Take Charge of Your Finances Family Economics & Financial Education Managing Your Cash Take Charge of Your Finances Family Economics & Financial Education

Did You Know? Small amounts saved and invested can easily grow into larger sums. If a person saved a dollar each day by not having a candy bar or soda, they would save $365.00 per year! If the $365.00 dollars was deposited into a certificate of deposit (CD) with 5.0% interest, the money could grow to nearly $400.00 in one year!

Cash Management Cash Management The daily routine of handling money to take care of individual or family needs.

Cash Management Effective cash management includes having available money for: Living expenses; Emergencies; Savings; Investing.

Cash Management Tool Cash Management Tool A financial account used to assist with daily cash management. Five types of cash management tools: Checking Account; Savings Account; Money Market Deposit Account; Certificate of Deposit; Savings Bond.

Checking Account Checking Account Tool used to transfer funds deposited into an account to make a cash purchase. Checking accounts may be non-interest or interest earning.

Checking Account continued Funds are easily accessed by: Checks; Automated teller machines (ATMs); Debit cards; Telephone; Internet. Features may include: Minimum balance requirements; Charge transaction fees; Limited number of checks written monthly. Reduces the need to carry large amounts of cash.

Savings Account Savings Account Account to hold money not spent on consumption. Interest bearing. Have a lower interest rate than other cash management tools Money may be accessed or transferred between accounts through: Automated teller machines; Telephones; Internet.

Savings Account continued Features may include: Allows for frequent deposits or withdrawals; Easily accessible; Money storage for emergencies or daily living; Available at depository institutions; May require a minimum balance or have a limited number of withdrawals.

Money Market Deposit Account A government insured account offered at most depository institutions. Have a minimum balance requirement with tiered interest rates. The amount of interest earned depends on the account balance. For example: a balance of $10,000 will earn a higher interest rate than a balance of $2,500.

Money Market Deposit Account continued Accessibility is usually limited to three to six transactions each month; Features of may include: Minimum amount required to open the account, often $1,000; If the average monthly balance falls below a specified amount, the entire account will earn a lower interest rate.

Certificate of Deposit (CD) An insured, interest earning savings instrument with restricted access to the funds. Found in depository institutions accepting deposits for a certain length of time. Interest rates vary depending upon specified time length. The longer the length, the higher the interest rate.

Certificate of Deposit continued Features may include: Range from seven days to eight years in length; Minimum deposits range from $100-$100,000; If funds are withdrawn before the expiration date, penalties are assessed; Low risk and no fees;

Savings Bond Savings Bond Discount bond purchased for 50% of the face value from the U.S. Government. Interest earned on a bond is tax exempt until redeemed. No taxes are due on interest earned. It will be tax exempt when redeemed if used for college expenses.

Savings Bond continued Access to funds is restricted Features of may include: Many different types available; Can be purchased for $25.00 - $10,000.00; A $100.00 bond would be purchased for $50.00. When the bond matures to $100.00, it can be redeemed.

Average Interest Earned Cash Management Tools Tool Average Interest Earned Purchase Place Special Features Checking Account 0% Commercial Banks, Savings & Loan Associations, Credit Union Can be used in place of cash, funds can be easily accessed Savings Account .5% Easily accessed, temporary holding place for funds Money Market Account 1.5% Minimum balance, limited transactions, tiered interest rates Certificate of Deposit .27% - 2.8%, depending on the length of deposit Commercial Banks, other institutions which accept deposits for a fixed period Penalties for early withdrawals, no deposits or withdrawals are made after initial investment Savings Bonds .10% - 5.4%, depending on the length of bond Commercial Banks, Credit Unions, employer payroll deduction plans Tax advantages, a loan to the federal government

Liquidity Liquidity How quickly and easily an asset can be converted into cash. Investors should: Invest in both liquid and non-liquid tools. Liquid assets are important for emergencies when cash must be quickly accessed. Cash management tools are protected by the U.S. Government against loss.

Liquidity Checking Account Most Liquid Savings Account Money Market Deposit Account Certificate of Deposit Savings Bond Least Liquid

Low Risk These five cash management tools are low risk: Insures the funds so the consumer does not lose money on the investment. However, they have lower interest rates. Causes low returns

Investment Risk Pyramid Speculation Increasing safety of principal Increasing potential for higher returns Growing risk of loss of purchase power Growing risk to investor’s capital Growth Safety and Income Financial Security (Cash Management Tools)

Summary Cash management is a daily routine of handling money to have enough funds for: Living expenses; Emergencies; Savings; Investing.

Summary Five types of cash management tools: Checking account; Savings account; Money market deposit account; Certificate of deposit; Savings bond.

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