COA 4131 1st Edition Lecture 6 Outline of Last Lecture I Cash Management II Cash Management and Foreign Currency III Interest IV Savings V Financial Statements Outline of Current Lecture I Financial Statements II Making Savings Grow III The New Financial Marketplace IV Financial Institutions V Deposit Accounts VI Saving Accounts Current Lecture A Financial Statements a Continuous compounding i Compounding of interest continuously during the day b Annual percentage yield i Amount of interest earned on a yearly basis expressed as a percentage B Making Savings Grow a Truth in Savings Act i Federal law requires lenders to tell customers APY and other info C The New Financial Marketplace a Deregulation i Fewer controls ii Depository Institutions Deregulation and Monetary Control Act of 1980 1 Many savings and loans closed 2 More competition between remaining institutions 3 Mergers occurred 4 Development of non banks b Electronic Banking Electronic Funds Transfer i ATM s 1 Usually no charge to use your bank s own ATM 2 Transaction charges can range from 1 00 5 00 if another s bank s machine is used 3 Banks made 2 billion from ATM surcharges in 1998 ii Direct Deposit 1 Paycheck directly deposited into account iii Online Payments 1 Electronic funds transfer c Smartcards i Embedded computer chip with prepaid amounts of money ii Produce income for the bank d Debit Cards and Point of Sale Transfers i Deduct purchase amounts from a checking account e Future Trend i One card for all functions ii Voice commands iii Codes iv Scanning hands eyes fingers D Financial Institutions a Multi purpose institutions offering banking and other financial services b Benefits i Safety ii Convenience iii Cost Savings iv Security c Federal Deposit Insurance Corporation FDIC i Most banks and savings and loan companies are insured by this ii Covers up to 250 000 iii If bank goes under and you are insured with FDIC you will get all of your money back with no problems iv No such insurance in all countries in the world d National Credit Union Administration i Most credit unions are insured ii Insured in cause of financial failure problems e Financial Institutions i Commercial Banks 1 Tend to be the largest 2 Called full service banks a Online or in person 3 Can offer non interest paying checking accounts 4 Usually the main choice ii Savings and Loan Associations 1 With deregulation difficult to differentiate with commercial banks 2 Cannot offer noninterest paying checking accounts 3 Usually pay slightly higher interest rates on savings accounts iii Credit Unions 1 Non profit cooperatives owned by their members a Based on membership 2 Savings accounts are called share accounts 3 Low share account charges and loan rates 4 Usually pay higher interest rates than banks or S L s 5 Ex Florida Teacher Union a Before buying a car they will join a credit union so that they can get a better deal on the loan f Brokerage Firms i Relatively new to banking related services 1 They wanted to get into savings and checking accounts so if you wanted to buy stocks or bonds the broker can just move money from the account to the stock in one quick swoop ii Stocks Bonds Mutual funds iii Estate plans financial planning cash management accounts iv Credit cards v Debt cards vi 401K plans vii IRA s viii Mortgages E Deposit Accounts a Checking Accounts i Frequently called demand deposit account ii Does not pay interest iii NOW account does pay interest 1 Offer different checking accounts 2 This is a good one iv Check for fees b Money Market Deposit Account i Offers a higher rate of interest ii Usually higher balances required iii Allows us write checks iv Even better than NOW v Sometimes have to have a minimum in to get the service c Savings Accounts i Pays a little higher interest rate than checking account ii Passbook savings 1 A savings book record of deposits and withdrawals in an account 2 Often pay slightly higher interest rates iii Statement savings 1 Statement is mailed by the institution showing withdrawals and deposits d Time Deposits i Certificates of Deposits 1 Rates fluctuate low in 2009 2 Safe way to save money 3 Totally secure 4 Guaranteed rate of return ii Several days to several years iii Offer a guaranteed rate of interest iv Maturity 1 Waiting until the agreed upon amount of time e Best type i Depends on your needs 1 Location 2 What you want to use it for 3 If a new bank opens up a Ask around see what they got 4 Once you pick a bank you usually stick with it for a long time f Joint versus separate i When you get married will you have a his and hers account an account together or all three 1 Have to decide ii Younger people tend to do separate account iii Family bills are usually done in joint accounts iv or and and 1 or either person can empty the account 2 and both signatures are needed F Savings Bonds a Savings Bonds i 1 in 4 Americans owns a saving bond ii Series EE 1 cheap iii Series I 1 Good choice 2 Linked to inflation a Value of bond will go up b Won t lose money 3 Can be bought online with a credit card from the U S treasury iv Series HH can no longer be bought
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