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.
1. Checking Accounts = Demand Deposits
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.
2. Savings Accounts = Time Deposits
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
Money Market Mutual Funds
18.
Primarily offered by brokerage firms; consolidate financial
activities
Not covered by deposit insurance (protected by SIPC); open
market
Interest bearing; check writing privileges
Asset Management Accounts
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.
Electronic Funds Transfer Act of 1978
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.
Earning Interest on Your Money
26.
Nominal rate the named or stated rate of interest.
Effective rate the annual rate of return actually earned.
Earning Interest on Your Money If interest is compounded more
frequently than once a year, the effective rate will be greater
than the nominal rate of interest.
27. Effective rate = Annual amount of interest earned Amount of
money invested
Example :
Invest $1000 at 5% for 1 year.
How Is Interest Calculated?
28.
If simple interest is used, there is no compounding:
How Is Interest Calculated?
Interest = Principal x rate x time
= $1000 x .05 x 1
= $50
29.
If compound interest is used and the compounding occurs
semiannually
How Is Interest Calculated?
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.
How Is Interest Calculated? Effective Rate = $50.63 $1000 = 0.05063
= 5.063%
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
How Much Interest Will You Earn? Time value of money concepts are
used in compounding to find interest earned.
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.
