W!SE - Banks and Banking

If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the--

• US Treasury Department.

• Federal Deposit Insurance Corporation. (FDIC).

• State Banking Commission

• Federal Reserve Board.

Answer explanation

In order to track large deposits, the federal government requires that deposits of $10,000 or more be reported to the Treasury Department. Some concerns may be that a person might be trying to avoid paying taxes on game winnings or perhaps illegal gains.

Travelers checks, often used for vacations:

• Are equivalent to credit cards

• Are free at most banks

• Function as cash and are easily replaced if lost

• Are FDIC insured

Answer explanation

Traveler's checks are documents that function as cash, can be replaced if lost or stolen, and are generally accepted throughout the world. For these reasons, they are often used on vacations and other trips. The purchaser signs a traveler's check immediately after purchasing it and again when paying for a purchase with it.

Troy has $50 a month transferred electronically from his checking account to his savings account. This is an example of:

• An installment payment

• A savings plan

• An ATM transaction

• A debit card transaction

Answer explanation

When a consumer requests that his or her bank or credit union electronically transfer money from a checking account to a savings account every month, it is a (forced) savings plan. If you manage your checking account so there are always enough funds to cover the transfer, a forced savings plan is a good option because you avoid the problem of not making regular deposits in your savings account and spending the money instead. Starting a (forced) savings plan with automatic deposits is one way to do what is known as "paying yourself first."

The term used to describe the ease and speed with which you can convert savings or an investment to cash is:

• Convertibility

• Principal

• Liquidity

• Rate of return

Answer explanation

The ease and speed with which you can convert savings or an investment to cash is called liquidity. Checking and statement savings accounts are highly liquid because deposits and withdrawals can be made at any time. A certificate of deposit has less liquidity because it has a fixed term - a period during which money must be kept on deposit. There can be substantial penalties for cashing in a certificate of deposit before the end of its term, perhaps losing up to three to six months' interest.

Frankie's savings account has earned a lot of interest. He wants to know if he must pay taxes on the interest earned. What would the IRS tell him?

• Interest earned on savings accounts is not taxable

• A sales tax will be charged on the interest earned

• Savings account interest is taxable

• If the interest is under $50, it is not taxable

Answer explanation

Savings account interest is taxable. If Jerry's total

earnings, including savings account interest, are

high enough that he must pay income tax on

Pat has a savings account and a car loan from a not-for-profit financial institution owned by its members. She is probably a member of what type of financial institution?

• Credit union

• Commercial bank

• Savings and loan association

• Investment club

Answer explanation

Credit unions are not-for-profit savings and lending financial institutions. Membership in a credit union is made up of individuals who have something in common, such as a place of employment, membership in a professional organization, or residence in the same geographic area. Loans are made to its members from the savings of other members. Loan costs tend to be lower and savings interest rates higher at credit unions than at other types of financial institutions.

Which financial product may pay a dividend?

• Savings account

• Money market account

• Certificate of Deposit

• Common stock

Answer explanation

All of these types of accounts and financial products except for common stock earn interest. Some companies declare and pay dividends to their common stock shareholders.

The best reason for depositing money in a bank or credit union savings account instead of keeping your money "under the mattress" is that:

• Money deposited in savings accounts are F.D.I.C. insured

• Most savings accounts earn a guaranteed rate of interest

• Most savings accounts come with a free credit card

• Money in a savings account can be accessed any time during the day or night

Answer explanation

Deposits in virtually all banks or credit unions earn interest. Banks send statements showing all deposits, withdrawals, and current account balances each month. Money earns a higher rate of interest in a savings account than in a checking account that pays interest. Money is easy to withdraw from a checking or a savings account. Money kept "under the mattress" could be stolen or lost in a fire and does not earn interest.

The National Credit Union Administration (NCUA) insures accounts in:

• Credit unions

• Commercial banks

• Brokerage firms

• Savings banks

Answer explanation

The National Credit Union Association (NCUA) insures each depositor's accounts up to $100,000 in one credit union. For example, if a customer has a checking account of $1,000 and a savings account of $8,000 in the same credit union, the customer will have total insurance coverage of $9,000.

Which financial product can you buy for $25, is safe, and will be worth $50 at a future date?

• Series EE savings bond

• Certificate of deposit

• 50 shares of ABC Co. stock

• ABC Co. bond

Answer explanation

Series EE savings bonds, which are issued and backed by the U.S. Treasury, are purchased for one-half of their face value. These bonds earn interest monthly, and a $50 Series EE bond, which is purchased for $25, is guaranteed to reach face value within 17 years, and may reach face value sooner.