Personal Finance- Chapter 7 Review

direct deposit an automatic deposit of net pay to an employee’s designated bank account at the end of a pay period; employee receives a printed statement that lists deductions and info about their earnings
authorization permission
automated teller machine (ATM) a computer terminal that allows a withdrawal of cash from an account; must have a card; fees to use them can add up
debit card a cash card that allows you to withdraw money or pay for purchases from your checking or savings account; has a PIN, which you should never give to anyone; if lost or stolen, notify your bank
issuer provider
commercial bank a for-profit organization that offers a full range of financial services, including checking, savings, and lending; chartered by the government; serve individuals and businesses; organized as corporations with individual investors
savings and loan association (S&L) a financial institution that traditionally specialized in savings accounts and mortgage loans but now offers many of the same services as commercial banks; provide checking, loans, and investment services; chartered by the government
credit union a nonprofit financial institution that is owned by its members and organized for their benefit; members have a common bond, like employment by same company; offer checking accounts, loans, credit cards, ATMs, safe-deposit boxes, and investment services
quarterly every three months
certificate of deposit (CD) a savings account in which money is left on deposit for a stated period of time to earn a specific rate of return; higher interest rates than savings accounts; must be deposited for one month to five or more years; penalties for taking out money before the maturity date; require a minimum deposit
alternative option
money market account a savings account that requires a minimum balance and earns interest that varies from month to month; rates change as market rates change; requires $1,000 minimum balance; higher interest rates than savings accounts; penalty if you go below minimum balance; FDIC insured
rate of return the percentage of increase in the value of your savings from earned interest; divide total interest by amount of deposit
compounding the process in which interest is earned on both the principal and on any previously earned interest; the more frequently interest is compounded, the greater the rate of return
annual percentage yield (APY) the amount of interest that a $100 deposit would earn after compounding for one year; helps you compare savings plans with different rates and compounding frequencies
overdraft protection an automatic loan made to an account if the balance will not cover checks written; keeps your account from being overdrawn
stop-payment order a request that a bank or other financial institution not cash a particular check
endorsement the signature of the payee (the person to whom the check is written)
bank reconciliation a report that accounts for the differences between the bank statement and a checkbook balance
two sources of quick cash your savings account and borrowing the money
four types of financial services savings (time deposits- savings accounts, CD’s) , payment (checking accounts), borrowing (credit, loans), and other (insurance, investing, tax assistance, financial planning)
four types of electronic banking services direct deposit, automatic payment, automated teller machines (ATM), and plastic payments
automatic payments with your authorization, your bank will withdraw the amount of your monthly payments or bills from your bank account
plastic payments electronic payments (not involving cash, checks, or credit cards), online payments (banks and internet companies make online bill payments), stored-value cards (prepaid cards, like for transit fares and school lunches), smart cards (cards containing a microchip to store information and prepaid amounts)
consider these things when evaluating financial services interest rates, liquidity, convenience, fees, minimum balances
FDIC insures accounts in federally chartered banks up to $250,000
deposit institutions commercial banks, savings and loan associations, mutual savings banks, and credit unions
mutual savings banks owned by depositors and specialize in savings accounts and mortgage loans; some offer other loans, too; sometimes charge lower interest on loans and pay higher interest on savings accounts
non-depository institutions life insurance, investment, and finance companies
life insurance companies provide financial security for dependents; also provide savings and investment features (like retirement planning services)
investment companies combine your money with funds from other investors to buy stocks, bonds, and other securities; manage these combined investments (called mutual funds)
finance companies make higher-interest loans to consumers and small businesses that cannot borrow elsewhere because they have below-average credit ratings
problematic financial businesses pawnshops, check cashing outlets, loan stores (payday loans), and rent-to-own centers
pawnshops make loans based on the value of tangible possessions; provide lending and shopping services; high fees and interest rates
check cashing outlets charge 1 to 20% of the face value of a check; do electronic tax filing, money orders, private postal boxes, utility bill payment, and sell transit tokens
payday loans aka cash advances, check advance loans, and delayed deposit loans; annual interest rates as high has 780%; used by workers who have high debt
rent-to-own centers stores that lease products to consumers who can own the item if they complete a certain number of monthly or weekly payments
consider when comparing financial institutions interest rate on savings, fees, ability to take out loans, free financial advice, insured, convenient, online services, other services you need
credit card plastic card with electronic strip that lets you spend money you don’t have
savings and loan associations specializes in mortgage loans and savings accounts
smart card plastic card with a microchip that stores information about account balances, insurance, and medical history
evaluate before choosing a financial institution alternatives
required for automatic payments to be made your authorization
on all checks before it can be deposited or cashed an endorsement
reconciliation accounts for differences between the bank statement and a checkbook balance
ATM transaction non-teller transaction and requires PIN
responsible for fraudulent debit card transactions issuer
credit union’s members common bond such as employment by the same company
are commercial banks for or non profit for profit
when a bank withdraws money from your account for a bill automatic payment
percentage of increase in value of savings from earned interest rate of return
type of service used if something is wrong with a check stop payment order
number of locations where a check will have the check number two
are credit unions for or non profit non profit
most common payment service checking
when you select a financial institutions, consider color of checks false
three things a direct deposit is electronic/automatic, convenient, efficient, safe
compound interest does not earn interest on interest false
what amount limit does the federal reserve set that a bank is not able to lend reserve requirement
when you recieve a check, endorse it as soon as you recieve it false (right before you deposit it)
frequency of compounding that earns you the most interest daily
type of financial institution that charges most money on mortgage loans finance companies
three types of endorsements blank, restrictive, special
type of account that takes several years to earn 50% return savings bonds
at an ATM you can transfer money and make deposits true
a for profit institution that offers all services is a savings and loan institution false (commercial bank)
ATMs allow deposits true
type of savings plan with penalty for early withdrawl CD
ATMs can write checks false
example of a non-depository institution insurance
things a check must have signature, check number, routing number, amount of money (in numbers and words), payee, printed name and address of depositor, date, account number, magnetic ink characters, reason (optional), name of financial institution
example of a business you should use caution with payday loan
ATMs allow withdrawls true
four types of savings plans savings account, certificate of deposit, money market accounts, and savings bonds
regular savings account ideal for frequent deposits and withdrawals, low interest, little or no minimum balance, monthly or quarterly statements in the mail; offered by commercial banks, savings and loan associations, and other institutions
CD investment strategies find the best rate, consider the economy when choosing a maturity date, never let your CD roll over, consider when you will need the money, consider creating several CDs that mature at different times
U.S. savings bonds Series EE can be purchased and have face values up to $30,000 at their maturity date; continue earning interest after the maturity date if not cashed in; low minimum deposit; guaranteed by the government; free from state and local taxes; low rate of return when cashed in before maturity date
how banks make money by making loans
consider when evaluating savings plans rate of return, inflation, tax considerations, liquidity, restrictions, and fees
inflation compare the rate of interest with the rate of inflation; interest increases when inflation increases
tax considerations taxes reduce the interest earned on savings; find tax-exempt or tax-deferred savings plans
liquidity determine penalties for early withdrawals; use liquid accounts if you need to withdraw often; use higher interest, less liquid saving plans for long-term savings
safety choose federally insured savings plans (FDIC)
restrictions and fees be aware of delays between earning interest and having it in your account, and fees for making deposits and withdrawals; learn about service charges
three types of checking accounts regular, activity, and interest-earning
regular checking account most have no minimum balance, but charge a service fee if there is one and you fall below it
activity checking account good if you only write a few checks each month and can’t maintain a minimum balance; charges a fee for each check and deposit
interest-earning checking account combination of checking and savings accounts; pay interest if you maintain a minimum balance
consider when evaluating checking accounts restrictions (minimum balance, number of checks per month), fees and charges (service charges), interest (rates, compounding), special services (ATMs, online banking, overdraft protection)
opening a checking account decide if you want a individual or joint account, apply
writing checks log it in your check register; write the date, name of payee, amount in numbers, amount in words, signature, reason
making deposits fill out a deposit ticket, endorse the check you are depositing (don’t do it until you are ready to cash or deposit the check)
blank endorsement signature
restrictive endorsement signature and restriction (for deposit only)
special endorsement signature and pay to the order of
check clearing system that ensures the money you deposited in the account is available for withdrawal
things on a bank statement deposits, checks written, ATM withdrawals, debit card charges, interest earned and fees
other payment methods certified check (personal check with a guaranteed payment), cashier’s check or money order (pay amount of the check plus a fee), travelers checks (allows you to obtain cash in a country’s currency, sign when you purchase and cash them, if they are stolen it can be replaced)

Leave a Reply

Your email address will not be published. Required fields are marked *