Banking Wrap Up II

Banking Wrap Up II

Banks vs. Credit Unions

Banks - for profit; owned by companies; FDIC insured

Credit Unions - not-for profit; member-owned & run; FCUA insured

Advantage Credit Union - better rates and lower fees

Disadvantage of credit union - must qualify to become a member

Multiple Choice

If you have $300,000 in savings, how much of it will be insured by the FDIC or NCUA?

• all of it

• 10,000

• 250,000

• 100,000

Deposits of $10,000 or over

• Banks must be report to US Treasury Department - to the IRS.

• Why? Keep a lookout for fraud or suspicious activity

• Is a federal law - 1970-The Bank Secrecy Act

Key to Saving

• Starting early is a big advantage

• Example: If you start with $10,000 compounded monthly at 3% APR for 30 years, your balance would be A = 10,000(1 + 0.03/12)^(12*30) = $24,568

• If you start with $10,000 compounded monthly at 5% APR for 10 years, your balance would be $16,470

Multiple Choice

What is the advantage of starting your savings early?

• You won't spend that money until later.

• Compound interest will have longer to build upon the principal.

• You might get a higher interest rate.

• Your money is worth less today than tomorrow.

Time Value of Money

• A concept that money available now is worth more than the same amount in the future because of its potential earning capacity.

• Depends on the interest rate and inflation rate

• Interest rate will increase the money you have.

• Inflation will allow you to buy less with the same amount of money

Liquidity

• The term used to describe the ease and speed with which you an convert savings or an investment to cash.

Multiple Choice

Liquidity means

• can turn money into cash the quickest and easiest

• your money flows into one account an then another

Why is checking the most liquid?

• You can withdraw anytime.

• You can pay directly by checks, electronic bill pay, and debit card

Multiple Choice

Which type of account is the most liquid?

• checking

• savings

• certificate of deposit

• investments

Why is a CD the least liquid savings account?

• There is a time limit on CD's before you can make withdrawals.

• savings account: low risk; low reward; high liquidity

• Certificate of Deposit: low risk; medium reward; medium liquidity

• Money market account: low risk; medium reward, medium liquidity

• Savings accounts are more liquid because you can make withdrawals whenever you wish.

• However, the number of withdrawals a month is limited.

Multiple Choice

Which type of savings account is the least liquid?

• personal savings

• certificate of deposit

• money market account

Why only 6 withdrawals a month for savings accounts?

• Federal regulation

• Helps the banks with their reserve requirements

Multiple Choice

How many withdrawals can you make a month on a savings account?

• as many as you like

• 6 per month

Bank Checks, Money Orders and Certified Check

• Cashier's Check: you pay the bank the money and the bank writes the checks-must be done at a bank; must have a bank account

• Money order- you pay the store the money and they write a check; can be done at the US Post Office or different stores; don't need a bank account but fees are higher.

• Certified Checks-similar to a bank check but is written from your account; the bank certifies the money is in your account and can put a hold on your account until the money clears

Why use cashier's checks, money orders, or certified checks?

• For some big purchases or downpayments, businesses may require a written check BUT want "proof" you have the money and the check won't "bounce"

• Checks "bounce" when you do not have enough money in your account to cover the amount of the check.

Multiple Choice

What is the difference between a cashier's check (or bank check) and a money order?

• what account your money comes from

• who you purchase it from

• who will accept them

Free Checking refers to

• accounts that have certain criteria in order for you NOT to have a monthly fee

• May have minimum balance requirements

• May require you to have direct deposit set up

• You still would need to purchase checks

Multiple Choice

"Free Checking" means that no fees are charged and all expenses are covered

• True

• False

Overdraft Protection

• Banks can offer you overdraft protection; you must opt-in; not an automatic service

• You set up a secondary account to cover any overdrafts: savings and credit card are two options

• Advantage: can avoid overdraft fees and penalties and protect your credit

Multiple Select

What happens if your checking account goes below zero? (Select ALL that apply)

• You become what is called overdrawn.

• The bank could charge you a fee.

• The bank covers the difference free of charge.

• The business you paid without enough money could charge you a fee

Numbers at the bottom of a Check

• Routing number: identifies the BANK of your account

• Account Number: identifies your specific account

• Check Number: identifies the check used

• All of these are important for electronic check conversions.

Stop Payment Order for a Check

A stop payment is a formal request made to a financial institution to cancel a check or payment that has not yet been processed.

A stop payment order is issued by the account holder and can only be enacted if the check or payment has not already been processed by the recipient

The bank will charge a fee to put a stop on a check; therefore, used only when the amount is significant.

When might you use a stop payment order for a check?

• You wrote a check and mailed it but the recipient didn't receive it.

• You're worried that the check was lost or stolen.

• You wrote a check and realized too late that the amount was incorrect.

Multiple Choice

What can you do if a check you wrote goes missing?

• You can just write VOID in your check register to note that the check is missing.

• You can call the bank and ask for a STOP order.

Debit Cards

• Automatic withdrawal from your account

• If lost, if you report within two business days, you are only liable up to $50.00

• Be careful with the privacy of your PIN (personal identification number)

Multiple Choice

What would be the best way to choose a PIN for your debit card?

• Your birthdate

• A pet's name

• random digits

Emergency Funds...

• Pay yourself first - put money in savings before you spend the rest of your money or invest your money

• Emergency funds are for emergencies or unexpected expenses that may occur.

What are some other services a bank may provide?

• Bank Statement: bank prepares a statement of all deposits and withdrawal from your account so you can reconcile your account with your check registry.

• Online banking: enables you to set up automatic payments and check your account summaries and balances.

• Safe Deposit boxes: a secure box kept in the bank vault where you can keep valuables safe.

• Loans: personal, auto, home, etc.

Multiple Choice

Emergency fund should be an amount equal to how many months worth of income?

• 1 month

• 3-6 months

• 12 months (1 year)

• 36 months (3 years)

Multiple Select

What might one keep stored in a safe-deposit box? (Select ALL that apply)

• expensive jewelry

• important papers

• collector's items

• items you need everyday