Personal Finance-Chapter 5

Mistakes made frequently when managing current cash needs (4) 1.) Overspending as a result of impulse buying and using a credit card2.) Having insufficient liquid assets to pay current bills3.) Using savings or borrowing to pay for current expenses4.) Failing to put unneeded funds into an interest-earning savings acct
Types of financial services (4) SavingsPayment servicesBorrowingOther financial services-insurance, investments, tax assistance, fin.planning, for example, a TRUST that manages and controls assets by one party for the benefit of another
Trust manages and controls assets by one party for the benefit of another
asset management account aka cash mngment acct, provides complete financial services for a single fee
ATM aka cash machineautomatic teller machine-provides various bank activities such as buying transit passes, post stamps or gift certificates as well as withdraw cash or deposit checks
debit card aka cash cardactivates ATM transactions/used for purches
credit card borrow money to pay
Deposit institutions serves as intermediate b/n suppliers (savers) and users (borrowers)
Common Deposit institutions (4) 1.) commercial banks2.) savings and loan associations (S&L’s)3.) Mutual savings banks4.) Credit Unions
Commercial Banks offers full range of financial services to individuals, businesses and govt agencies
Savings and Loan associations financial institution that traditionally specialized in savings accounts and mortgage loans
Mutual savings banks owned by depositers and specializes in savings accounts and mortgage loans
credit union user-owned, nonprofit, cooperative financial institution that is organized for the benefit of its members
nondeposit institutions offer various financial services, i.e. life insurance companies, investment companies (mutual funds/Money market funds), brokerage firms, credit card companies, finance companies
life insurance companies life and retirement insurance/investment purposes
investment companies mutual funds-offer money market fund. use money of investors to purchase a variety of short term financial instruments. NOT covered by federal deposit insurance
money market fund a fund that pools money from small savers to purchase short-term government and corporate securities (financial instruments)
Brokerage firms serve as agent b/n seller and buyer for stocks, bonds and other investment securities. make earnings through fees and comissions
Credit card companies specialize in funding short term retail lending
Finance companies provide loans to consumers and small businesses
mortgage companies organized to provide loans for buying homes
types of problematic financial businesses (4) pawnshops, check-cashing outlets, payday loans, rent to own centers
pawnshops Make loans based on tangible possessions
check-cashing outlets people who don’t have bank accounts can go here to cash paychecks and other financial services.
payday loans a loan where a borrower gets a cash advances based on his paycheck
rent-to-own An arrangement whereby consumers rent something (often furniture), making regular rental payments, and become owners of the rented object(s) after a specified period of time–sometimes automatically and sometimes with an additional payment. A legal business but very costly to consumers.
Savings account An account you have at a financial institution that helps you accumulate and save money and earn a small amount of interest at the same time, usually with a low or no minimum balance. withdraw freely
Certificate of Deposit is a time deposit that requires you to leave your money in a financial institution for a set amount of time
Types of CDS rising rate/bump up CDs-higher rates at various intervalsstock indexed CDs-earnings based on stock marketCallable CDs-higher rate and long term maturities, but the bank may ‘call’ the account after a stipulated period, such as one or two years, if rates dropPromotional CDs-attempt to attract savers with gifts or special rates. ex, watches, equiptment or inflatable boats in lieu of interest
Rolling over a CD purchasing new one at maturity
money market account a savings account that requires a minimum balance and earns interest that varies from month to month
Savings BOnds bonds issued by the federal government; purchased at half of face value and go up in value
EE bonds issued in face amounts from $50 to $30,000 at a cost of 50% of their face amount. Therefore, these bonds are purchased at a discount, safe
HH bonds available to investors in face values from $500 to $10,000. They are not discounted and pay a fixed rate of interest
I bonds A fixed rate of return and a variable semiannual inflation rate (based on CPI-U for March and September) are combined
Rate of Return The return on an investor’s capital. Also called Yield. Expressed in a percentage
Compounding The accumulation of a sum of money in, say, a bank account, where the interest earned remains in the account to earn additional interest in the future
inflation a general and progressive increase in prices
liquidity being in cash or easily convertible to cash
FDIC Federal Deposit Insurance Corporation: A federal guarantee of savings bank deposits initially of up to $2500, raised to $5000 in 1934, and frequently thereafter; continues today with a limit of $100,000
SAIF Saving and loan accounts are insured by ____ from FDIC
NCUA National Credit Union Administration: the federal agency that charters and supervises federal credit unions and insures savings in federal and most state-chartered credit unions across the country through the National Credit Union Share Insurance Fund (NCUSIF), a federal fund backed by the full faith and credit of the US.
annual percentage yield tells you how much interest a financial institution would pay on a $100 deposit for one year

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