Chapter 5
Financial Services Borrowing
Short Term Regular Savings Money Market Accounts Long Term Certificates of Deposit U.S. Savings Bonds Investment Services
Checking Account On-line payments Pre-authorized payments & Pay by phone Cashier’s Checks & Money orders
Credit Cards Loans for cars, education & debt consolidation Mortgages & Home Improvement loans Borrowing
Electronic Banking Services Direct Deposit Automatic Payments Automatic Teller Machines (ATM) Debit Cards Plastic Payments (Point of Sale Transactions)
Opportunity Cost of Financial Services Is a high interest rate on a certificate of deposit (CD) worth giving up liquidity? Would you trade the convenience of a nearby ATM for lower fees? Is it worth it to forgo interest in order to have no fees on your checking account?
Types of Financial Institutions Deposit Institutions Commercial Banks & Mutual Savings Banks Savings & Loan’s and Credit Unions Non-Deposit Institutions Life Insurance Companies Investment Companies Finance and Mortgage Companies
Comparing Financial Institutions Interest rates paid on savings Fees charged for checking and other services Can you borrow for the institution at a reasonable rate Do you need free financial advice Is it FDIC or SAIF insured Convenient locations & On-line services Any other services you need
Types of Savings Plans Regular Savings Certificate of Deposit Money Market Account U. S. Savings Bonds
Savings Alternatives Type of AccountBenefitsDrawbacks Regular Savings Low minimum Liquid Insured Low rate of return Certificate of deposit (CD) Rate guaranteed for the life of the CD Insured Penalty for early withdrawal Minimum Deposit Money Market Good rate Liquid Insured Minimum Balance No interest and possible fees if it falls bellow the minimum U.S. Savings Bonds Low minimum Government guarantee Free of state and local tax Long Term Lower rate when cashed before maturity
The percentage increase in the value of savings from earned interest. Compounding – interest is earned on the original investment (principal) and on any previously earned interest. Annual percentage yield (APY)-the amount of interest that a deposit would earn, after compounding, for one year
Other things to consider Inflation – will the rate of return exceed the inflation rate? Tax considerations – what is the rate after taxes have been paid? Liquidity – is there a penalty for early withdrawal? Restrictions and Fees – what is the time period? Is interest compounded? Are any fees involved?
Checking Accounts Regular Checking or Interest Earning Checking
Evaluating a Checking Account Restrictions Fees and other charges Interest Special Services – Overdraft Protection
Using a Checking Account Writing Checks Stop Payment order is a check is lost or stolen Making Deposits Reconciliation – matching your records to the bank statement.
How will you manage your accounts?