Chapter 4: Managing Your Cash and Savings

cash management

the routine, day-to-day administration of cash and near-cash resources by individual or family

internet/digital bank

an online commercial bank

deposit insurance

a type of insurance that protects funds on deposit against failure of the institution (FDIC or NCUA National Credit Union Administration)

demand deposit

an account held at a financial institution from which funds can be drawn on demand by the account holder, same as checking account

time deposit

a savings deposit at a financial institution; remains on deposit for a longer time than a demand deposit, could be a savings account or a certificate of deposit

money market deposit account

federally insured savings account, offered by the banks and other depository insitutions

money market mutual fund

a mutual fund that pools the funds of many small investors and purchases

asset management account

a comprehensive deposit account, offered primarily by brokerage houses and mutual funds

electronic funds transfer systems

systems using the latest telecommunications and computer technology to electronically transfer funds into and out of customer's accounts

debit cards

specially coded plastic used to transfer funds from a customer's bank account to the recipient's account to pay for goods and services

ATM

a remote computer terminal that customers of the depository institutions can use to make basic transactions 24 hours a day, 7 days of the week

checkbook ledger

a booklet, provided with a supply of checks, used to maintain accurate records of all checking account transactions

overdraft

the result of writing a check for an amount greater than the current account balance

overdraft protection

an arrangement between the account holder instructing the depository institution wherein the institution automatically pays the check that overdraws the account

stop payment

an order made by an account holder instructing the depository institution to refuse payment on an already issued check

account reconciliation

verifying the accuracy of your checking account balance in relation to the bank's records as reflected in the banks statement

cashier's check

a check payable to a third party that is drawn by a bank itself in exchange for the amount specified plus in most cases a service fee

traveler's check

a check sold (for a fee of about 1.5%) by many large financial institutions, typically in denominations ranging from $20 to $100 that can be used for making purchases and exchanged for local currencies in most parts of the world

certified check

a personal check that is guaranteed (for a fee of $10-$15) by the bank on which it is drawn

compound interest

when interest earned in each subsequent period is determined by applying the nominal (stated) rate of interest to the sum of the initial deposit

simple interest

interest that is paid only on the initial amount of the deposit

nominal interest rate

the promised rate of interest paid on a savings deposit or charged on a loan

effective interest rate

the annual rate of return that is actually earned (or charged) during the period the funds are held (or borrowed)

certificate of deposit (CD)

a type of savings instrument issued by certain financial institutions in exchange for a deposit: typically requires a minimum deposit and has a maturity ranging from 7 days to 7 years or longer

US Treasury bill (T-bill)

a short-term (3- or 6-month maturity) debt instrument issued at a discount by the US Treasury in the ongoing process of funding the national debt

Series EE bond

a savings bond issued in various denominations by the US Treasury

I Savings bond

a savings bond, issued at face value US Treasury, whose partially fixed rate provides some inflation protection

share draft accounts

an account offered by credit unions that is similar to interest-paying checking accounts offered by other financial institutions

negotiable order of withdrawal (NOW) account

a checking account on which the financial institution pays interest; NOWs have no legal minimum balance

Drawee

The bank on which a check is written.

Drawer

The person who writes a check.

Payee

A person to whom a check is written

canceled check

a check which has been paid by the bank

truncated check

when a paper check is transformed into a digital image

outstanding item

A check, withdrawal, or deposit that is on your check register/ledger but has not yet been processed by the bank

restrictive endorsement

secure form of endorsement; restricts the use of the check so it may only be deposited; For Deposit Only

blank endorsement

an endorsement consisting only of the endorser's signature; least secure endorsement as it allows anyone to cash if check is lost

special endorsement

an endorsement that transfers the right to cash the check to someone else; "Pay to the Order Of . . . "

rational buying

involves logical thinking & decision making

emotional buying

process of purchasing products based on desire rather than logic

impulse buying

purchasing items on the spur of the moment without any thought

limited warranty

Warranty limited to just the specified parts, certain types of defects, or other conditions on a product.

full warranty

A written promise that the company will repair or replace a defective product within a specified time period at no charge

economizing

saving as much as possible and spending money only when necessary

optimizing

getting the highest value for the money spent