Money Matters - Chapter 5: The Banking System

You only need to do bank reconciliation once a year.

• True

• False

Answer explanation

No one would ever wait a whole year to reconcile. As the book states...

"With today’s modern checking account, you may wish to access the account online and manage it daily, checking items added and deducted."

Which of the following is the most liquid?

• your U.S. Savings Bond

• money you have invested in an annuity

• the money in your checking or savings account

Answer explanation

Only the money in your checking and savings accounts can be withdrawn quickly, easily and without penalty. This is NOT true of the other choices.

Overdraft protection for checking accounts is automatically provided at no cost by most U.S. banks.

• True

• False

Answer explanation

Most banks will charge you a fee for overdraft protection.

U.S. Savings Bonds are considered to be a safe form of saving because...

• the U.S. government pays a guaranteed minimum rate of interest on them.

• they are provided free to people without jobs so they can afford healthcare.

• the government saves them in a safe deposit box then mails them to your spouse and children when you die so that your family can afford to pay for your funeral.

Answer explanation

The government pays a guaranteed minimum rate of interest on U.S. Savings Bonds. That's why they are SAFE. The other options are completely false.

When reconciling a bank statement, the amount of outstanding checks is...

• added to the bank statement balance

• deducted from the bank statement balance

• deducted from the check register balance

Answer explanation

You must add up the amount of all your outstanding checks, which means those that are written in your check register but do NOT yet show on your bank statement. Then you deduct that amount from your bank statement balance.

The words "For deposit only" are included in which type of endorsement?

• restrictive

• blank

• special

Answer explanation

Any time the word "only" is included, it means it is a RESTRICTIVE endorsement.

Paying bills online is fast and convenient, but much riskier than sending checks through the mail.

• True

• False

Answer explanation

Paying online is way less risky because if you send checks through the mail, they could get lost or stolen.

On-line only banks are subject to the same laws and regulations as traditional banks, but online-only bank accounts are not insured by the FDIC.

• True

• False

Answer explanation

Online banks are subject to all of the SAME government regulations and protections as traditional banks.

What is computed on principal once during a certain time period and can be calculated using the following formula:

I= Principal (P) X Rate (R) X Time (T)?

• An annuity

• simple interest

• compound interest

• an individual retirement account (IRA)

Answer explanation

You multiply Principal X Rate X Time, to calculate SIMPLE INTEREST.

Checks written that have not yet been processed by the bank are called what?

• outstanding checks

• deposits in transit

• bounced checks

• Non Sufficient Funds (NSF)

Answer explanation

...and remember: you must subtract the total amount of your OUTSTANDING CHECKS from your bank statement balance.