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Personal Finance. Chapter 5 Banking. 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

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personal finance

Personal Finance

Chapter 5

Banking

financial services and institutions
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

financial services and institutions1
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

financial services and institutions2
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

financial services and institutions3
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

financial services and institutions4
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

financial services and institutions5
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
financial services and institutions6
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
financial services and institutions7
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.
financial services and institutions8
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.
savings plans and payment methods
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.
savings plans and payment methods1
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
savings plans and payment methods2
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
savings plans and payment methods3
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.
savings plans and payment methods4
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