Chapter 5
Learning Objectives
(part 1 of 2)
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Discuss the issues in deciding how
much liquidity a person should hold
Name the various depository institutions
and explain how they differ
Describe the different types of checks
Discuss the effect of different types of
endorsements on a check
Learning Objectives
(part 2 of 2)
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Describe the process for resolving a "bad"
check
Discuss various aspects of deposit insurance
Describe the various types of savings bonds
Describe the various types of money market
assets an investor might purchase
How much liquidity should be
held?
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Most planners suggest 3 – 6 months
Depends on a variety of factors
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Ability to lower standard of living
Current level of indebtedness
Ability to borrow against existing assets
Ability to find a new job quickly
Depository Institutions Providing Liquidity
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Commercial banks
Savings and Loans
Mutual savings banks
Credit Union
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Field of Membership
Types of Checks
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Personal Check
Cashier’s (or bank) check
Traveler’s check
Money order
Types of Endorsements
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Bank Endorsement
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Special Endorsement
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Payable to Greg Tobey
Restrictive Endorsement
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Signature only
For Deposit Only
Qualified Endorsement
Writing a Bad Check
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Insufficient funds
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Correctible with payment of penalties and
fees
Fraud
Errors in Writing Checks
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Having the amount in dollars and the
amount in words differ
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Failure to enter a date
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The figure in words is binding
Not necessary for processing
Failure to sign the check
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May be processed without signature
Standard savings vehicles
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Savings account
Certificates of deposit
Money market deposit accounts
Who Provides Deposit Insurance?
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Federal Deposit Insurance Corporation
(FDIC)
Bank Insurance Fund (BIF)
Savings Association Insurance Fund
(SAIF)
National Credit Union Share Insurance
Fund (NCUSIF)
How Deposit Insurance Works
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Institution pays the premium
Based on name on the accounts, not
per account
Currently $100, 000 per account name
Other Savings Vehicles
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Savings Bonds (Series EE, HH, and I)
Treasury Bills, Notes, and Bonds
Money Market Mutual Funds
Series EE Savings Bonds
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Rreplaces old Series E
Interest accrues
Interest rate adjusted May 1 & Nov. 1
Interest exempt if used to pay
education expenses
Purchased for ½ of face value
Series HH Savings Bonds
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Replaces old Series H
May be bought by rolling over E or EE
bonds
Interest paid semiannually
Interest rates reset on 10th anniversary
of purchase
Series I Savings Bonds
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Pays a low fixed rate, plus an inflation
premium
Inflation rate adjustment reset in May
and November
Lowest possible rate is zero (in case of
deflation)
Restrictions on early redemptions
Buying Treasure Securities
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Secondary Market (through a broker)
Open an account at a Federal Reserve
Bank
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Competitive bids
Non competitive bids
Money Market Mutual Funds
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Hold extremely safe money market
instruments
Price of shares market to $1 each day
for ease of use
Can treat like a checking account
Money Market Instruments
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Treasury bills
Commercial Paper
Negotiable CDs
Banker’s Acceptances
Repurchase Agreements