Download - Gj11e ch04
Transcript
- 1. CHAPTER 4 MANAGING YOUR CASH AND SAVINGS
- 2. Role of Cash Management in Personal Financial Planning
- Cash management deals with the routine, day-to-day use of liquid assets .
-
- Liquid assets consist of cash and other assets that can be converted easily to cash with little or no loss in value.
- 3. Examples of Liquid Assets
- Cash
- Checking Accounts
- Savings Accounts
- Money Market Deposit Accounts
- Money Market Mutual Funds
- U.S. Treasury Bills
- EE Savings Bonds
- Certificates of Deposit (shorter-term)
- 4. The Financial Services Marketplace
- Financial products
-
- checking and savings accounts
-
- credit cards
-
- loans and mortgages
-
- insurance
-
- mutual funds
- Financial services
-
- financial planning
-
- tax preparation
-
- brokerage services
-
- real estate
-
- trusts
-
- retirement
-
- estate planning
- 5. Types of Financial Institutions
- Depository
- Nondepository
- 6. Types of Depository Financial Institutions
- Commercial Banks
-
- Largest type of traditional financial institution.
-
- Offer full array of financial services.
-
- Only type of financial institution that can offer noninterest-paying checking accounts.
- 7.
- Savings and Loan Associations
-
- Offer many of the same services as commercial banks.
-
- Typically pay slightly more on savings deposits.
-
- Channel depositors savings into mortgage loans for purchasing and improving homes.
-
- Some are mutual associations.
- 8.
- Savings Banks
-
- Similar to savings and loan associations.
-
- Located primarily in New England states.
-
- Offer interest-paying checking accounts.
-
- Typically offer savings rates similar to those of savings and loan associations.
-
- Most are mutual associations.
- 9.
- Credit Unions
-
- Provide financial products and services to specific groups of people who have a common tie.
-
- Qualified persons become members by purchasing a share of ownership.
-
- All are mutual associations; owned and sometimes operated by members.
-
- Typically pay interest rates higher than those of other financial institutions.
- 10.
- Internet Banks
-
- Offer online banking services.
-
- Feature lower fees and higher yields than brick-and-mortar banks.
-
- Suitable for people who do not need to physically go to a bank.
- 11.
- Types of Nondepository Financial Institutions
-
- Stockbrokerage firmsoffer cash management accounts, money market mutual funds, wrap accounts, credit cards
-
- Mutual fundsoffer money market mutual funds
-
- Life insurance companies
-
- Finance companies
- 12.
- How Safe is Your Money?
- Almost all financial institutions are federally insured by either:
- Federal Deposit Insurance Corporation (FDIC) insures accounts at banks, savings banks, and S&Ls.
- National Credit Union Administration (NCUA) insures accounts at credit unions.
- Both provide government insurance up to $100,000 per depositor.
- 13. Truth-in-Savings Act of 1993
- Helps consumers evaluate terms and costs of banking products.
- Fees, interest rates, and terms of both checking and savings accounts must be fully and clearly disclosed.
- Places strict controls on advertising and what constitutes a free account.
- Standard formula for annual percentage yield (APY) must used.
- 14. Cash Management Products
- With sufficient funds, banks must immediately pay the amount of your check or ATM withdrawal.
- 15.
-
- Funds are expected to remain on deposit for a longer time period than are demand deposits.
-
- Generally pay higher interest rates than demand deposits.
-
- At many institutions, the larger the balance, the higher the interest rate offered.
-
- 16. Types of Checking Accounts
- Regular checking accounts
-
- Offered by commercial banks
-
- Pay no interest
- Interest-bearing checking accounts
-
- Examples include NOW, share draft, and money market deposit accounts
-
- Offered by banks, savings banks, S&Ls, and credit unions
- 17.
-
- Offered by investment (mutual fund) companies
-
- Not federally insured; trade on open market
-
- Interest bearing; limited checks
-
- 18.
-
- Primarily offered by brokerage firms; consolidate financial activities
-
- Not covered by deposit insurance (protected by SIPC); open market
-
- Interest bearing; check writing privileges
-
- 19. Other Money Management Services
- Electronic Banking Services
- Electronic Funds Transfer Systems (EFTS) make possible
-
- ATM service
-
- Debit cardslinked to your checking account
-
- Pre-authorized deposits and payments
-
- Banking by phone
-
- Online banking and bill payment services
- 20.
-
- Regulates EFTS Services.
-
- States that errors must be reported within 60 days.
-
- Limit your losses by immediately reporting theft, loss, or unauthorized use of your card or account!
-
- 21.
- Other Bank Services
- Safe Deposit Boxes
- Trust Services provide investment and estate planning advice and management for trust accounts.
- 22. Maintaining a Checking Account
- Determine services needed.
- Consider costs involved.
- Keep track of checks written, automatic deposits, and ATM withdrawals.
- Dont write checks for more than you have in the account.
- Arrange for overdraft protection.
- Know how to stop a payment.
- Reconcile your account monthly.
- 23. Special Types of Checks
- When personal checks are not accepted, special checks can be used to guarantee payment.
- Cashiersdrawn on the bank.
- Travelersused for making purchases worldwide.
- Certifieddrawn on your account but guaranteed by the bank.
- 24. Establishing A Savings Program
- PAY YOURSELF FIRST : On payday, write yourself a check and deposit it into a savings account, or transfer a set amount to savings through your debit card.
- Establish an emergency fund.
- Regularly set aside funds for financial goals.
- Utilize direct deposits and automatic transfers.
- Choose instruments best suited to your goals and time horizon.
- 25.
- Simple Interest interest paid only on initial amount of deposit.
- Compound Interest interest paid at set intervals and added back to principal.
- 26.
- Nominal rate the named or stated rate of interest.
- Effective rate the annual rate of return actually earned.
- 27. Effective rate = Annual amount of interest earned Amount of
money invested
- Example :
- Invest $1000 at 5% for 1 year.
- 28.
- If simple interest is used, there is no compounding:
-
- Interest = Principal x rate x time
-
- = $1000 x .05 x 1
-
- = $50
- 29.
- If compound interest is used and the compounding occurs semiannually
- First 6 months' interest:
- $1000 x .05 x 6/12 = $25.00
- Second 6 months' interest: +
- $1025 x .05 x 6/12 = $25.63
- Total annual interest = $50.63
- 30.
- The nominal rate is 5%, the stated rate of interest.
- The effective rate is 5.063%.
- 31.
- Amount of interest earned depends on
- Frequency of compounding
- Balance on which interest is paid
- Interest rate applied
- 32. A Variety of Ways to Save
- Certificates of Deposit (CDs)
-
- Funds are to remain on account for a given time period.
-
- Early withdrawals incur an interest penalty.
- U.S. Treasury Bills
-
- Debt securities issued by the U.S. Treasury.
-
- Sold at a discount; $1000 minimum.
-
- Mature in 1 year or less.
- 33.
- A Variety of Ways to Save
- Series EE Bonds
-
- Purchased at 1/2 face value.
-
- Interest paid when bonds redeemed.
-
- Newly purchased bonds must be held at least 12 months; actual maturity date unspecified.
-
- Taxes not paid until bonds redeemed.
-
- Exempt from state and local taxes.
-
- If redeemed for educational purposes, income taxes may be avoided.