Ch 5 Financial Services: Savings Plans & Payment Methods
Monday, February 23, 2026 12:28 PM
Financial Services for Financial Planning
- Managing Daily Money Needs
○ Mistakes many people make when managing cash needs
1. Overspending cash & credit on impulse
2. Having insufficient liquid assets to pay bills (aka no savings)
3. Using savings/borrowing money for current living expenses
4. Failing to put funds in an interest savings account or investment program
- A savings account, certificate of deposit and/or other investments are better used when you
need funds
- Keeping in mind that borrowing money & spending savings reduce your net worth
Types of Financial Services
1. Savings - Storage of funds for future basic needs aka a time deposit
- A time deposit includes savings accounts & certificate deposits
- Deciding on a type of savings plan is based on interest rates, liquidity, safety &
convenience
2. Cash Availability & Payment Services
- The ability to transfer money to others for necessary & daily business activities
3. Borrowing
- Credit alternatives range from short term to accounts, to credit cards, cash loans & long term
borrowing like a mortgage
4. Investing & other Financial Services
- Insurance, investing, real estate purchases, tax assistance & financial planning are all other
forms of financial services
5. A trust
- This is when someone else manages your money, it’s a legal agreement that provides
management & control of assets by one party for the benefit of another
6. Assets Management Account
- Also known as a “cash management” or “wealth management” account, provide financial
service programs for a single fee, investment brokers & other financial institutions offer
theses accounts. They include checking, a debit-credit card, app/online banking & for a quick
line of credit
- They are also used to buy & selling investments and have the following benefits:
• Keeping track of finances in a single location
• Fewer monthly & quarterly statements
• Lower fee’s when working w/ one financial institution
• Fewer form for tax reporting of dividends & interest
• Easy communication of financial info to family members
Online & Mobile Banking
- The recent pandemic allowed for a new way to access the way we manage our money &
utilize banking tools
- Online Banking
• Via a website or app, financial institutions allow access to various services & access to
information
• ATM machine fee’s can happen, try to avoid them
§ Compare several financial institutions
§ Use your banks ATM to avoid charges
§ Find online banks that offer no-cost ATM fee’s
§ Withdrawal in large amount to avoid several small transaction fee’s
§ Try getting cash back at supermarkets when checking out
• Video Teller Machines (VTMs)
§ Provide personalized services after bank hours w/ face to face connections to a bank
representative
§ They can answer specific/certain questions, handle transactions w/o your debit card,
w/ facial recognition, an online chat maybe available, cash withdrawals involve
precise dollar amount rather than only 20’s from an atm
• A Debit Card
§ Activates your banking & buying transactions, can be treated like cash
§ If lost some institutions require a $50 replacement fee, you are liable up to $500 of
unauthorized use if you don’t notify your bank within 60 days
§ With increased reliance on tech, virtual services can be done remotely, payment can
be done contactless, you can check your balance, pay bills & send money
Banking Apps & Digital Wallets
- Wireless transactions such as tap to pay are reducing debit & credit card use for contactless
purchases
- Most have a feature to “lock” your card to limit spending & block unauthorized transactions
- When facing difficulties w/ the app be sure to:
• Use correct username & password
• Check emails & social media accounts for any notifications
• Update apps & software
• Contact Customer Service for bank/app issue’s
• Log onto a desktop computer, go the the bank, or use the ATM to do business when the
app is not in operation
- Digital/Mobile wallets/money are increasing in use w/ the ability to store a variety of cards,
tickets & even transit passes
• Common modern day digital wallets are Apple Pay, google pay, pay pal, Samsung pay,
Venmo & Zelle
Prepaid Debit Cards
- These cards replace traditional banking services, are issued by financial service providers like
banks, credit card companies, retailers & other non bank companies to provide financial
services
- Loading/adding funds to a prepaid card can be done by cash, check, direct deposit, online
transfer, smartphone check photo and/or a credit card cash advance
• Extensive fee’s have been associated w/ these types of cards
• Charges/fee’s may include activation, monthly use, transaction online, cash withdrawal,
balance inquiry, added funds & inactivity
- Prepaid cards can lower debt since debit cards control spending & buying on credit
• W/credit cards you pay later, w/ debit cards you pay now, w/ prepaid cards you pay before
Financial-Service Providers
- Deposit Institutions
• Commercial Banks
§ Offer a full range of financial services like a checking, savings, lending etc, they are
organized as corporate investors that contribute needed capitol & they include
national, regional, community & online only banks
• Credit Unions
§ A user owned, non profit, cooperative institution having a bond w/ their community.
Today credit union memberships are more flexible than before, w/ reports of over
100 million members, lower fees, loan rates & higher overall customer satisfaction
• Thrifts
§ Savings & Loan associations aka S&L’s also offer a variety of services comparable to a
bank
§ Mutual Savings Banks are owned by depositors who specialize in mortgages & savings
Other Financial Institutions
- Life Insurance Companies
• While the main focus is financial security for dependents, some policies have a saving &
investment feature
- Investment Companies
• AKA a mutual fund that offer a Money Market Fund Service
§ A money market fund service is a combination savings-investment plan that a
company uses to purchase various short term financial instruments
- Brokerage Firms
• Have investment advisors & financial planners that serve as agents between the buyer &
seller of a stock, bond and/or other investment
• Some expanded services from brokerage firms are available via online banking & checking
accounts
- Finance Companies
• Give loans to consumers & small businesses, both short & long term loans have high rates
compared to other lenders
- Credit Card Companies
• Specialize in short term lending via Visa, Mastercard & Discover
- Mortgage Companies
• Provides loans to purchase a home
- Other Financial Service Providers
• Retailers, internet banks, Financial Technology, (P2P) Peer to Peer lending networks,
online only banks via ATM/APP
Comparing Financial Services
- Trade offs for using financial services include
1. Higher returns for long term savings w/ low liquidity
2. Convenience fee’s
3. “No fee” checking account will require a minimum balance
4. Financial service subscription fee’s
The “Unbanked” & high-cost alternative financial services
- Pawnshops
○ Loans are based on the value of an item being sold like jewelry & other valuables
○ They charge higher fees than regular lenders
○ They are not state regulated, interest rates for charging services can range from 3-100%
- Check-Cashing Outlets
○ Most banks won’t cash a check w/o a banking account, people will go to CCO outlets that
charge 1-20% of the value of the check
○ For low income families that can be a significant amount
○ They also are also known for currency exchanges
§ This includes electronic tax filing, money orders, private postal boxes, utility payments
& prepaid debit cards
- Pay Day Loans
○ AKA a cash advance, their annual rates can start at 780%, more borrows are trapped into
these debts
○ In recent yrs state & federal regulations have tried to reduce exploitation from payday
loan companies
○ Many borrowers rollover their loans, by only paying the minimum leading to the initial
charge to more than what they borrowed, to avoid this some companies offer pay
advances to their employees in the 9-18% range
- Rent to Own (RTO) Centers
○ Stores that lease products to consumers who can own the item if they complete a certain
number of payments towards the item borrowed for purchase, RTO purchases have an
annual rate of over 300%
- Car Title Loans
○ When people are short on cash, the use their cars as leverage for loans for 30 days, these
loans tend to have often exceed a 200% interest rate & failure to pay these can lead to
having your car repossessed
Savings Plans
- A savings account
○ Require a low minimum balance or none at all & withdraw money as needed
§ Credit Unions refer to these as Share Accounts
- High yield savings account
○ Offered by in person banks & online, pays more than a regular savings account
Certificates of Deposit
- A savings plan that requires a certain amount deposited for a certain amount of time to earn
a specific rate in return aka time deposits
○ In credit unions this type of account is known as a share certificate
- Most CD's have a penalty for early withdrawal between 20-25% but interest rates might be
lower
Types of CD’s
- Rising Rate/Bump-up
○ Have higher rates set at intervals like every 6 months, be weary of ones that state a higher
rate they may be in effect the last 18-24 months
- Liquid
○ Allows money withdrawals w/ no penalty, a minimum balance is required, their might be
restrictions like, a waiting period, a lower rate or limit on the number of withdrawals
allowed
- Zero Coupon
○ A purchase at a discount usually a portion of the value & w/ no interest payments, your
initial deposit grows to the amount of the CD in a certain amount of time
§ I.E. $5,000 matures to $10,000 in 12yrs
- Indexed CD’s
○ Are based on the stock market, can lose interest & part of your savings
- Callable CD’s
○ Start w/ higher rates & longer maturities as long as 10-15yrs
○ If interest drops the bank will call to close the account after a set period of 1-2yrs
- Promotional CD’s
○ An attempt to attract savers w/ gifts or special rates
Managing CD’s
- If interest drops, you might have a shorter maturity but if you believe interest will rise you
won’t need money temporarily, in this case considered a longer CD time period
- Buying CD’s from online can be beneficial, rates at a local bank maybe higher
○ When interest rates are low, consider a high yield savings account, savings bond, mutual
funds & govt securities
Money Market Account & Funds
- Money Market Account
○ A savings account that requires a minimum balance & has earnings based on market
interest rates
○ Both money markets & money market funds have enough earnings based on interest
rates, have minimum balance restrictions, allow checks & transfers
Savings Bonds
- U.S. bonds are low risk emergency funds you can quickly access
○ E.E. Bonds
§ Amounts greater than $25, originally in paper form ranging $25-$5,000 w/ a maturity
values of $50-$5,000
§ Bonds increase in value as interest is earned monthly & compounds semiannually
(every 6 months)
§ A bond must be held for 1yr before it can be cashed out & continue to earn interest
for 30 yrs
○ E.E. Bond Tax advantages
§ Interest earned is exempt from state & local taxes
§ Federal income taxes on earnings are not due until bonds are redeemed
§ Redeemed series maybe exempt if used to pay for tuition & fee’s at both colleges &
universities
I Bonds
- I bonds has an interest rate based on two components:
1. A fixed rate for the life of the bond
2. An inflation rate that is calculated 2x a yr
Savings Bonds
- Are registered 3 different ways
○ As single owner
○ Two owners; One is co signer and/or primary owner
○ W/ a beneficiary who takes ownership of the bond when the original owner dies
Evaluating Savings Plans
- Rate of Return
○ The percentage increase in the value of your savings from earned interest
- Compounding
○ Refers to interest that was earned on previously earned interest
§ Each time more interest is added
- Truth in Savings
○ Requires financial institutions to disclose the following info on savings accounts:
1. Fees on deposit accounts
2. State the interest rate
3. The Annual Percentage Yield (APY)
i. (TIS - Truth in Savings) defines APY as the percentage rate expressing the total
amount of interest received on a $100 deposit based on an annual rate &
compounding for 1 yr
4. TIS requires the following
i. Disclosure of fees & APY earned on a statement
ii. Established rules for advertising deposit accounts
iii. Restricts the method of calculating the balance & how interest is paid
5. Other terms & conditions
Inflation
- The rate of return you can earn on savings should be compared to the inflation rate, when
inflation is over 10% people w/ money in savings accounts earn 5-6% loss in buying power
Tax Considerations
- Can reduce interest earned on savings, are not usually withheld from taxable savings &
investment income
Liquidity
- Allows you to withdrawal money on short notice w/o a loss of principal or fee’s
- Some savings plans have fees for early withdrawals or other restrictions
- W/ certain types of savings certificates & accounts early withdrawal can be penalized by loss
of interest and/or lower interest rate
Safety
- Federal Deposit Insurance Corporation (FDIC)
○ Coverage prevents a loss of money due to the failure of the insured institution
- The National Credit Union Administration (NCUA) is for credit unions
- The FDIC insures amounts of up to $250,000 per depositor per insured financial institution,
coverage for higher amounts can be obtained by using different types of ownerships
categories
○ Individual, joint & trust ownership accounts
○ Joint accounts hold up to $500,000 vs individual accounts of $250,000
- Both the FDIC & NCUA provide deposit insurances for retirement up to $250,000
○ This includes IRA, ROTH IRA, (Simplified Employee Pension) SEP IRA, & SIMPLE (Savings
Incentive Match Plan for Employees)
Restrictions & Fee’s
- Some banks may charge a monthly fee for low-balance accounts
- Inactivity fess if your account has not been active for over 6 mo’s
- After withdrawing a certain amount you pay a fee; this doesn’t include atm fee’s
○ This rule was wavered to allow easier means to save money after the pandemic
Payment Methods
- Digital Payment Methods
○ Transactions w/o cash, checks or credit cards are common as a result of tech, improved
safety measures & consumer acceptance
- Debit Card Transactions
○ Most Debit cards can be used by:
1. Your signature
2. Personal bank pin
○ Depending on the purchase w/ your debit the merchant may put a hold on your account,
withdrawing more from the account than what was spent
- Online Payments
○ Banks & online companies can be used as 3rd parties to pay bills, they often charge a fee,
send payments late that can interrupt services & lower you credit score
○ Be sure to monitor payment dates
○ People w/o a credit/debit card can PayNearMe.com for online transactions, allows user to
pay cash at a local store, online, phone order, for loan repayments, money transfers &
other uses of a credit card
- Mobile transfers
○ Apps via a wireless device are now replacing debit & credit cards via tap or wave at a
contactless register/card reader
○ Mobile services transfer money via P2P (Peer to peer) in apps like PayPal, Zelle and/or
Venmo
○ Money transfers are fast, convenient & safe to send around the world w/ companies like
MoneyGram, TransferWise, Western Union & Xoom
- Stored Value (Prepaid) Cards
○ Can be used for most retail services, some are disposable & others reloadable
○ Some have activations charges, ATM fee’s & other costs
○ SSI payment can be received on a prepaid card and are more practical for those w/o a
bank account
§ Some states also offer your tax refund in this way
- Smart Cards & Digital Wallets
○ Smart cards w/ embedded chips are used for banking transactions may also have your
personal data, past purchases, insurance information & medical history
§ Digital wallets like Apple Pay & Google Pay have certain versions of debit & credit to
allow contactless pay
Types of Checking Accounts
- Checking accounts are also being referred to as:
○ debit account, digital banking, spending account & transaction account
- Traditional Checking Accounts
○ Regular Checking
§ Usually have a monthly service charge that can be avoided
○ Interest Earning Checking
§ Require a minimum balance, your account can’t earn interest if you are below the
minimum & maybe charged
§ Shared Draft Account
□ An interest earning Checking account at a credit union
○ Activity Accounts
§ Charge a fee for checks & deposits
§ They don’t require a minimum balance
§ Best used for writing checks & people who can’t maintain the minimum to keep the
account open
○ Special Features Checking Accounts
§ Targeted Group Accounts
□ For seniors, students and/or military personnel who are offered lowered fees &
additional services
§ Rewards Checking Accounts
□ Earns points, cash back, or a bonus rate based on certain requirements like a
certain amount of transactions, direct deposit & use of a credit card from the
same bank
§ Premier Checking Account
□ Offers several services for a monthly fee or a high minimum balance
Check-less checking accounts
- No paper checks all transactions are done via debit or online & no overdraft fees
Evaluating Checking Accounts
- Restrictions
○ A required minimum balance to earn interest or avoid a service charge
- Fee’s & Charges
○ The cost of items like printing checks, overdrafts fee’s & stop-payment orders have
multiplied over time
- Interest
○ Both compounded & accumulated charges will affect the checking account earnings
- Other Charges
○ Over draft protection
§ An automatic loan for payments that exceed the available balance
Managing your bank account
- Opening a checking account
○ Decide on the owner of the account
○ An Individual account is when only one person can use it & write checks
• Both a joint & individual accounts require a signature card to authorize who can write
checks from the account
- Making deposits
○ A deposit ticket is used to list cash & check amounts being deposited, they require an
endorsement (your signature) on the back to authorize the transfer of funds into your
account, there are four types of endorsements:
• Blank
□ Requires only your signature when you deposit cash or a check in person, once
signed anyone can cash it out
• Restrictive
□ Has the words “For Deposit Only” on the check followed by your signature &
account number
• Special
□ Allows you to transfer checks when the check says “pay to the order of” followed
by their name/business & your signature
• Remote deposit capture
□ Deposits a check via photo w/ your signature on the check
Writing Checks
1. Record the date
2. Write the name of the person/organization receiving payment
3. Record the amount in figures (dollar amount)
4. Write the check amount in words
5. Sign the check
6. State the reason for payment
- Stop payments order
○ Are used to stop payment if the check has been lost or stolen
Reconciling your checking account
- The reported balance on your bank statement summarizes deposits, checks paid, online
payments, ATM withdrawals, interest earned, fees & service charges
○ How to correct/reconcile your balance (aka balance your check book)
1. Compare all checks written, payments & withdrawals to your records to ones that are
stated as paid on your bank statement
2. Determine/verify if any deposits have added or not sometimes there is a delay
3. Subtract fees & charges reported from bank’s statements
4. Add any interest to your check book/account
- Mistakes that can lead to problems in your account are:
○ Not being aware of spending habits
○ Verifying if the correct amount is in your account
○ Being unaware of any unauthorized use of your credit
○ Being unaware of bank fee’s & if your being over charged
○ Overlooking mistakes your bank may have made
Other payment methods
- Certified Check
○ A personal check w/ guaranteed payment
- Cashiers Check
○ A check from a financial institution that is purchased by paying for the check amount & a
fee
- Travelers checks
○ Before ATM’S these allowed people to make payments from other banks away from home
Monday, February 23, 2026 12:28 PM
Financial Services for Financial Planning
- Managing Daily Money Needs
○ Mistakes many people make when managing cash needs
1. Overspending cash & credit on impulse
2. Having insufficient liquid assets to pay bills (aka no savings)
3. Using savings/borrowing money for current living expenses
4. Failing to put funds in an interest savings account or investment program
- A savings account, certificate of deposit and/or other investments are better used when you
need funds
- Keeping in mind that borrowing money & spending savings reduce your net worth
Types of Financial Services
1. Savings - Storage of funds for future basic needs aka a time deposit
- A time deposit includes savings accounts & certificate deposits
- Deciding on a type of savings plan is based on interest rates, liquidity, safety &
convenience
2. Cash Availability & Payment Services
- The ability to transfer money to others for necessary & daily business activities
3. Borrowing
- Credit alternatives range from short term to accounts, to credit cards, cash loans & long term
borrowing like a mortgage
4. Investing & other Financial Services
- Insurance, investing, real estate purchases, tax assistance & financial planning are all other
forms of financial services
5. A trust
- This is when someone else manages your money, it’s a legal agreement that provides
management & control of assets by one party for the benefit of another
6. Assets Management Account
- Also known as a “cash management” or “wealth management” account, provide financial
service programs for a single fee, investment brokers & other financial institutions offer
theses accounts. They include checking, a debit-credit card, app/online banking & for a quick
line of credit
- They are also used to buy & selling investments and have the following benefits:
• Keeping track of finances in a single location
• Fewer monthly & quarterly statements
• Lower fee’s when working w/ one financial institution
• Fewer form for tax reporting of dividends & interest
• Easy communication of financial info to family members
Online & Mobile Banking
- The recent pandemic allowed for a new way to access the way we manage our money &
utilize banking tools
- Online Banking
• Via a website or app, financial institutions allow access to various services & access to
information
• ATM machine fee’s can happen, try to avoid them
§ Compare several financial institutions
§ Use your banks ATM to avoid charges
§ Find online banks that offer no-cost ATM fee’s
§ Withdrawal in large amount to avoid several small transaction fee’s
§ Try getting cash back at supermarkets when checking out
• Video Teller Machines (VTMs)
§ Provide personalized services after bank hours w/ face to face connections to a bank
representative
§ They can answer specific/certain questions, handle transactions w/o your debit card,
w/ facial recognition, an online chat maybe available, cash withdrawals involve
precise dollar amount rather than only 20’s from an atm
• A Debit Card
§ Activates your banking & buying transactions, can be treated like cash
§ If lost some institutions require a $50 replacement fee, you are liable up to $500 of
unauthorized use if you don’t notify your bank within 60 days
§ With increased reliance on tech, virtual services can be done remotely, payment can
be done contactless, you can check your balance, pay bills & send money
Banking Apps & Digital Wallets
- Wireless transactions such as tap to pay are reducing debit & credit card use for contactless
purchases
- Most have a feature to “lock” your card to limit spending & block unauthorized transactions
- When facing difficulties w/ the app be sure to:
• Use correct username & password
• Check emails & social media accounts for any notifications
• Update apps & software
• Contact Customer Service for bank/app issue’s
• Log onto a desktop computer, go the the bank, or use the ATM to do business when the
app is not in operation
- Digital/Mobile wallets/money are increasing in use w/ the ability to store a variety of cards,
tickets & even transit passes
• Common modern day digital wallets are Apple Pay, google pay, pay pal, Samsung pay,
Venmo & Zelle
Prepaid Debit Cards
- These cards replace traditional banking services, are issued by financial service providers like
banks, credit card companies, retailers & other non bank companies to provide financial
services
- Loading/adding funds to a prepaid card can be done by cash, check, direct deposit, online
transfer, smartphone check photo and/or a credit card cash advance
• Extensive fee’s have been associated w/ these types of cards
• Charges/fee’s may include activation, monthly use, transaction online, cash withdrawal,
balance inquiry, added funds & inactivity
- Prepaid cards can lower debt since debit cards control spending & buying on credit
• W/credit cards you pay later, w/ debit cards you pay now, w/ prepaid cards you pay before
Financial-Service Providers
- Deposit Institutions
• Commercial Banks
§ Offer a full range of financial services like a checking, savings, lending etc, they are
organized as corporate investors that contribute needed capitol & they include
national, regional, community & online only banks
• Credit Unions
§ A user owned, non profit, cooperative institution having a bond w/ their community.
Today credit union memberships are more flexible than before, w/ reports of over
100 million members, lower fees, loan rates & higher overall customer satisfaction
• Thrifts
§ Savings & Loan associations aka S&L’s also offer a variety of services comparable to a
bank
§ Mutual Savings Banks are owned by depositors who specialize in mortgages & savings
Other Financial Institutions
- Life Insurance Companies
• While the main focus is financial security for dependents, some policies have a saving &
investment feature
- Investment Companies
• AKA a mutual fund that offer a Money Market Fund Service
§ A money market fund service is a combination savings-investment plan that a
company uses to purchase various short term financial instruments
- Brokerage Firms
• Have investment advisors & financial planners that serve as agents between the buyer &
seller of a stock, bond and/or other investment
• Some expanded services from brokerage firms are available via online banking & checking
accounts
- Finance Companies
• Give loans to consumers & small businesses, both short & long term loans have high rates
compared to other lenders
- Credit Card Companies
• Specialize in short term lending via Visa, Mastercard & Discover
- Mortgage Companies
• Provides loans to purchase a home
- Other Financial Service Providers
• Retailers, internet banks, Financial Technology, (P2P) Peer to Peer lending networks,
online only banks via ATM/APP
Comparing Financial Services
- Trade offs for using financial services include
1. Higher returns for long term savings w/ low liquidity
2. Convenience fee’s
3. “No fee” checking account will require a minimum balance
4. Financial service subscription fee’s
The “Unbanked” & high-cost alternative financial services
- Pawnshops
○ Loans are based on the value of an item being sold like jewelry & other valuables
○ They charge higher fees than regular lenders
○ They are not state regulated, interest rates for charging services can range from 3-100%
- Check-Cashing Outlets
○ Most banks won’t cash a check w/o a banking account, people will go to CCO outlets that
charge 1-20% of the value of the check
○ For low income families that can be a significant amount
○ They also are also known for currency exchanges
§ This includes electronic tax filing, money orders, private postal boxes, utility payments
& prepaid debit cards
- Pay Day Loans
○ AKA a cash advance, their annual rates can start at 780%, more borrows are trapped into
these debts
○ In recent yrs state & federal regulations have tried to reduce exploitation from payday
loan companies
○ Many borrowers rollover their loans, by only paying the minimum leading to the initial
charge to more than what they borrowed, to avoid this some companies offer pay
advances to their employees in the 9-18% range
- Rent to Own (RTO) Centers
○ Stores that lease products to consumers who can own the item if they complete a certain
number of payments towards the item borrowed for purchase, RTO purchases have an
annual rate of over 300%
- Car Title Loans
○ When people are short on cash, the use their cars as leverage for loans for 30 days, these
loans tend to have often exceed a 200% interest rate & failure to pay these can lead to
having your car repossessed
Savings Plans
- A savings account
○ Require a low minimum balance or none at all & withdraw money as needed
§ Credit Unions refer to these as Share Accounts
- High yield savings account
○ Offered by in person banks & online, pays more than a regular savings account
Certificates of Deposit
- A savings plan that requires a certain amount deposited for a certain amount of time to earn
a specific rate in return aka time deposits
○ In credit unions this type of account is known as a share certificate
- Most CD's have a penalty for early withdrawal between 20-25% but interest rates might be
lower
Types of CD’s
- Rising Rate/Bump-up
○ Have higher rates set at intervals like every 6 months, be weary of ones that state a higher
rate they may be in effect the last 18-24 months
- Liquid
○ Allows money withdrawals w/ no penalty, a minimum balance is required, their might be
restrictions like, a waiting period, a lower rate or limit on the number of withdrawals
allowed
- Zero Coupon
○ A purchase at a discount usually a portion of the value & w/ no interest payments, your
initial deposit grows to the amount of the CD in a certain amount of time
§ I.E. $5,000 matures to $10,000 in 12yrs
- Indexed CD’s
○ Are based on the stock market, can lose interest & part of your savings
- Callable CD’s
○ Start w/ higher rates & longer maturities as long as 10-15yrs
○ If interest drops the bank will call to close the account after a set period of 1-2yrs
- Promotional CD’s
○ An attempt to attract savers w/ gifts or special rates
Managing CD’s
- If interest drops, you might have a shorter maturity but if you believe interest will rise you
won’t need money temporarily, in this case considered a longer CD time period
- Buying CD’s from online can be beneficial, rates at a local bank maybe higher
○ When interest rates are low, consider a high yield savings account, savings bond, mutual
funds & govt securities
Money Market Account & Funds
- Money Market Account
○ A savings account that requires a minimum balance & has earnings based on market
interest rates
○ Both money markets & money market funds have enough earnings based on interest
rates, have minimum balance restrictions, allow checks & transfers
Savings Bonds
- U.S. bonds are low risk emergency funds you can quickly access
○ E.E. Bonds
§ Amounts greater than $25, originally in paper form ranging $25-$5,000 w/ a maturity
values of $50-$5,000
§ Bonds increase in value as interest is earned monthly & compounds semiannually
(every 6 months)
§ A bond must be held for 1yr before it can be cashed out & continue to earn interest
for 30 yrs
○ E.E. Bond Tax advantages
§ Interest earned is exempt from state & local taxes
§ Federal income taxes on earnings are not due until bonds are redeemed
§ Redeemed series maybe exempt if used to pay for tuition & fee’s at both colleges &
universities
I Bonds
- I bonds has an interest rate based on two components:
1. A fixed rate for the life of the bond
2. An inflation rate that is calculated 2x a yr
Savings Bonds
- Are registered 3 different ways
○ As single owner
○ Two owners; One is co signer and/or primary owner
○ W/ a beneficiary who takes ownership of the bond when the original owner dies
Evaluating Savings Plans
- Rate of Return
○ The percentage increase in the value of your savings from earned interest
- Compounding
○ Refers to interest that was earned on previously earned interest
§ Each time more interest is added
- Truth in Savings
○ Requires financial institutions to disclose the following info on savings accounts:
1. Fees on deposit accounts
2. State the interest rate
3. The Annual Percentage Yield (APY)
i. (TIS - Truth in Savings) defines APY as the percentage rate expressing the total
amount of interest received on a $100 deposit based on an annual rate &
compounding for 1 yr
4. TIS requires the following
i. Disclosure of fees & APY earned on a statement
ii. Established rules for advertising deposit accounts
iii. Restricts the method of calculating the balance & how interest is paid
5. Other terms & conditions
Inflation
- The rate of return you can earn on savings should be compared to the inflation rate, when
inflation is over 10% people w/ money in savings accounts earn 5-6% loss in buying power
Tax Considerations
- Can reduce interest earned on savings, are not usually withheld from taxable savings &
investment income
Liquidity
- Allows you to withdrawal money on short notice w/o a loss of principal or fee’s
- Some savings plans have fees for early withdrawals or other restrictions
- W/ certain types of savings certificates & accounts early withdrawal can be penalized by loss
of interest and/or lower interest rate
Safety
- Federal Deposit Insurance Corporation (FDIC)
○ Coverage prevents a loss of money due to the failure of the insured institution
- The National Credit Union Administration (NCUA) is for credit unions
- The FDIC insures amounts of up to $250,000 per depositor per insured financial institution,
coverage for higher amounts can be obtained by using different types of ownerships
categories
○ Individual, joint & trust ownership accounts
○ Joint accounts hold up to $500,000 vs individual accounts of $250,000
- Both the FDIC & NCUA provide deposit insurances for retirement up to $250,000
○ This includes IRA, ROTH IRA, (Simplified Employee Pension) SEP IRA, & SIMPLE (Savings
Incentive Match Plan for Employees)
Restrictions & Fee’s
- Some banks may charge a monthly fee for low-balance accounts
- Inactivity fess if your account has not been active for over 6 mo’s
- After withdrawing a certain amount you pay a fee; this doesn’t include atm fee’s
○ This rule was wavered to allow easier means to save money after the pandemic
Payment Methods
- Digital Payment Methods
○ Transactions w/o cash, checks or credit cards are common as a result of tech, improved
safety measures & consumer acceptance
- Debit Card Transactions
○ Most Debit cards can be used by:
1. Your signature
2. Personal bank pin
○ Depending on the purchase w/ your debit the merchant may put a hold on your account,
withdrawing more from the account than what was spent
- Online Payments
○ Banks & online companies can be used as 3rd parties to pay bills, they often charge a fee,
send payments late that can interrupt services & lower you credit score
○ Be sure to monitor payment dates
○ People w/o a credit/debit card can PayNearMe.com for online transactions, allows user to
pay cash at a local store, online, phone order, for loan repayments, money transfers &
other uses of a credit card
- Mobile transfers
○ Apps via a wireless device are now replacing debit & credit cards via tap or wave at a
contactless register/card reader
○ Mobile services transfer money via P2P (Peer to peer) in apps like PayPal, Zelle and/or
Venmo
○ Money transfers are fast, convenient & safe to send around the world w/ companies like
MoneyGram, TransferWise, Western Union & Xoom
- Stored Value (Prepaid) Cards
○ Can be used for most retail services, some are disposable & others reloadable
○ Some have activations charges, ATM fee’s & other costs
○ SSI payment can be received on a prepaid card and are more practical for those w/o a
bank account
§ Some states also offer your tax refund in this way
- Smart Cards & Digital Wallets
○ Smart cards w/ embedded chips are used for banking transactions may also have your
personal data, past purchases, insurance information & medical history
§ Digital wallets like Apple Pay & Google Pay have certain versions of debit & credit to
allow contactless pay
Types of Checking Accounts
- Checking accounts are also being referred to as:
○ debit account, digital banking, spending account & transaction account
- Traditional Checking Accounts
○ Regular Checking
§ Usually have a monthly service charge that can be avoided
○ Interest Earning Checking
§ Require a minimum balance, your account can’t earn interest if you are below the
minimum & maybe charged
§ Shared Draft Account
□ An interest earning Checking account at a credit union
○ Activity Accounts
§ Charge a fee for checks & deposits
§ They don’t require a minimum balance
§ Best used for writing checks & people who can’t maintain the minimum to keep the
account open
○ Special Features Checking Accounts
§ Targeted Group Accounts
□ For seniors, students and/or military personnel who are offered lowered fees &
additional services
§ Rewards Checking Accounts
□ Earns points, cash back, or a bonus rate based on certain requirements like a
certain amount of transactions, direct deposit & use of a credit card from the
same bank
§ Premier Checking Account
□ Offers several services for a monthly fee or a high minimum balance
Check-less checking accounts
- No paper checks all transactions are done via debit or online & no overdraft fees
Evaluating Checking Accounts
- Restrictions
○ A required minimum balance to earn interest or avoid a service charge
- Fee’s & Charges
○ The cost of items like printing checks, overdrafts fee’s & stop-payment orders have
multiplied over time
- Interest
○ Both compounded & accumulated charges will affect the checking account earnings
- Other Charges
○ Over draft protection
§ An automatic loan for payments that exceed the available balance
Managing your bank account
- Opening a checking account
○ Decide on the owner of the account
○ An Individual account is when only one person can use it & write checks
• Both a joint & individual accounts require a signature card to authorize who can write
checks from the account
- Making deposits
○ A deposit ticket is used to list cash & check amounts being deposited, they require an
endorsement (your signature) on the back to authorize the transfer of funds into your
account, there are four types of endorsements:
• Blank
□ Requires only your signature when you deposit cash or a check in person, once
signed anyone can cash it out
• Restrictive
□ Has the words “For Deposit Only” on the check followed by your signature &
account number
• Special
□ Allows you to transfer checks when the check says “pay to the order of” followed
by their name/business & your signature
• Remote deposit capture
□ Deposits a check via photo w/ your signature on the check
Writing Checks
1. Record the date
2. Write the name of the person/organization receiving payment
3. Record the amount in figures (dollar amount)
4. Write the check amount in words
5. Sign the check
6. State the reason for payment
- Stop payments order
○ Are used to stop payment if the check has been lost or stolen
Reconciling your checking account
- The reported balance on your bank statement summarizes deposits, checks paid, online
payments, ATM withdrawals, interest earned, fees & service charges
○ How to correct/reconcile your balance (aka balance your check book)
1. Compare all checks written, payments & withdrawals to your records to ones that are
stated as paid on your bank statement
2. Determine/verify if any deposits have added or not sometimes there is a delay
3. Subtract fees & charges reported from bank’s statements
4. Add any interest to your check book/account
- Mistakes that can lead to problems in your account are:
○ Not being aware of spending habits
○ Verifying if the correct amount is in your account
○ Being unaware of any unauthorized use of your credit
○ Being unaware of bank fee’s & if your being over charged
○ Overlooking mistakes your bank may have made
Other payment methods
- Certified Check
○ A personal check w/ guaranteed payment
- Cashiers Check
○ A check from a financial institution that is purchased by paying for the check amount & a
fee
- Travelers checks
○ Before ATM’S these allowed people to make payments from other banks away from home
