Dr. Steve Hays
Personal Finance
Bishop Kearney High School
Spring 2015
Objectives
1.
2.
3.
4.
Identify commonly used
financial services
Compare the different types of
financial institutions
Assess various types of savings
plans
Evaluate different types of
payment methods
What Financial Services Do You Need?
Banks, savings and loans associations, credit
unions, and other financial institutions provide,
payment, savings and credit services.
Meeting Daily Money Needs
Common mistakes made when managing current
cash needs include
 Overspending
 Insufficient liquid asset
 Using savings to pay for current expenses
 Failing to put extra funds in an interest bearing
or investment account


There are times when you need more cash
than you have available
You have two basic choices



Liquidate savings
Borrow
Using savings and increased use of borrowed
funds may reduce net worth and your potential
to achieve long-term stability

Savings.


Payment services.




Time deposits in savings and
in certificates of deposit.
Checking accounts monies are
commonly called demand deposits.
Automatic payments.
Borrowing for the short- or long-term.
Other financial services.

Insurance, investment, real estate purchases, tax
assistance, and financial planning are
additional services you may use.

Asset management account.



(continued)
Also called a cash management account.
Offered by brokers and financial institutions.
Provides a complete financial services program
for a single fee and includes...







A minimum balance.
A checking account and an ATM card.
A credit card
Online banking.
A line of credit for quick cash loans.
Access to a variety of investments.
www.schwab.com or www.americanexpress.com.
For successful financial planning be aware of
the following:


The prime rate is what banks charge large
corporations. See www.federalreserve.gov.
When interest rates are rising...
 Use long-term loans to take advantage of current
low rates.
 Select short-term savings instruments to take
advantage of higher rates when they mature.
When interest rates are falling...
 Use short-term loans to take advantage of lower
rates when you refinance the loans.
 Select long-term savings instruments to
“lock in” earnings at current high rates.
Most banks are offering online
services, however the Web-only
banks have started to expand over
the years e.g. E*Trade Bank. These
electronic branches and banks
provide the following services:
 Direct deposit of paychecks and other
regular income.
 Automatic payments transfer funds such
as for utilities. Remember to deduct them
from your register.
 ATM access to obtain cash, check account
balances, and transfer funds - check out
the fees.
 A debit card - takes money out of your
account. Lost card liability $50-$500.
Selecting a Financial Institution
 Higher rate of return may
be obtained at the cost
of lower liquidity.
 Convenience of a 24-hour ATM
should be considered against service fees.
 The “no fee” checking account that
requires a $500 non-interest-bearing
minimum balance means lost interest of
nearly $400 at 6 percent compounded over
10 years.
 Deposit type institutions




Commercial banks are corporations that offer
a full range of services including checking,
savings, lending and other services.
Savings and loan associations have checking
accounts, specialized savings plans, loans and
financial planning and investment services.
Mutual savings banks specialize in savings
accounts and mortgage loans. They are owned
by their depositors, with profits going back to
depositors by paying a higher rate on savings.
Credit unions are user-owned, nonprofit and
provide comprehensive financial services.
(continued)
 Non-deposit type institutions.
 Life insurance companies offer insurance plus
savings and investment features, with some
offering financial planning and investing
services.
 Investment companies offer a money market
fund on which you can write a limited number
of checks.
 Finance companies make short and medium
term loans to consumers, but at higher rates.
(continued)


Non-deposit type institutions
(continued).
 Mortgage companies
provide loans to customers
so they can purchase homes.
Problematic Financial
Businesses
 Pawnshops make loans on
possessions but charge
higher fees than other
financial institutions. Used
for quick cash.
 Check-cashing outlets
charge 1-20% of the face
value of a check. 2-3% is
average.
 Title and payday loan
companies - high interest.
 Rent-to –Own Centers
leasing merchandise at high
interest rates to low-income
customers

Consider
Services offered.
 Interest rates.
 Fees and charges.
 Financial advice.
 Safety (deposit insurance).
 Convenience.
 Locations.
 Online services.
 Special programs.

Types of Savings Plans
 Regular savings accounts.
 Certificates of deposit.
 Require you to leave your money on
deposit for a set time period, otherwise
you incur penalties.


Several types to chose from.
Consider all the earnings and all the costs.
 Interest earning checking accounts.
 Money market accounts and funds.
 Money market accounts are covered by the
FDIC, but money market funds are not.
(continued)
 U.S. savings bonds.
 Series EE sold at half of face value, with
potential tax advantages if used to pay tuition
and fees.
 Series HH pays interest every six months.
 See www.savingsbonds.gov for rates.
 Advantages
 Exempt from state and local income taxes.
 You don’t have to pay federal income tax on
earnings until you redeem the bonds.
 Rate of return or yield.
 Percentage increase in value due to interest.
 Compounding.
 Interest on previous interest earned.
 Inflation - compare the rate of return on
your savings with the inflation rate.
 Tax considerations for interest earned
 Liquidity.
 Safety via FDIC and NCUA.

FDIC insures up to $250,000 per person per
financial institution (see www.fdic.gov).
 Restrictions and fees
 (1 - tax rate) x yield on savings
 (1 - .28) x .06
 .72 x .06
 4.32%
 This means that a person who is
earning 6% on their savings, but has a
28% marginal tax rate, is actually
earning 4.32% rate of return after they
pay income taxes on the interest.
 Requires Disclosure of...
 Fees on deposit account.
 The interest rate.
 The annual percentage yield.
 Other terms and conditions.
 Sets formulas for computing the APY.
 Requires disclosure of fees and APY on
customer statements.
 Establishes rules for advertising accounts.
 Restricts the method of calculating the
balance on which interest is paid.

Comparing Payment Methods
While check writing is the most common form of
consumer transactions, there is a considerable
amount of electronic payment used for retail
transaction
Electronic Payments
•
•
•
•

Debit Card Transactions
Online Payments
Stored-value Cards
Smart Cards
Checking Accounts
Types of checking accounts include...
 Regular Checking Accounts
 Usually have a monthly service charge.

Activity account.
 Charge a fee for each check written, and sometimes for
deposits.

Types of checking accounts
include…(continued)



Interest-earning or NOW accounts which
usually require a minimum balance.
Share draft accounts are interest earning
checking accounts kept in a credit union.
Evaluating checking accounts.




Restrictions, such as a minimum balance.
Fees, which are increasing, and charges.
Interest rate and computation method.
Special services, such as overdraft protection.

Certified check.


Cashier’s check.


Check of a financial institution you get by
paying the face amount plus a fee.
Money order.


Personal check with guaranteed payment.
Purchase at financial institution, post office,
store.
Traveler’s check.


Sign each check twice.
Electronic traveler’s checks - prepaid travel
card with ability to get local currency at an
ATM.
Obtaining and using a checking account
involves several activities
1.
2.
3.
Opening a Checking Account:
•
Individual vs. joint account
•
3 types of endorsements
Making Deposits
– Blank endorsement
– Restrictive endorsement
– Special endorsement
Writing Checks
•
Steps for proper check writing
– Record the date
– Write the name of the person/organization receiving
the check
– Record the amount of the check in figures
– Write the amount of check in words
– Note the reason for the payment
(continued)
4. Reconciling your checking account
•
Steps involved in reconciling bank
statements
–
–
–
–
Compare the written checks with those
reported paid. Subtract the total of all checks
written but not yet reported as cleared
Determine deposits not on the statement. Add
the amount to the statement balance
Subtract fees or charges and ATM
withdrawals from the checkbook balance
Add any interest to your checkbook balance