fin lit assignment

banks & credit unions

have license to hold/lend money, offer checking, savings, credit cards, loans, and more.

banks

for-profit through interest + fees, low interest rates on deposit accounts, FDIC insures $250k per depositor, no emphasis on community, many branches, offers new technology/services

credit unions

not-for-profit owned by community members, higher interest rates and lower fees on deposit accounts, NCUA insures $250k, emphasis on community, fewer branches (network), lag in technology/services

online banks

banking transactions online or an app such as opening account, direct deposit, paying bills. transfer money to another bank to access cash from accounta. they offer low transaction fees, higher interest rates on savings. may not have customer service or limited services.

mobile banking safety

requiring multi-factor authentication (code sent to phone/email), use complex passwords, do not use public wi-fi, do not fall for phishing (scam pretending to be bank), and money transfer scams (urgency/emergency to send money)

short-term financial goals

achieved within six months and five years, have specific deadlines, make sure it is specific and attainable

long-term finanical goals

achieved after five years or more such as retirement and paying off a mortgage, may revisit these goals later

certificate of deposit

type of savings account with a FIXED term/interest rate, highest interest rate without access to money until maturity date, guaranteed returns, minimum of $500

money-market savings account

savings account where money can be put away for future use, higher VARIABLE interest rates and easier access to funds because of debit card/check features compared to regular, balance requirement of 1k-10k, withdrawal limit of 6x

traditional savings account

savings account where money can be put away for future use, withdrawal limit of 6x per month, VARIABLE interest rate, no check-writing privileges

importance of credit

consumers/businesses can borrow money so economy can grow, lower APR on credit cards, lower mortgage interest rates, better credit card perks, employers/landlords impressed

20%

amount of income that should go into savings, but can be unrealistic due to cost of living, dependency, low salary, bad habits

APR

annual percentage rate for interest charged, how much it will cost you to borrow once you take into account interest and fees

APY

annual percentage yield, interest in traditional savings accounts earned in one year

how to grow your credit

lowering credit utilization by 30%, limit requests for new credit, review your credit reports, pay bills on time, secured credit card, cosign loan, rental payments reported

credit report

statement that has information about your credit activity and current credit situation (loan paying history + status of credit accounts)

credit score

calculated based on the information in your credit report (payment history, unpaid debt, length of credit history, % of available credit, type/origins of debt, new applications for credit)

Fair Credit Reporting Act

Americans entitled to 1 credit report for three companies each year (Equifax, Experian, TransUnion)

soft credit check

getting information of your credit report to double check it by you or company, mean less to credit score

hard credit check

companies/financial institution ask for credit report like car dealerships for financing car/loan, more hard checks = looking for money, affects credit score

installment loans

used to finance a specific purchase for a specific amount of time. regular payment made to pay interest and principal

revolving credit

an open line of credit that can be used for any purchases as long as you’re under the credit limit. payment amounts vary each pay period based on the size of the debt.

secured debt

debt is tied to a specific asset that can be used as collateral and repossessed if borrower doesn’t make payments

unsecured debt

debt is not tied to a specific asset, there is no collateral that can be repossessed if borrower defaults

variable-rate

interest rate can change during the duration of the loan based on the prime rate/index rate

fixed-rate

interest rate remains constant during the duration of the loan

origination fee

covers cost for processing loan

loan terms

terms and conditions when borrowing money, longer terms = lower monthly payment, more interest

payday loan

short-term, very high-interest loans available to consumers, unsecured and no-credit checks, unbanked and impoverished

amortization

requires the borrower to make scheduled, periodic payments that are applied to both the principal and interest. first pays off the interest, remaining amount is put towards reducing the principal amount. interest decreases, principal increases