Are purchased for a specific amount from depository institutions and other providers such as the U.S. Post Service.

Which of the following is (are) required to withdraw money from an automated teller machine (ATM)?

Debit card and personal identification number.

What is a Savings Account (Time Deposits)?

Provides depositors with a readily accessible source of emergency cash and a temporary holding place for funds in excess of those needed for daily living expenses.

What is a Statement Savings Account (or Passbook Savings Account)?

Permit frequent deposits or withdrawals of funds.

What is a Certificate of Deposit (or CD)?

Is an interest earning savings instrument purchased for a fixed period of time. Generally, pays a little higher rate than a basic statement savings account and the longer the maturity time the higher the rate of interest that will be paid.

How to save.

“Pay Yourself First”, Saving is not glamorous; slow and steady wins the race!, Emergency fund, Other savings goals can be broken down into short-term goals and monthly savings amounts.

Interest paid on deposits in financial institutions is based on what?

Amount of Money on Deposit, How the Balance is determined, Interest Rate Applied - Annual Percentage Yield (APY), The frequency of compounding – the more frequent the compounding, the greater the effective return for the saver.

In general, the shorter the maturity time on a certificate of deposit, the higher the rate of interest that will be paid. True or False

False

Savers should select an institution that calculates interest how often?

Daily

What are Individual Accounts?

Are solely owned by one person who has total control of the asset.

What does a payable at death designation on an individual account specify?

Specifies who will receive the asset at the death of the owner, but the designee has no rights to the asset while the owner is alive.

What are Joint Accounts?

Are owned by two or more individuals

What is Joint-tenancy with right of survivorship?

The co-owners each own the whole of the asset and can dispose of it without approval of the other(s). At death of one owner, the surviving owner(s) continue to own the asset.

What is Tenancy-in-common?

The co-owners each have a specified share of the ownership; typically 50 percent where there are two owners. At the death of one owner, the heirs of that owner become owners of decedents share.

What is Tenancy by the entirety?

Each owner owns an undivided interest in the asset. However, each cannot transfer their interest in the property without the consent of the other party.

What is Electronic money management?

Occurs whenever transactions are conducted without using paper documents, often with the use of electronic funds transfers (or EFTs).

Examples of electronic money management.

ATM cards, Debit cards, Prepaid cards, Stored value cards, Credit cards, Key fobs and smart cards, Electronic benefit transfer (EBT) cards

Your liability for the use of lost or stolen debit cards is limited by law as follows:

Loss is limited to $50 if the institution is notified of the loss or theft within 2 business days of your knowledge of the theft or loss. Loss is limited to $500 if the institution is notified of the loss or theft between 3 and 59 days of your knowledge of the theft or loss. If loss is not reported within 60 business days, you risk unlimited losses on transfers made after the 60-day period.

How can errors on EFT account statements be challenged by the account holder?

Writing or calling the institution within 60 days and explaining specifically why they believe there is an error. If an initial notification is via phone call, a written notification must occur within 10 days.

Upon notification of a statement error the institution must:

Promptly investigate the error within 45 days. If the investigation takes more than 10 days, the funds must be restored to the account pending the outcome of the investigation.

If Natalie invests $2,000 per year for ten years starting at age 27 and then never sets aside another penny. Assuming they both earn 7% interest how much will Natalie have at age 67?

$210,350

If Kaitlyn waits until age 37 and then invest $2,000 per year for the next 30 years assuming they both earn 7% interest how much will Kaitlyn have at age 67?

$188,922

What builds wealth?

Time builds wealth.