Personal Finance–Ch. 5

Flashcard maker : Lily Taylor
Monetary Asset (cash) Management
Encompasses how you handle all of your monetary assets, including cash on hand, checking accounts, savings accounts, money market accounts, and other short-term investment vehicles, and longer-term savings instruments.
Refers to the speed and ease with which as asset can be converted to cash.
Freedom from financial risk
Cash Equivalents
Funds are called this because they retain a constant or nearly constant value and because they have regular liquidity.
Financial Services Industry
Providers of monetary asset management services are collectively referred to as this.
Depository Institutions
Are organizations licensed to take deposits from and make loans to consumers, firms, or governments. They all can offer some form of government account insurance on their customer’s deposits and are government regulated. They offer a wide range of financial services.
Commercial Banks
Are corporations chartered under federal and state regulations. They offer numerous consumer services, such as checking, savings, loans, safe-deposit boxes, investment services, financial counseling, and automatic payment of bills.
Bank Insurance Fund (BIF) of the Federal Deposit Insurance Corporation (FDIC)
An agency of the federal government which insures state-chartered bank’s customers’ accounts.
Savings and Loan Association (S)
Focus primarily on accepting savings and providing mortgage and consumer loans. They offer checking services through interest earning NOW accounts.
Mutual Savings Bank (MSB)
Is similar to an S in that it also accepts deposits and makes housing and consumer loans. These banks are legally permitted in only 17 states, primarily those in the eastern U.S. The depositors own the institution and share in the earnings.
Credit Union (CU)
A not-for-profit cooperative venture that pools the deposits of its member owners, which are then invested or lent to those member owners. The members of these all share some common bond, such as the same employer, church, union, or federal association.
National Credit Union Share Insurance Fund (NCUSIF)
Provides the same safety as deposits insured by the FDIC, except for credit unions.
National Credit Union Administration (NCUA)
Administers the National Credit Union Share Insurance Fund (NCUSIF).
Deposit Insurance
Deposits in depository institutions are insured against loss of both the amount of deposit and the accrued interest by various insurance funds.
Mutual Fund
An investment company that raises money by selling shares to the public and then invests that money in a diversified portfolio of investments.
Stock Brokerage Firm
A licensed financial institution that specializes in selling and buying stocks, bonds, and other investment alternatives. Such firms provide advice and assistance to investors and earn commissions based on the buy and sell orders that they process for their clients.
Electronic Banking
Occurs whenever banking transactions are conducted via computers without the customer using paper documents or having face-to-face contact with financial services personnel.
Electronic Funds Transfers (ETFs)
Funds are shifted electronically (rather than by check or cash) among various bank accounts.
Automated Teller Machine (ATM)
Sometimes called a cash machine.
Automated Teller Machine (ATM)
A computer terminal located on the premises of a financial institution or elsewhere through which customers may make deposits (usually restricted to your own bank’s ATMs), make withdrawals, and complete other financial transactions just as they would through a human bank teller.
Point-of-Sale (POS) Terminal
Computer terminal located at a store or other merchant location that allows the customer to make purchases electronically via a debit card or credit card.
Debit (or Check) Card
A plastic card that provides instant access to your checking account; it is issued by the financial institution where the user maintains his or her checking account.
Smart Cards and Stored-Value Cards
Plastic payment devices that use built-in computer chips or magnetic strips to store data and handle payment functions.
Electronic Benefits Transfer (EBT)
Directs cash benefits to recipients using smart cards as the delivery mode. Recipients may include individuals who do not have bank accounts and those who do not receive their benefits by direct deposit. An organization “puts” a certain amount of money or credit on the plastic card, which is then used by the recipient to make purchases at POS terminals or to obtain cash from ATMs.
Disclosure Statement
When you sign up for electronic banking services, the depository institution must inform you of your rights and responsibilities in one of these in written form.
Periodic Statement
General protection of a customer’s account takes the form of this sent by the financial institution that shows all electronic transfers to and from the account, fees charged, and opening and closing balances.
Card Registration Service
Some firms sell this that will notify all companies where you have debit and credit cards in the event of loss. For $15 to $50 per year, you need to make only one telephone call to report all call losses.
Checking Account
At a depository institutions allows you to write checks against amounts you have on deposit, thereby transferring your deposited funds to other people and organizations.
Check Register
Where a written record of each check may be recorded.
Negotiable Instrument
An unconditional written promise to pay a specified sum of money as of a specific date to a specified payee or bearer.
Demand Deposits
Traditional checking accounts at commercial banks are technically known as this.
Lifeline Banking Account
Offers access to certain minimal financial services that every consumer needs–regardless of income–to function in our society. An application’s income and net worth determine acceptance.
Interest Earning Checking Account
Simply a checking account that pays interest to the depositor.
Negotiable Order of Withdrawal (NOW) Account
This checking account earns interest or dividends as long as minimum balance requirements are satisfied. This can be described as an interest earning checking account.
Share Draft Account
The credit union version of a NOW account. Its name arises because members of the credit union actually own the organization and their deposits are called shares.
Tiered Interest Rate
The combination of a base rate and a higher rate.
Minimum-Balance Account
The customer must keep a certain amount in the account throughout a specified time period (usually a month or a quarter) to avoid a flat service charge (usually $5 to $15).
Average-Balance Account
A service fee is assessed only if the average daily balance of funds in the account drops below a certain level during the specified time period.
Stop-payment Order
Tells your bank not to honor a check when it’s presented for payment.
Savings Account
Simply consists of current income that is not spent on consumption. Provides you with readily accessible sources of emergency cash and a temporary holding place for funds in excess of those needed for daily living expenses.
Time Deposits
Are savings expected to remain on deposit in a financial institution for an extended period.
Fixed-Time Deposits
Specify a period that the savings must be left on deposit, such as six months or three years; certificates of deposit fit this description.
Statement Savings Account
Using this account allows frequent deposits or withdrawals of funds. No fees are assessed as long as a low minimum balance is maintained. Holders of these are provided with printed receipts to document their account transactions, and transactions usually can be accessed via ATMs.
The process of writing on the back of a check to legally transfer its ownership, usually in return for the cash amount indicated on the face of the check.
Blank Endorsement
Contains only the payee’s signature on the back. Such a check immediately becomes a bearer instrument. It is wise to never do this to a check.
Bearer Instrument
Meaning that anyone who attempts to cash it very likely will be allowed to do so, even if the check has been lost or stolen.
Special Endorsement
Can be used to limit who can cash a check; to make this kind of endorsement, you write the phrase “Pay to the Order of [name]” on the back along with your signature. Can be used to sign a check over to another person.
Restrictive Endorsement
Uses the phrase “For Deposit Only,” written on the back along with a signature. It authorizes the financial institution to accept the check only as a deposit to an account. No one else can cash such a check.
Automatic Funds Transfer Agreement
The amount necessary to cover a bad check will be transmitted from your savings account to your checking account, as long as you keep sufficient funds in your account.
Automatic Overdraft Loan Agreement
The needed funds will be automatically loaned to you by your bank or charged to your Visa or MasterCard account.
Bounce Protection Agreement
The bank will honor checks written against insufficient funds up to a certain limit, such as $1,000. In return, the customer must pay a $20 to $30 fee for each overdraft check and has one week to repay the funds.
Account Reconciliation
You compare your records with your banks records, checking the accuracy of both sets of records and identifying any errors. The best time to do so is when you receive your monthly account statement from your bank.
Traveler’s Checks
Are issued by large financial institutions and sold through various outlets. They are accepted almost everywhere.
Money Order
A checking instrument bought for a particular amount. Usually written for relatively small amounts, and the fee charged is based on the amount of the order.
Annual Percentage Yield (APY)
Is a percentage based on the total interest that would be received on a $100 deposit for a 365-day period given the institution’s annual rate of simple interest and frequency of compounding.
Grace Period
The period during which deposits or withdrawals can be made and still earn the same interest as other savings from a day of the given interest period.
Money Market Account
Any of a variety of interest-earning accounts that pay relatively high interest rates (compared with regular savings accounts) and offer some limited check-writing privileges.
Super NOW Account
Government-insured money market account offered through depository institutions; it takes the form of a high-interest NOW account with limited checking privileges. The initial minimum deposit typically ranges from $1,000 to $2,500. If the average balance falls below a specified amount (such as $1,000), the account reverts to earning interest at the lower rate offered on a regular NOW checking account.
Money Market Deposit Account (MMDA)
Also a government-insured money market account offered through a depository institution. It has minimum balance requirements and tiered interest rates that vary with the size of the account balance. Institutions are allowed to establish fees for transactions and account maintenance, and account holders typically are limited to 3 to 6 transactions each month. Generally pay higher interest rates than super NOW accounts.
Money Market Mutual Fund (MMMF)
A money market account in a mutual fund investment company (rather than a depository institution). It pools the cash of thousands of investors and earns a relatively safe and high return by buying debts with very short-term maturities (always less than one year). Interest is calculated daily, and an investor can withdrawal funds at any time. These typically pay the highest rate of return that can be earned on a daily basis by small investors.
Asset Management Account (AMA)
Also known as an all-in-one account.
Asset Management Account (AMA)
Is a multiple-purpose, coordinated package that gathers most of the customer’s monetary asset management vehicles into a unified account and reports them on a single monthly statement.
Asset Management Account (AMA)
Also known as central asset accounts.
Certificate of Deposit (CD)
An interest-earning savings instrument purchased for a fixed period of time. The required deposit amounts range from $100 to $100,000, while the time periods range from seven days to eight years. The interest rate enforced when the CD is purchased typically remains fixed for the entire term of the deposit. Insured through the FDIC or NCUSIF (if thru CU).
Variable-rate Certificates of Deposit
These instruments pay an interest rate that is adjusted (up or down) periodically. Typically, savers are allowed to “lock in,” or fix, the rate at any point before their CDs mature. Of course, this variability detracts from the main virtue of the fixed-rate CD; predictability.
Bump-up CDs
Allow savers to bump up the interest rate once to a higher market rate, if available, and to add up to 100% of the initial deposit whenever desired.
Brokered Certificates of Deposit
Stock brokerage firms often buy CDs in volume to resell to individuals.
Series EE Savings Bonds
U.S. government savings instruments, available in denominations ranging from $25 to $10,000, that are purchased for 50% of their face value. Thus, one of these would be purchased for $50 and redeemed at maturity for $100. an example of a discount bond.
Discount Bond
A bond sold at less than its face value.
Series I Savings Bond
A variation of the Series EE bond; are not discount bonds, but instead are bought at face value. A fixed interest rate is set when the bond is purchased. An inflation rate is then added that is tied to the changes in the Consumer Price Index (CPI) rather than to the average rate for Treasury security issues.
Treasury Inflation-Protected Securities (TIPS)
Are similar to savings bonds. They are the only treasury security whose value increases as inflation occurs, so they guarantee that the investor’s return will outpace inflation. The principle is adjusted every six months according to the rise and fall of the Consumer Price Index (CPI).
Truth in Savings Act of 1991
States that the annual percentage yield will be based on a 365 day year basis and that the frequency of compounding will be expressed as a percentage.
Availability Float
Results from an individual or firm not being granted immediate availability on all deposited items.
Average Daily Float
average dollar amount of checks or drafts in the process of collection, and not credited to the account as collected funds or available funds.

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