Chapter 5:
Managing Your Cash
Objectives
•
Explain the importance of effective cash management and list the four
tools of cash management.
•
Compare and contrast the primary providers of cash management
opportunities in today’s financial services industry.
•
Understand the uses of electronic funds transfer and the legal
protections available for it.
•
Understand the criteria for choosing and using various types of
checking accounts and the importance of having an interest-earning
checking account.
Objectives
•
Identify the potential benefits of opening a savings account as well as
key factors to consider when comparing savings account.
•
Explain the importance of placing excess funds in a money market
account.
•
List the potential benefits of putting money into low-risk, longer-term
savings instruments.
What is Cash Management?
THE TASK OF:
• Maximizing interest earnings
• Minimizing fees on all funds kept readily
available for living expenses, recurring
household expenses, emergencies, and
saving and investment opportunities
What is Cash Management?
• Cash equivalents
• Liquidity
• Safety
Who Provides Financial Services?
• Banks and depository institutions
• Mutual funds
• Stock brokerage firms
• Financial services companies
Electronic Funds Transfer
• Debit cards
• Smart card and storedvalue cards
• ATMs
• Pre-authorized
deposits and payments
• Point-of-sale
terminals
• Electronic benefits
transfer
EFT Regulations
• Electronic Funds Transfer Act - 1978
• Regulation E - Federal Reserve Board
• Disclosure statement
• Periodic statement
• Liability for unauthorized use
Cash Management Tools
• Interest-earning checking accounts
• Savings accounts
• Money market accounts
• Low-risk, long-term savings instruments
Checking Accounts
Allows transfer of deposited funds to
merchants and service providers, as well as
to accounts at other financial institutions.
Checking Accounts
CHARGES, FEES, AND PENALTIES:
• Service fees
• Per-check charges
• Transaction charges
• Account exception fees
Savings
PAY YOURSELF FIRST!
Current income that is not spent on
consumption; provides source of emergency
funds and/or temporary place for funds in
excess of daily living expenses.
Money Market Accounts
Any of a variety of interest-earning accounts
that pay relatively high interest rates and
offer some limited check-writing privileges.
Low-Risk, Long-Term Savings Instruments
Allow even higher returns in exchange for
less liquidity (accumulate and transfer from
MMA).
Low-Risk, Long-Term Savings Instruments
• Certificates of Deposit (CDs)
• U.S. Government Savings Bonds
• EE (Patriot Bonds)
I Bonds
• College Savings Trust Funds
EE and Patriot Bonds
(see SavingsBonds.com)
10 Things You Should Know About the "Patriot Bond"
1.
Purchased over-the-counter and via internet
2.
Series EE bonds will be inscribed with "Patriot Bond" title - making them no different from actual EE bonds
3.
Purchased for half its face value - Increase in value monthly and interest is compounded semi-annually
4.
EE/E Bonds purchased between May 1997 and April 30, 2006, earn a variable market based rate of return. Series EE Bonds issue dated May 2005 and after
will earn a fixed rate of interest. Current yield is 1.20 %- effective until April 2010(same rate as EE bonds)
5.
Available in denominations: $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000
6.
Maximum annual purchase limit is $15,000 ($30,000 face value) per person
7.
Guaranteed to reach initial maturity (face value) in 17 years - however - there is a 3-month interest penalty if the bond is redeemed before 5 years
8.
Will reach final maturity (completely stop earning interest) in 30 years
9.
There is no state or local income tax on the interest earned
10.
Interest earned could be tax exempt if used for education purposes
I Bonds
(see SavingsBonds.com)
Current Rate for May 2015 was 1.94%
Series I Savings Bonds Rates 2010 – 2014: Nov. 2010 = 0.74%; May 2011 = 4.60%; Nov. 2011 = 3.06%; May 2012 =
2.20%; Nov. 2012 = 1.76%; May 2013 = 1.18%; Nov. 2013 = 1.38%.
Denominations Available: $50 , $75 , $100 , $200 , $500 , $1,000 , $5,000 and $10,000.
Series I bonds are issued only in registered form and are not transferable. The bonds may be either in book-entry or
definitive form.
You can purchase up to $5,000 worth of I Bonds annually (each calendar year). NOTE: You can purchase up to
$5,000 in EE Bonds as well, totaling $10,000 max annually in paper bonds as of January 1, 2008. An individual may
also purchase $5,000 in ELECTRONIC EE Bonds as well as an additional $5,000 in ELECTRONIC I bonds; for a
grand total of $20,000 in savings bonds per calendar year. This number is down from the limit of $60,000, prior to
January 1, 2008. I Bonds are an accural type security interest is added to the bond monthly, and paid when a bond is
redeemed (cashed).
Can be purchased at most local financial institutions, or payroll savings plans. (ie: banks, credit unions and the
internet.
You cannot exchange I Bonds for HH Bonds.
You cannot exchange EE Bonds for I Bonds. (You CAN cash in your EE bonds and use the money to purchase I
Bonds, however, the interest earned on the EE Bonds must be reported on your Federal Income Tax return in the year
you cash the bonds.)
There is a 3 month penalty for cashing in an I Bond before it is five years old.
You Can Bank
From Home
• Bank-based programs
• Bill-paying programs
• Computer based programs
Checks for
Special Needs
• Traveler’s Check
• Money Orders
• Certified Checks
• Cashier’s Checks
Overdraft
Protection
• Good faith agreement
• Insufficient funds
• Automatic funds transfer
• Automatic overdraft loan
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