COA 4131 1st Edition Lecture 6 Outline of Last Lecture I. Cash ManagementII. Cash Management and Foreign CurrencyIII. InterestIV. SavingsV. Financial Statements Outline of Current LectureI. Financial StatementsII. Making Savings GrowIII. The New Financial MarketplaceIV. Financial InstitutionsV. Deposit AccountsVI. Saving AccountsCurrent LectureA. Financial Statementsa. Continuous compoundingi. Compounding of interest continuously during the dayb. Annual percentage yieldi. Amount of interest earned on a yearly basis expressed as a percentageB. Making Savings Growa. Truth in Savings Acti. Federal law requires lenders to tell customers APY and other infoC. The New Financial Marketplacea. Deregulationi. Fewer controlsii. Depository Institutions Deregulation and Monetary Control Act of 19801. Many savings and loans closed 2. More competition between remaining institutions3. Mergers occurred4. Development of non-banksb. Electronic Banking/Electronic Funds Transferi. ATM’s1. Usually no charge to use your bank’s own ATM2. Transaction charges can range from $1.00-$5.00 if another’s bank’s machine is used3. Banks made $2 billion from ATM surcharges in 1998ii. Direct Deposit1. Paycheck directly deposited into accountiii. Online Payments1. Electronic funds transferc. Smartcardsi. Embedded computer chip with prepaid amounts of moneyii. Produce income for the bankd. Debit Cards and Point-of-Sale Transfersi. Deduct purchase amounts from a checking accounte. Future Trend i. One card for all functionsii. Voice commandsiii. Codesiv. Scanning hands, eyes, fingersD. Financial Institutionsa. Multi-purpose institutions offering banking and other financial servicesb. Benefitsi. Safetyii. Convenienceiii. Cost Savingsiv. Securityc. Federal Deposit Insurance Corporation (FDIC)i. Most banks and savings and loan companies are insured by thisii. Covers up to $250,000iii. If bank goes under and you are insured with FDIC, you will get all of your money back with no problemsiv. No such insurance in all countries in the worldd. National Credit Union Administrationi. Most credit unions are insuredii. Insured in cause of financial failure problems e. Financial Institutionsi. Commercial Banks1. Tend to be the largest2. Called full-service banksa. Online or in-person3. Can offer non interest-paying checking accounts4. Usually the main choiceii. Savings and Loan Associations1. With deregulation, difficult to differentiate with commercial banks2. Cannot offer noninterest-paying checking accounts3. Usually pay slightly higher interest rates on savings accountsiii. Credit Unions1. Non profit cooperatives owned by their membersa. Based on membership2. Savings accounts are called share accounts3. Low share account charges and loan rates4. Usually pay higher interest rates than banks or S&L’s5. Ex: Florida Teacher Uniona. Before buying a car, they will join a credit union so that they can get a better deal on the loan f. Brokerage Firmsi. Relatively new to banking related services1. 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 swoopii. Stocks, Bonds, Mutual fundsiii. Estate plans, financial planning, cash management accountsiv. Credit cardsv. Debt cardsvi. 401K plansvii. IRA’sviii. Mortgages E. Deposit Accountsa. Checking Accountsi. Frequently called demand deposit accountii. Does not pay interestiii. NOW account does pay interest1. Offer different checking accounts2. This is a good one iv. Check for feesb. Money Market Deposit Accounti. Offers a higher rate of interestii. Usually higher balances requirediii. Allows us write checksiv. Even better than NOWv. Sometimes have to have a minimum in to get the servicec. Savings Accountsi. Pays a little higher interest rate than checking accountii. Passbook savings1. A savings book record of deposits and withdrawals in an account2. Often pay slightly higher interest ratesiii. Statement savings1. Statement is mailed by the institution showing withdrawals and deposits d. Time Depositsi. Certificates of Deposits1. Rates fluctuate, low in 20092. Safe way to save money3. Totally secure4. Guaranteed rate of returnii. Several days to several yearsiii. Offer a guaranteed rate of interestiv. Maturity1. Waiting until the agreed upon amount of timee. Best typei. Depends on your needs1. Location2. What you want to use it for3. If a new bank opens upa. Ask around, see what they got4. Once you pick a bank, you usually stick with it for a long timef. Joint versus separatei. When you get married, will you have a his and hers account, an account together, or all three? 1. Have to decideii. Younger people tend to do separate accountiii. Family bills are usually done in joint accountsiv. “or” and “and”1. or: either person can empty the account2. and: both signatures are neededF. Savings Bondsa. Savings Bondsi. 1 in 4 Americans owns a saving bondii. Series EE1. cheapiii. Series I1. Good choice2. Linked to inflationa. Value of bond will go upb. Won’t lose money3. Can be bought online with a credit card from the U.S. treasuryiv. Series HH can no longer be
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