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Investor Boot Camp – Financial Fitness 201

Investor Boot Camp – Financial Fitness 201. Presented by Glendale Public Library Instructors: Chuck Milliner and Annette Fisher. Calendar. April 25 Preparing to Invest May 2 Key Investment Concepts May 9 Bank Products and US Treasury Securities May 16 Common Types of Investments,

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Investor Boot Camp – Financial Fitness 201

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  1. Investor Boot Camp – Financial Fitness 201 Presented by Glendale Public Library Instructors: Chuck Milliner and Annette Fisher

  2. Calendar April 25 Preparing to Invest May 2 Key Investment Concepts May 9 Bank Products and US Treasury Securities May 16 Common Types of Investments, and Retirement Savings Vehicles

  3. Calendar May 23 Choosing the Right Investments May 30 Managing Investment Risk June 6 Evaluating Performance June 14 Investment Professionals and Safeguarding Your Investments

  4. Bank Products Two Main products Checking Accounts – also called transaction accounts, which allow you to transfer money by check or electronic payment to a person or organization Savings Accounts – also known as savings accounts, which pay interest on your money in those accounts

  5. Other Services Cashier’s checks Notary service Online banking and bill pay Lines of Credit Loans Investment accounts

  6. Safety in Banking: Commercial Banks are insured against loss by the Bank Insurance Fund (BIF) of the FDIC – Federal Deposit Insurance Company Savings and loans are insured through the Savings Association Insurance Fund (SAIF) of the FDIC

  7. Safety in Banking: Credit Unions are insured through the National Credit Union Share Insurance Fund (NCUSIF) which is administered through the National Credit Union Administration.

  8. What does the FDIC do? The FDIC –short for the Federal Deposit Insurance Corporation - is an independent agency of the United States government. The FDIC protects depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.

  9. What does the FDIC do? If a depositor's accounts at one FDIC-insured bank or savings association total $250,000 or less, the deposits are fully insured. A depositor can have more than $250,000 at one insured bank or savings association and still be fully insured provided the accounts meet certain requirements.

  10. Temporary Changes to FDIC Effective October 3, 2008, the basic limit on federal deposit insurance coverage was temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009. On January 1, 2010, FDIC deposit insurance for all deposit accounts—except for certain retirement accounts—will return to at least $100,000 per depositor. Insurance coverage for certain retirement accounts, which include all IRA deposit accounts, was increased permanently to $250,000 per depositor in 2006.

  11. Temporary Changes to FDIC On October 14, 2008, the FDIC announced its temporary Transaction Account Guarantee Program, providing depositors with unlimited coverage for noninterest-bearing transaction accounts if their bank is a participant in the FDIC’s Temporary Liquidity Guarantee Program. Noninterest-bearing checking accounts include Demand Deposit Accounts (DDAs) and any transaction account that has unlimited withdrawals and that cannot earn interest. Also included are low-interest NOW accounts that cannot earn more than 0.5% interest. Interest-bearing accounts include NOW accounts that can earn more than 0.5% interest, other interest-bearing checking accounts, Money Market Deposit Accounts (MMDAs), savings accounts, and Certificates of Deposit (CDs). This program is scheduled to end on December 31, 2009.

  12. FDIC Indicator at a Bank look for the official FDIC sign where deposits are received. Beginning in 2007, insured banks will display this new official FDIC sign:

  13. FDIC Covers: the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing.

  14. FDIC doesn’t cover: money invested in stocks, mutual funds, life insurance policies, annuities, or municipal securities, even if these investments were bought from an insured bank. U.S. Treasury bills, bonds, or notes. These are backed by the full faith and credit of the United States government.

  15. How much insurance coverage? The basic insurance amount is $250,000 per depositor, per insured bank. The $250,000 amount applies to all depositors of an insured bank. Deposits in separate branches of an insured bank are not separately insured Deposits in one insured bank are insured separately from deposits in another insured bank.

  16. How much insurance coverage? Deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $250,000 at one insured bank and still be fully insured.

  17. Examples – Go to Web Page http://www.fdic.gov/deposit/deposits/insured/ownership.html Review Single and Joint

  18. FDIC pays when? • Federal law requires the FDIC to make payment as soon as possible. Historically, the FDIC pays insurance within a few days after a bank closing either by establishing an account at another insured bank or by providing a check. • Deposits purchased through a broker may take longer to be paid because the FDIC may need to obtain the broker's records to determine insurance coverage.

  19. FDIC pays when? Customers with uninsured deposits receive the insured portion of their account as described above. They will wait longer to receive payment for some or all of their uninsured deposits. The amount of uninsured deposits they may receive, if any, is based on the sale of the failed bank's assets. Depending on the quality and value of these assets, it may take several years to sell the assets. As assets are sold, uninsured depositors receive periodic payment on their uninsured deposit claim.

  20. Checking Accounts • Write checks • Online Bill Pay • Transfer Funds • Debit Card • ATM withdraws

  21. Types of Checking Accounts Basic Lifeline Free Checking Interest Bearing NOW – Super Now Express No-Frills Credit Union Share Drafts Relationship Accounts

  22. Basic Checking Basic checking accounts let you deposit and withdraw money and write checks to pay bills and daily expenses. They are perfect if you don't plan to keep a high account balance. The details of basic checking accounts are different for each financial institution

  23. Lifeline Checking Bare bones, low-cost for qualifying low-income customers This type of checking accounts waive many of the fees banks may charge, such as monthly service fees for low balances and surcharges for ATM usage.

  24. Lifeline Checking Lifeline checking accounts are meant for low-income bank customers. Lifeline accounts have low: • Minimum deposit and balance requirements. • Monthly fees, ranging from zero to $3 depending on the bank. • Limits on the number of checks per month that you can write. Certain states have laws requiring banks to offer lifeline accounts. Currently, those states are: Illinois, Massachusetts, Minnesota, New Jersey, New York, Rhode Island and Vermont.

  25. “Free Checking” A way to reduce fees Typically require you to maintain a minimum balance in your account Fees for ATM and check fees are eliminated

  26. Interest-Bearing Accounts Earn Interest on your account • Usually require more money to open • A high minimum balance or you will be charged fees • Interest paid monthly Be aware, the fees for falling below the minimum balance may be more than the interest you earn

  27. Now Accounts A NOW account (Negotiable Order of Withdrawal) is a "Free Checking" and an interest-bearing account offered by a savings and loan or "thrift" institution. Super Now has a higher interest rate and a higher minimum balance.

  28. Express Checking Express checking accounts are designed for people who are on the move and who don't go inside the bank often. These people prefer to bank by ATM, telephone or computer.

  29. Express Checking Usually offer: Unlimited check writing Low minimum balance requirements Low or no monthly feesNote: There is a catch. When you do visit a bank branch, you can expect to pay a fee to talk to a teller on either a per visit or a monthly basis.

  30. “No-Frills” Checking Many banks offer special checking deals if you are age 55 or over or if you are a student.

  31. “No-Frills” Checking The benefits may include: Free personal checks Free cashiers or traveler's checks Wider ATM use Better rates on loans and credit cards Discounts on a variety of items including travel or prescriptions

  32. Credit Union Share Drafts Most Credit Unions offer checking accounts, called Share Drafts, often with no service charges or reduced fees.

  33. Relationship Accounts These accounts link all the accounts you have with the bank. They typically offer free checking and ATM withdrawals along with other banks services if your combined balance is high enough.

  34. Questions to Ask: Does the financial institution: Pay interest on a basic checking account?Note: Most basic checking accounts do not pay interest. Require direct deposit or a minimum balance? Charge a monthly fee for services? Charge a fee for each check you write over a certain limit?

  35. Questions to Ask: Does the financial institution: Charge fee for online bill pay? Charge fee for ATM at other banks? Charge fee to download transactions? Is there a charge for using your debit card to pay for a purchase? Is overdraft protection available?

  36. Checking Do’s and Don’ts The Golden Rule of Checking Accounts: Only write checks for money you have in your account. If you remember nothing else, following this rule will help you the most in keeping your account in good standing.

  37. Tips to be a Smart Bank Customer Regularly balance your checkbook. Use the telephone, Internet, or ATM to get the most current information about your account. Ask your bank about their fees so that you are not surprised when you get your statements Don't get caught "floating". Use overdraft protection.

  38. Common mistakes to avoid • You forgot to stop automatic payments from being taken out before you closed your account. • You close your checking account by letting it go to a zero balance. • A check you deposit in your account does not clear or bounces, causing the account to go into overdraft. • You forgot about your recent ATM (or other) withdrawals. • You co-signed on an account that was abused the other party.

  39. Common mistakes to avoid • You gave your PIN (Personal Identification Number) to someone else and they took funds from your account. • You post-dated a check and it was cashed too early. • Your checks get lost or stolen. • You're not receiving statements or correspondence from your financial institution. • Account or handling error by the financial institution.

  40. Overdraft Protection Checking linked to savings account Line of credit Credit card charge Banks may cover amounts and still charge a fee. They usually pay the clear the largest check first and then you get charged a fee for the smaller ones.

  41. Deposit Accounts Savings Money Market Accounts Money Market Mutual Funds Certificates of Deposit

  42. Savings Accounts Usually low minimum balance to maintain. Usually no fees Allows frequent deposits and withdrawals May impose limits on transfers Earn compound interest (APY)

  43. Money Market Accounts Minimum Balance Tiered Interest Rates based on size of the account Write limited number of checks – usually three Can withdraw in person FDIC Insured

  44. Money Market Mutual Funds Similar to money market accounts • Pay interest at about the same rate • May offer check writing privileges • Usually no limit on number of checks – but may need to be a minimum amount $500 Not FDIC Insured and could lose some principal

  45. Certificates of Deposit Fixed Term Can rollover at maturity Less liquid than savings accounts Penalty if cash early Pay higher interest rates FDIC Insured Consider laddering

  46. Brokered CD’s Although most individuals purchase CDs directly from banks, many brokerage firms and independent salespeople also offer CDs. These individuals and entities – known as “deposit brokers” – can sometimes negotiate a higher rate of interest for a CD by promising to bring a certain amount of deposits to the institution. The deposit broker can then offer these “brokered CDs” to their customers.

  47. Picking a CD Think about your Financial Goals Find out when the CD matures Investigate any call features Confirm the interest rate you’ll receive and how you’ll be paid Ask whether interest rate ever changes Research any Penalties for Early withdrawal

  48. Investigate any call features Potential Pitfall – Do you understand the difference between a CD’s call period and maturity date? Don’t assume that a "federally insured one-year non-callable" CD matures in one year. It doesn't. These words mean the bank cannot redeem the CD during the first year, but they have nothing to do with the CD's maturity date. A "one-year non-callable" CD may still have a maturity date 15 or 20 years in the future.

  49. Special Consideration for Brokered CD’s Thoroughly Check out the Background of the Deposit Broker Identify the Issuer Ask about your Deposit Broker’s Record-Keeping Find out what would happen if you needed to withdraw your money early Decide if higher risk is worth higher rates

  50. Check out Bank Rates http://bankrate.com

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