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Managing Your Cash: Financial Services and Institutions Overview

Learn how to manage daily cash needs, use financial services for quick cash, types of financial services, electronic banking, plastic payments, and various financial institutions.

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Managing Your Cash: Financial Services and Institutions Overview

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  1. Personal Finance Chapter 5 Banking

  2. Financial Services and Institutions • How to Manage Your Cash • Daily Cash Needs • Lunch, movies, gas, or paying for other activities • Carry cash • Go to an ATM • Credit Card • Know pros and cons • ATM Fees • Risk of overspending, avoid impulse buying, & overusing credit cards 5-1

  3. Financial Services and Institutions • Sources of Quick Cash • For times when you need more than you have: • Savings or borrow money (loan) • Each one comes with a trade off • You may have immediate access to the funds you need but long term goals may be delayed • College, Car, or starting a new business 5-1

  4. Financial Services and Institutions • Types of Financial Services • Savings • Safe Storage of funds for future use • Essential for any personal finance plan • Time Deposit – Money that is going to be left in a financial institution for months or years. • Payment Services • Transferring money from personal account to a business or individuals for payment • Checking Account – Most common used payment service • Demand Deposit – Money you place in a checking account. Because you can withdraw it at any time. 5-1

  5. Financial Services and Institutions • Types of Financial Services • Borrowing (Credit) • Short Term – using a credit card or personal cash loan • Long Term – Apply for a mortgage or car loan • Other Financial Services • Insurance Protection • Stocks, Bonds, Mutual Funds • Income Tax Assistance • Financial Planning Services 5-1

  6. Financial Services and Institutions • Electronic Banking Services • Direct Deposit • An automatic deposit of net pay to an employee’s designated bank account • Instead of paper check employees receive printed statement that lists deductions and information about their earnings. • Saves, time, money and effort • Automatic Payments • On line bill paying • Can pay each company through an online bill service • Set up bill pay through your bank online. 5-1

  7. Financial Services and Institutions • Electronic Banking Services • ATM – Automated Teller Machine • A computer terminal that allows a withdrawal of cash from an account • Can also make deposits and transfer money • Where are ATM’s located? • To use you must apply for a debit card from your bank. • A cash card that allows you to withdrawal money or pay for purchases from checking or savings account. • ATM Fees – • Compare before opening an account • Use you banks ATM machines to avoid additional fees

  8. Financial Services and Institutions • Plastic Payments • Point of Sale Transactions • Using debit card to make purchases at retail stores, restaurants or elsewhere • Store Value Cards • Prepaid cards that you use for: • Bus or Subway • School lunches • Long distance phone calls

  9. Financial Services and Institutions • Types of Financial Institutions • Federal Deposit Insurance Corporation (FDIC): Protects deposits in banks • Insures each account in a federally chartered bank up to $250,000 per account. • Deposit Institutions • Commercial Banks: A for profit institution that offers a full range of financial services. • Checking, savings, and lending • Savings and Loans: Financial Institution that traditionally specializes in Savings accounts and Mortgages. • Mutual Savings Banks: Specializes in Savings accounts and mortgages • Usually lower interest rates, on mortgages, than commercial banks & Higher interest rates for savings accounts. • Credit Unions: Non profit financial institution that is owned by its members and organized for their benefit. • Labor unions, college alumni association.

  10. Financial Services and Institutions • Non-Deposit Institutions • Life Insurance Companies • Investment Companies • Stocks, bonds, mutual funds • Finance Companies • Make high interest loans to consumers and small businesses that have below average credit ratings. • Mortgage Companies • Loans for home purchase.

  11. Savings Plans and Payment Methods • Regular Savings Account • Ideal for frequent deposits and withdrawals • Interest you earn is low compared with other savings plans • Certificates of Deposit (CD’s) • Savings alternative where money is left on deposit for a stated period of time to earn a specific rate of return. • Money Market Accounts • Savings account that requires a minimum balance and earns interest that varies from month to month • May pay a penalty if balance goes below stated amount ($1000) • U.S. Savings Bond • Purchase from the Federal Government • Not taxed on interest earned until you cash it.

  12. Savings Plans and Payment Methods • Evaluating Savings Plans • Rate of Return • The percentage of increase in the value of your savings from interest earned • Compounding – The process in which interest is earned on both the principal (original amount) and previously earned interest. • Truth in Savings – Financial institutions must inform you of the following: • Fees on deposit accounts • Interest Rates • Annual Percentage Yield (AYP) – amount of interest that a $100 deposit would earn, after compounding, for one year. • Terms and conditions of savings plan

  13. Savings Plans and Payment Methods • Evaluating Savings Plans • Inflation • Compare rate of interest with rate of inflation • Tax Considerations • Taxes reduce the interest earned on savings • Liquidity • Know what the penalties are for making withdrawals from your account early. • Restriction and Fees • Know all the restrictions and fees before opening an account

  14. Savings Plans and Payment Methods • Types of Checking Accounts • Regular Checking Accounts • Usually no minimum balance • If there is a minimum balance make sure not to drop below it or you will be charged a monthly service charge. • Interest Earning Checking Account • Pay interest if you maintain a minimum balance.

  15. Savings Plans and Payment Methods • Evaluating Checking Accounts • Restrictions • Know what they are, most common is keeping a minimum balance • Fees and Charges • Monthly service charge • Check printing, overdrafts, and stop payments • Interest • The way interest is calculates and frequency of compounding. • Special Services • Overdraft Protection – an automatic loan made to an account if the balance will not cover a check

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