1. Chapter 5

2. Learning Objectives (part 1 of 2) Discuss the issues in deciding how much liquidity a person should hold Name the various depository institutions and explain how they differ Describe the different types of checks Discuss the effect of different types of endorsements on a check

3. Learning Objectives (part 2 of 2) Describe the process for resolving a "bad" check Discuss various aspects of deposit insurance Describe the various types of savings bonds Describe the various types of money market assets an investor might purchase

4. How much liquidity should be held? Most planners suggest 3 – 6 months Depends on a variety of factors Ability to lower standard of living Current level of indebtedness Ability to borrow against existing assets Ability to find a new job quickly

5. Depository Institutions Providing Liquidity Commercial banks Savings and Loans Mutual savings banks Credit Union Field of Membership

6. Types of Checks Personal Check Cashier’s (or bank) check Traveler’s check Money order

7. Types of Endorsements Bank Endorsement Signature only Special Endorsement Payable to Greg Tobey Restrictive Endorsement For Deposit Only Qualified Endorsement

8. Writing a Bad Check Insufficient funds Correctible with payment of penalties and fees Fraud

9. Errors in Writing Checks Having the amount in dollars and the amount in words differ The figure in words is binding Failure to enter a date Not necessary for processing Failure to sign the check May be processed without signature

10. Standard savings vehicles Savings account Certificates of deposit Money market deposit accounts

11. Who Provides Deposit Insurance? Federal Deposit Insurance Corporation (FDIC) Bank Insurance Fund (BIF) Savings Association Insurance Fund (SAIF) National Credit Union Share Insurance Fund (NCUSIF)

12. How Deposit Insurance Works Institution pays the premium Based on name on the accounts, not per account Currently $100, 000 per account name

13. Other Savings Vehicles Savings Bonds (Series EE, HH, and I) Treasury Bills, Notes, and Bonds Money Market Mutual Funds

14. Series EE Savings Bonds Rreplaces old Series E Interest accrues Interest rate adjusted May 1 & Nov. 1 Interest exempt if used to pay education expenses Purchased for ½ of face value

15. Series HH Savings Bonds Replaces old Series H May be bought by rolling over E or EE bonds Interest paid semiannually Interest rates reset on 10 th anniversary of purchase

16. Series I Savings Bonds Pays a low fixed rate, plus an inflation premium Inflation rate adjustment reset in May and November Lowest possible rate is zero (in case of deflation) Restrictions on early redemptions

17. Buying Treasure Securities Secondary Market (through a broker) Open an account at a Federal Reserve Bank Competitive bids Non competitive bids

18. Money Market Mutual Funds Hold extremely safe money market instruments Price of shares market to $1 each day for ease of use Can treat like a checking account

19. Money Market Instruments Treasury bills Commercial Paper Negotiable CDs Banker’s Acceptances Repurchase Agreements