What Financial Services Do You Need?
Meeting Daily Money Needs Buying groceries, paying the rent, completing other
routine spending activities Cash, checks, credit cards, ATM cards Mistakes happen when managing current cash
needs include: Overspending as a result of impulse buying and using
credit Having insufficient liquid assets to pay bills Using savings or borrowing to pay for current expenses Failing to put unneeded funds in an interest earning
savings account
What Financial Services Do You Need?
Sources of Quick Cash Liquidate savings account or borrow money Using either reduces your net worth
Types of Financial Services Savings—safe storage for funds Payment services—offer ability to transfer money
to others for daily business activities Borrowing—short-term or long-term Other financial services—insurance, investments,
tax assistance, and financial planning
What Financial Services Do You Need?
Electronic and Online Banking E-banks and e-branches provide:
Direct deposit of paychecks and government payments Automatic payments to transfer funds to pay rent,
mortgage, utilities, loans, and investment deposits ATM allow various banking activities and other types
of transactions such as buying transit passes, postage stamps, and gift certificates
Debit card activates ATM transactions and may also be used to make purchases
What Financial Services Do You Need?
Financial Services and Economic Conditions Changing interest rates, rising consumer prices,
and other economic factors influence financial services
For successful financial planning, be aware of current trends and future prospects for interest rates
www.wsj.com Wall Street Journal www.ft.com The Financial Times www.businessweek.com Business Week www.forbes.com Forbes www.fortune.com Fortune
Selecting a Financial Institution Comparing Financial Institutions
Where can I get the best return on my savings? How can I minimize the cost of checking and
payment services? Will I be able to borrow money if I need it? What do you want from the organization?
Convenience Personal service Fees and other charges Safety Interest rates
Selecting a Financial Institution Deposit-Type Institutions
Commercial banks Offer a full range of financial services, including
checking, savings, and lending Organized as corporations with investors contributing
the capital the banks need to operate Savings and Loan associations
Specialize in savings accounts and loans for mortgages Have expanded services to include checking accounts,
specialized savings plans, loans to business, and investment services
Selecting a Financial Institution Deposit-Type Institutions
Mutual Savings banks Owned by depositors and also specialize in savings
accounts and mortgage loans Located mainly in the northeastern U.S. Profits of a mutual savings bank go to the depositors,
paying higher rates on savings Credit Unions
User-owned, nonprofit, cooperative financial institution
Traditionally, credit union members had to have a common bond such as work, church, or community
Offer the same services as commercial institutions
Selecting a financial institution
Nondeposit Institutions Life insurance companies
Main purpose is to provide financial security for dependents
In recent years, have expanded to include investment and retirement planning services
Investment companies (mutual funds) Money market funds—a savings-investment plan
offered by investment companies, with earnings based on investments in various short-term financial instruments
Not covered by federal deposit insurance
Selecting a financial institution
Nondeposit Institutions Finance companies
Make loans to consumers and small business Have short and intermediate terms with higher rates
than most other lenders charge Offer other financial planning services
Mortgage companies Organized primarily to provide loans for home
purchases
Problematic financial business
Pawnshops Make loans based on the value of tangible
possessions such as jewelry or other valuable items While states regulate the interest rates charged by
pawnshops, 3 percent a month or higher is common Check cashing outlets
The more than 6,000 check cashing outlets charge anywhere from 1 to 20% of the face value of a check
Offer other services such as electronic tax filing, money orders, private postal boxes, utility bill payment, and sale of transit tokens
Problematic financial business
Payday loans Cash advances, check advance loans, postdated
check loans, delayed deposit loans Borrowers can pay annual interest rates of as much
as 780% Rent-to-Own centers
Stores that lease products to consumers who can own the item if they complete a certain number of monthly or weekly payments
Charge interest rates of up to 100%
Comparing savings plans Regular savings accounts
Usually involve a low or no minimum balance and allow you to withdraw money as needed
Benefits Low minimum balance Ease of withdrawal Insured
Drawbacks Low rate of return
Comparing savings plans Certificates of Deposit (CDs)
Savings plan requiring that a certain amount be left on the deposit for a stated time period to earn a specified interest rate (ranges from 30 days to five years)
Types of CDs Rising-rate or bump-up—higher rates at various levels Stock-indexed—have earnings based on the stock market with
higher earnings at times of strong stock performance Callable CDs—start with higher rates and long-term maturities
Bank may “call” the account after a stipulated period When call option is exercised, saver receives the original investment
principal and any interest earned Promotional CDs—attract savers with gifts or special rates in lieu
of interest
Comparing savings plans Certificates of Deposit (CDs)
Managing CDs Investigate potential interests and costs Do not allow financial institution to roll over your money into
another CD for the same term Consider creating a CD portfolio with CDs maturing at
different times Benefits
Guaranteed rate of return Insured
Drawbacks Possible penalty for early withdrawal Minimum deposit
Comparing savings plans Interest earning checking accounts
Benefits Checking privileges Interest earned Insured
Drawbacks Service charge for going below minimum balance Cost of printing checks; other fees
Comparing savings plans Money Market Accounts and Funds
A savings account offered by banks, savings and loan associations, and credit unions that requires a minimum balance and has earning s based on market interest rates
May allow a limited number of checks to be written and generally impose a fee when account balance goes below a certain level
Comparing Savings Plans Money Market Accounts and Funds
Money market accounts are covered by federal deposit insurance
Money market funds are not covered by federal deposit insurance
Usually invest in short-term government and corporate securities and are quite safe
Comparing savings plans Money Market Accounts and Funds
Benefits Favorable rate of return Some check writing
Drawbacks Minimum balance May not be insured
Comparing savings plans U.S. Savings Bonds
Series EE bonds (also called Patriot Bonds) Must hold bonds at least five years to earn the stated
rate Continue to earn interest for 30 years Tax advantages
Interest earned is exempt from state and local taxes You do not have to pay federal income tax on earnings until
the bonds are redeemed May be exchanged for Series HH bonds to defer taxes
Comparing payment methods Electronic Payments
Debit card transactions Online payments
Third party companies: Pay pal, check free, pay trust Stored-value cards
Prepaid cards for telephone service, transit fares, highway tolls, school lunches
Smart cards Imbedded microchip stores prepaid amounts as well as
information with account balances, transaction records, insurance information, and medical history
Comparing payment methods Checking Accounts
Regular checking accounts May have to pay for checks May have to pay fee if below a certain balance
Activity accounts Charge a fee for every check written May charge a fee to deposit money No minimum balance
Interest-Earning checking Require a minimum balance Service charge for going below minimum balance
Comparing payment methods Evaluating Checking Accounts
Restrictions Minimum balance Holding period for deposited checks
Fees and Charges Check printing Overdraft fees Stop payment orders
Interest Special Services
Overdraft protection
Comparing payment methods
Other Payment Methods Certified check
Personal check with guaranteed payment Cashier’s check
Check of the financial institution Money order Traveler’s checks/prepaid traveler’s card
Managing your checking account
Opening a checking account Making deposits
Blank endorsement—your signature Restrictive endorsement—”for deposit only” followed
by your signature Special endorsement—”pay to the order of” followed
by the name of the other person and then your signature
Writing Checks Reconciling your checking account