Chapter 21 10/11/ Banking & Credit

Saving Money 10/11/ Ways to save Credit union non-profit financial institution similar to a bank Passbook account you receive a booklet in which transactions are recorded Statement account you receive a computerized statement of monthly transactions Interest money that banks pay depositors for the use of their money Compound interest Interest is figured on the amount of money deposited plus interest accrued on initial deposit

10/11/ Savings bonds When you buy a U.S. savings bond, you are lending money to the government Each year the bond grows in value until it has matured You can then redeem, or cash it in for the full face value Money market deposit accounts Savings accounts offered by banks and require a high minimum balance Money is pooled with money from other savers and then invested You are paid a dividend or share of profits of a fund or organization CD’s Type of investment where you deposit an amount of money for a fixed amount of time at a stated interest rate Choosing a longer investment period often ensures a higher interest rate

Retirement plans 10/11/ Pension plans Retirement plan funded, at least in part, by an employer or union Pension builds up throughout a worker’s career Common types of pension plans Defined-benefit plan Your company pays you a fixed amount at retirement. You know before you retire what amount you will receive Defined-contribution plan (profit-sharing plan) Your employer contributes a set amount to the plan each year. The amount you receive at retirement depends on how much money has built up in the fund 401K plan You put a specific portion of your salary into the plan Employers often match this contribution, up to a specific percentage of salary Funds in 401K plans are invested in stocks, bonds, & mutual funds Money that accumulates in your 401K plan is tax-deferred (don’t pay taxes until you withdraw it)

10/11/ Individual retirement accounts (IRA) Personal retirement account into which you can put a limited amount of money yearly Earnings are not taxed until you retire You can invest up to $2,000/yr in an IRA Disadvantage – penalty is charged if you withdraw money before the age of 59 ½

Checking accounts 10/11/ Types of checking accounts Regular checking account Often requires no minimum balance Rarely earn interest Usually charged a monthly fee Managing your checking account Fill checks out completely & accurately Endorse (or sign) the back of checks that you are depositing into your account Direct deposit – electronic transfer of payment from a company to an employee’s bank account If your employer uses direct deposit, your employer will provide you with a voided check

10/11/ Keeping track of your account Overdraw- when you withdraw more than deposit Banks charge a high fee for overdrawn checks They may also send a check to the business that submitted it for payment, causing you embarassment Check register Small booklet for tracking your account Checks, deposits, fees, interest charges are recorded in the register Reconcile Comparing statement with register (balancing checkbook)

Other banking services 10/11/ Electronic funds transfer (EFT) Transfer of money from one bank account to another by electronic means rather than cash Examples include: ATM’s Debit cards

Online Banking 10/11/ Managing your money from your own computer or anywhere you can find online access Saves time & paperwork Safety precautions are in place to prevent computer hackers from accessing your personal account information (assigned a special ID & password)

Using Credit Wisely 10/11/ Credit card Issued by bank and allows the cardholder to charge amounts in many different places Credit limit Maximum amount you can charge against your account Charge accounts (Businesses) Only used at that store…ex. Lowe’s Loans Receive money from banks to make larger purchases (cars, mortgages) Installment loans Loan is paid back in regular monthly installments Loans are guaranteed by collateral (car, house)

Disadvantages of credit 10/11/ Finance charges Fee based on amount of money you owe Based on a particular interest rate Overusing your credit card Costs of credit Annual fees Finance charges (APR) Grace period – interest not charged during this period