Chapter 4 –
Managing Your Cash and
Savings
COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd
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Chapter 4 - Learning Goals
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Understand the role of cash management in the personal
financial planning process.
Describe today’s financial services marketplace, both
traditional and non-depository financial institutions.
Select the chequing, savings, electronic banking, and
other bank services that meet your needs.
Calculate the interest earned on your money using
compound interest.
Develop a savings strategy that incorporates a variety of
savings plans.
Open and use a chequing account.
Learning
Goals
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Chapter 4 – Managing Your Cash and Savings
Internet Links and On Line Resources
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Web Links
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Credit Union Central of Canada
ING Bank (internet bank)
PC Financial (internet bank owned by CIBC)
ICICI Bank (internet bank)
Canada Deposit Insurance Corporation (CDIC)
Order cheques online or for a list of websites providing this
service.
Financial Consumer Agency of Canada
A Working Women’s Guide to Financial Security, “Planning for
Independence”
Current rates found at Canoe Money
Government of Canada on T-bills and other government
financial securities
Canada Savings Bonds
Banking Basics: Chequing Account Checklist
How to Read a bank statement
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Chapter 4 – Managing Your Cash and Savings
Key Chapter Terms and Definitions
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Terms
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Cash management
Chartered bank
Credit union
Trust companies
Securities dealers
Demand deposit
Time deposit
Money market mutual fund
Asset management account
Electronic Funds Transfer
System
Debit cards
Automated banking machine
(ABM)
Compound interest
Simple interest
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Nominal (stated) rate of
interest
Effective rate of interest
Guaranteed investment
certificate (GIC)
Canada treasury bill
Canada Savings Bonds (CSB)
Chequebook ledger
Overdraft
Overdraft protection
Stop payment
Account reconciliation
Bank draft
Traveller’s cheque
Certified cheque
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Chapter 4 – Managing Your Cash and Savings
Definitions
Cash Management
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The routine, day-to-day administration of cash and
near cash resources, also known as liquid assets,
by an individual or family.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Chartered Bank
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A financial institution in
Canada that is chartered by
the federal government under
the Bank Act to provide
banking services including
deposit-taking in the form of
chequing and savings
accounts as well as lending
services in the form of
personal and corporate loans
and mortgages.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Credit Union and Caisses Populaire
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A member-owned financial
cooperative that offers
different types of chequing
accounts, savings
accounts, and loans to its
members (depositors.)
Caisses Populaire is the
french term for credit
union used in the province
of Quebec, Ontario and
Manitoba.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Trust Company
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A deposit-taking financial institution registered
under either federal or provincial law.
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Most are subsidiaries of major Canadian banks.
Like banks they accept deposits and provide lending
services.
In addition, they are able to act as trustees (administer
an estate) – hence their name!
Trust companies have developed a number of other lines
of business in service of the corporate community
including maintaining shareholder’s registers, etc.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Deposit Insurance
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A type of insurance that protects funds on
deposit against the failure of the
institution; insuring agencies include the
Canada Deposit Insurance Corporation
(CDIC) for banks and various provincial
stabilization funds for credit unions.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Securities Dealers
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Securities Dealers (Investment Dealers) act
as brokers for individual and corporate
investors. In addition, they provide a wide
range of services:
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Sell money market mutual funds
Special ‘wrap’ accounts
Credit cards
Securities dealers also provide underwriting
services (supports corporations and advises
them and implements the design and sale
of new securities)
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Canada Deposit Insurance Corporation
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A federal crown corporation with access to the
consolidated revenue accounts of the Government
of Canada – provides deposit insurance to
customers of federally-regulated financial
institutions (banks and most trust companies)
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Demand Deposit
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An account held at a financial institution
from which funds can be withdrawn (by
cheque or in cash) on demand by the
account holder; same as a chequing
account.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Time Deposit
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A savings deposit at a financial institution;
so-called because it is expected to remain
on deposit for a longer period of time than
a demand deposit.
Examples:
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Term deposits
Guaranteed Investment Certificates
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Money Market Mutual Fund
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A mutual fund that pools the funds of many small
investors and purchases high-return, short-term
marketable securities offered by the Canadian
government, major corporations, chartered banks
and various government organizations.
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A mutual fund invested in money market securities
such as:
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Government of Canada Treasury Bills
Commercial Paper
Bankers’ Acceptances
Finance Company Paper
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Asset Management Account
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A comprehensive deposit account; combines
chequing, investing and borrowing activities
and automatically “sweeps” excess balances
into a money market mutual fund and
automatically provides loans when shortages
exist.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Electronic funds transfer systems (EFTS)
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Systems that use the latest telecommunications
and computer technology to electronically
transfer funds into and out of customers’
accounts.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Debit cards
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Specially coded plastic cards used to transfer
funds from a customer’s bank account to the
recipient’s account to pay for goods or services.
An ABM card is a debit card that also provides
access to a variety of banking transactions
through an ABM.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Automated banking machine (ABM)
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A type of remote computer terminal at which
customers of a bank or other depository
institution can make basic transactions 24
hours a day, 7 days a week.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Compound interest
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Interest earned by applying the nominal
(stated) rate of interest to the sum of the initial
deposit and the combined interest already
earned.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Simple interest
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Interest that is paid only on the initial amount
of the deposit.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Nominal (stated) rate of interest
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The promised rate of interest paid on a savings
deposit or charged on a loan.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Effective rate of interest
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The annual rate of return that is actually
earned (or charged) during the period the
funds are held (or borrowed).
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Guaranteed investment certificate (GIC)
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A type of savings instrument issued by certain
financial institutions in exchange for a deposit;
typically requires a minimum deposit and has a
maturity ranging from 30 days to as long as
five or more years.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Canada Treasury bill (T-bill)
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A short-term (3-month, 6-month or 12-month
maturity) debt instrument issued by the
Canadian government in the ongoing process of
funding the national debt.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Canada savings bond (CSB)
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A savings bond issued in various denominations
by the Canadian government.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Chequebook ledger
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A ledgeer, provided with a supply of cheques,
used to maintain accurate records of all
chequing account transactions.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Overdraft
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The result of writing a cheque for an amount
greater than the current account balance.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Overdraft protection
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An arrangement between the account holder
and the depository institution wherein the
institution automatically pays a cheque that
overdraws the account.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Stop payment
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An order made by an account holder instructing
the depository institution to refuse payment on
an already issued cheque.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Account reconciliation
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The process of verifying the accuracy of one’s
chequing account records in light of the bank’s
records as reflected in the bank statement,
which contains an itemized listing of all
transactions within the chequing account.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Bank draft
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A cheque payable to a third party that is drawn
on a bank on itself in exchange for the amount
specified plus, in most cases, a service fee (of
$5 or $10).
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Traveller’s cheque
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A cheque sold (for a fee of about 1.5 percent)
by many large financial institutions, in
denominations ranging from $20 to $100, that
can be used for making purchases and
exchanged for local currencies in most parts of
the world.
Terms
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Chapter 4 – Managing Your Cash and Savings
Definitions
Certified cheque
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A personal cheque that is guaranteed (for a fee
of $10 to $15 or more) by the bank on which it
is drawn.
Terms
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Chapter 4 – Managing Your Cash and Savings
THE END!
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