Personal Finance Chapter 5 Review

After Tax Return= Taxable Return(1-marginal tax bracket) Formula to calculate which accounts are better in terms of a higher rate of return.
Truth and Savings Act of 1993 designed to help promote competition between depository institutions and make it easier for consumers to compare interest rates, fees and terms associated with savings institutions’ deposit accounts. Established uniform guidelines for how banks and other financial institutions disclose information about deposit accounts to individuals.
Liquid Assets Cash and investments that can easily be converted into cash.
They are important because without liquid funds you might have to compromise your long-term investments to cover unexpected expenses. Why are liquid assets important?
Money Market Mutual Funds What type of financial institution pools money together from investors and invest that money in stocks or bonds?
non profit organizations with low fees and generally high interest rates What are Credit Unions?
Savings and Loans Associations a financial institution that specializes in savings deposits and mortgage loans, and has become one of the primary sources of mortgage loans for homebuyers today. It offers mortgage services to people from the savings and deposits received from private investors.
Liquid, Safe, Low minimum balance, Convenient Advantages of Checking account
minimum balance required, monthly fee, opportunity cost, interest less than alternatives Disadvantages of Checking account
Liquid Safe federally insured Earns higher interest than a Checking Account Advantages of Savings account
Minimum holding time Charges/fees Low interest rate Inconvenient Disadvantages of savings account
Safe, Earns interest, Check writing privileges Advantages of a MMDA
High minimum balances/penalties, interest rates below alternatives Disadvantages of and MMDA
Money Market Deposit Account alternative to savings account, variable interest rates, check and ATM access.
Safe, fixed interest rate, convenient. Advantages of Certificate of Deposit
Early withdrawal penalty, fixed interest rate, minimum deposit required Disadvantages of Certificate of Deposit
Certificate of Deposit pays a fixed rate of interest while funds are on deposit for a period of time (30 days to years).
High interest rates, check writing, limited risk, convenient. Advantages of a MMMF
Money Market Mutual Fund investors receive interest on a pool of investments less an administrative (usually less than 1% of total investment)
Administrative fees, minimum initial investment, not insured, minimum checks. Disadvantages of a MMMF
Asset management account a comprehensive financial services package (checking account, credit card, MMFs, etc.) offered by a brokerage firm.
Monthly statements, coordination of money management, checks, high return, convenient. Advantages of Asset management account
Costly, minimum initial investment, not insured. Disadvantages of Asset management account
U.S. Treasury Bills short-term debt issued by the federal government with maturities from 3-12 months.
Risk-free, exempt from state and local taxes, federal tax vary with current rates. Advantages of T-Bills
Low rate of return Disadvantages of T-Bills
U.S. Savings Bonds Series EE and I bonds are safe, low risk savings products issued by the Treasury with low denominations.
Safe, affordable, no taxes, convenient, redeem at any bank, no commissions or fees. Advantages of Savings Bonds
Low liquidity, long maturity, semi-annual compounding. Disadvantages of Savings Bonds
Federal Government At what level of government are savings accounts insured?
NOW Accounts Interest bearing checking accounts are called what?
Allocated Funds When funds are not able to be used elsewhere because they are required for say a minimum balance, this represents a special type of cost, what is that cost?
Cashiers Check a check guaranteed by a bank, drawn on the bank’s own funds and signed by a cashier.
Monthly fee, flat charge per check, or minimum balance Common Fee Arrangements for checking accounts

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