1. Chapter 5: Checking & Savings Accounts
Learning Objectives
List the tools of monetary asset management and identify the types of financial services firms that provide those tools.
Earn interest and pay no or low fees on your checking accounts.
Make use of the benefits of savings accounts.
Explain the importance of placing excess funds in a money market account.
Describe electronic money management.

2. Monetary Asset Management
How you handle your most liquid assets
(Cash and low-risk, near-cash items that can be readily converted to cash with little or no loss in value)
What financial institutions help us manage our money needs on a daily basis?
GOALS:
maximize interest earned
minimize fees paid
keep funds safe
keep funds readily available

3. The Three Tools of Monetary Asset Management
Low-cost, interest-earning checking accounts
Interest-earning savings accounts
Money market accounts
SEE PAGE 142 for accurate rates

4. Depository Institutions:
Organizations licensed to take deposits and make loans
Commercial Banks and Savings Banks
Government regulated
Deposits are insured by the FDIC
Credit Unions
Not-for-profit; owned by members
Deposits are insured by the NCUA
Other Services Providers:
Mutual Funds
Stock Brokerage Firms
Insurance Companies
Maximum insurance = $250,000 per account holder per institution
CONSIDERABLE OVERLAP among services provided!
See pg. 142
Difference between these and above?

5. Tool #1: Interest-Earning Checking Accounts
Interest-Earning Checking Account (NOW Account): to pay monthly living expenses
Tiered Interest
Can be accessed using debit card
At ATMs or POS terminals
Balance Requirements
Be careful of monthly fees!
3 Types of Overdraft protection: pg. 152
Automatic transfer from savings
Automatic overdraft loan from bank
Opt-in: bank charges $20-$30 for bounce protection
Beware of penalties and other fees!
Pg 147

6. Tool #2: Savings Accounts
Time Deposits rather than Demand Deposits
Used for emergency funds
Passbook / Statement savings account
Some Time Deposits are Fixed-Time Deposits: CDs
$100 to $100,000
7 days to 8 years
Insured by FDIC or NCUA
Fixed interest rate for entire term (usually)
Longer term CD => higher interest rates
Variable –rate, Bump-up, and Callable CDs
Not restricted to local institutions
Penalties if withdrawn before maturity
Is there risk with CDs?
CD Laddering, pg149

7. How to save: How do Americans rate as savers?
“Pay Yourself First”: build savings into your budget
Page 149

8. Institutions must use the APY as its interest rate in
What are the 4 most important factors that affect your savings?
Principle
Rate
Time
Frequency of Compounding
Institutions must use the
APY as its interest rate in
advertising

9. Comparing frequency of compounding:
Years
4.0%
6.0%
8.0%
10.0% 1
$1,040
$1,060
$1,080
$1,100 3
$1,125
$1,191
$1,260
$1,331 5
$1,217
$1,338
$1,469
$1,611 10
$1,480
$1,791
$2,159
$2,594
This $1,000 investment earns interest that is compounded on an annual basis (once per year):
Years
4.0%
6.0%
8.0%
10.0% 1
$1,041
$1,061
$1,082
$1,104 3
$1,127
$1,196
$1,268
$1,345 5
$1,220
$1,347
$1,486
$1,639 10
$1,489
$1,814
$2,208
$2,685
This $1,000 investment earns interest that is compounded on a quarterly basis (4x per a year):
APR vs. APY:

10. Tool #3: Money Market Accounts
Use when you have substantial excess funds
Interest-earning accounts with higher rates
A savings and checking (limited) tool
Money market deposit accounts (MMDA)
From depository institutions
Government insured
Min balance requirements; tiered interest rates
Money market mutual funds (MMMF)
From investment companies not depository institutions
Check-writing privileges; Highest rate of return for liquid assets
Funds buy mostly government securities: safe but not insured
Funds cannot be drawn from ATMs

11. Electronic Money Management
How we manage our money: Paper, Plastic, or Neither?
Electronic Money Management
Transactions without paper
Funds are transferred electronically ( EFT )
Debit Cards vs. Credit Cards?
Easy, but not always FREE! Beware of fees!
ATM fees
Overdraft fees
Hit debit button => PIN number = online transaction = fee
Hit credit button => signature = offline transaction = avoid fee

12. Electronic Banking and Safety Concerns
Fixing errors
Protections for lost/stolen cards
Within 2 days: $50
Over 2, less than 60 days: $500
Over 60 days: unlimited
The Psychology of Money Management
Decision-making
Opposites Attract!

13. How To Develop Money Sense in Children
Give an Allowance
Encourage Work
Talk About Family Finances with Children
Be a Role Model