Personal Finance--Ch. 5

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Terms

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Traveler's Checks: Are issued by large financial institutions and sold through various outlets. They are accepted almost everywhere.
Mutual Savings Bank (MSB): Is similar to an S&L in that it also accepts deposits and makes housing and consumer loans. These banks are legally permitted in only 17 states, primarily those in the eastern U.S. The depositors own the institution and share in the earnings.
Series EE Savings Bonds: U.S. government savings instruments, available in denominations ranging from $25 to $10,000, that are purchased for 50% of their face value. Thus, one of these would be purchased for $50 and redeemed at maturity for $100. an example of a discount bond.
Automated Teller Machine (ATM): A computer terminal located on the premises of a financial institution or elsewhere through which customers may make deposits (usually restricted to your own bank's ATMs), make withdrawals, and complete other financial transactions just as they would through a human bank teller.
Series I Savings Bond: A variation of the Series EE bond; are not discount bonds, but instead are bought at face value. A fixed interest rate is set when the bond is purchased. An inflation rate is then added that is tied to the changes in the Consumer Price Index (CPI) rather than to the average rate for Treasury security issues.
Monetary Asset (cash) Management: Encompasses how you handle all of your monetary assets, including cash on hand, checking accounts, savings accounts, money market accounts, and other short-term investment vehicles, and longer-term savings instruments.
Automated Teller Machine (ATM): Sometimes called a cash machine.
Tiered Interest Rate: The combination of a base rate and a higher rate.
Truth in Savings Act of 1991: States that the annual percentage yield will be based on a 365 day year basis and that the frequency of compounding will be expressed as a percentage.
Negotiable Instrument: An unconditional written promise to pay a specified sum of money as of a specific date to a specified payee or bearer.
Liquidity: Refers to the speed and ease with which as asset can be converted to cash.
Money Order: A checking instrument bought for a particular amount. Usually written for relatively small amounts, and the fee charged is based on the amount of the order.
National Credit Union Administration (NCUA): Administers the National Credit Union Share Insurance Fund (NCUSIF).
Money Market Deposit Account (MMDA): Also a government-insured money market account offered through a depository institution. It has minimum balance requirements and tiered interest rates that vary with the size of the account balance. Institutions are allowed to establish fees for transactions and account maintenance, and account holders typically are limited to 3 to 6 transactions each month. Generally pay higher interest rates than super NOW accounts.
Automatic Overdraft Loan Agreement: The needed funds will be automatically loaned to you by your bank or charged to your Visa or MasterCard account.
Mutual Fund: An investment company that raises money by selling shares to the public and then invests that money in a diversified portfolio of investments.
Bounce Protection Agreement: The bank will honor checks written against insufficient funds up to a certain limit, such as $1,000. In return, the customer must pay a $20 to $30 fee for each overdraft check and has one week to repay the funds.
Commercial Banks: Are corporations chartered under federal and state regulations. They offer numerous consumer services, such as checking, savings, loans, safe-deposit boxes, investment services, financial counseling, and automatic payment of bills.
Minimum-Balance Account: The customer must keep a certain amount in the account throughout a specified time period (usually a month or a quarter) to avoid a flat service charge (usually $5 to $15).
Statement Savings Account: Using this account allows frequent deposits or withdrawals of funds. No fees are assessed as long as a low minimum balance is maintained. Holders of these are provided with printed receipts to document their account transactions, and transactions usually can be accessed via ATMs.
Electronic Funds Transfers (ETFs): Funds are shifted electronically (rather than by check or cash) among various bank accounts.
Savings Account: Simply consists of current income that is not spent on consumption. Provides you with readily accessible sources of emergency cash and a temporary holding place for funds in excess of those needed for daily living expenses.
Grace Period: The period during which deposits or withdrawals can be made and still earn the same interest as other savings from a day of the given interest period.
Demand Deposits: Traditional checking accounts at commercial banks are technically known as this.
Periodic Statement: General protection of a customer's account takes the form of this sent by the financial institution that shows all electronic transfers to and from the account, fees charged, and opening and closing balances.
Fixed-Time Deposits: Specify a period that the savings must be left on deposit, such as six months or three years; certificates of deposit fit this description.
Cash Equivalents: Funds are called this because they retain a constant or nearly constant value and because they have regular liquidity.
Endorsement: The process of writing on the back of a check to legally transfer its ownership, usually in return for the cash amount indicated on the face of the check.
Annual Percentage Yield (APY): Is a percentage based on the total interest that would be received on a $100 deposit for a 365-day period given the institution's annual rate of simple interest and frequency of compounding.
Automatic Funds Transfer Agreement: The amount necessary to cover a bad check will be transmitted from your savings account to your checking account, as long as you keep sufficient funds in your account.
Checking Account: At a depository institutions allows you to write checks against amounts you have on deposit, thereby transferring your deposited funds to other people and organizations.
Certificate of Deposit (CD): An interest-earning savings instrument purchased for a fixed period of time. The required deposit amounts range from $100 to $100,000, while the time periods range from seven days to eight years. The interest rate enforced when the CD is purchased typically remains fixed for the entire term of the deposit. Insured through the FDIC or NCUSIF (if thru CU).
Treasury Inflation-Protected Securities (TIPS): Are similar to savings bonds. They are the only treasury security whose value increases as inflation occurs, so they guarantee that the investor's return will outpace inflation. The principle is adjusted every six months according to the rise and fall of the Consumer Price Index (CPI).
Money Market Mutual Fund (MMMF): A money market account in a mutual fund investment company (rather than a depository institution). It pools the cash of thousands of investors and earns a relatively safe and high return by buying debts with very short-term maturities (always less than one year). Interest is calculated daily, and an investor can withdrawal funds at any time. These typically pay the highest rate of return that can be earned on a daily basis by small investors.
Money Market Account: Any of a variety of interest-earning accounts that pay relatively high interest rates (compared with regular savings accounts) and offer some limited check-writing privileges.
Asset Management Account (AMA): Also known as central asset accounts.
Super NOW Account: Government-insured money market account offered through depository institutions; it takes the form of a high-interest NOW account with limited checking privileges. The initial minimum deposit typically ranges from $1,000 to $2,500. If the average balance falls below a specified amount (such as $1,000), the account reverts to earning interest at the lower rate offered on a regular NOW checking account.
Account Reconciliation: You compare your records with your banks records, checking the accuracy of both sets of records and identifying any errors. The best time to do so is when you receive your monthly account statement from your bank.
Asset Management Account (AMA): Also known as an all-in-one account.
Share Draft Account: The credit union version of a NOW account. Its name arises because members of the credit union actually own the organization and their deposits are called shares.
Bump-up CDs: Allow savers to bump up the interest rate once to a higher market rate, if available, and to add up to 100% of the initial deposit whenever desired.
Average Daily Float: average dollar amount of checks or drafts in the process of collection, and not credited to the account as collected funds or available funds.
Card Registration Service: Some firms sell this that will notify all companies where you have debit and credit cards in the event of loss. For $15 to $50 per year, you need to make only one telephone call to report all call losses.
Negotiable Order of Withdrawal (NOW) Account: This checking account earns interest or dividends as long as minimum balance requirements are satisfied. This can be described as an interest earning checking account.
National Credit Union Share Insurance Fund (NCUSIF): Provides the same safety as deposits insured by the FDIC, except for credit unions.
Electronic Benefits Transfer (EBT): Directs cash benefits to recipients using smart cards as the delivery mode. Recipients may include individuals who do not have bank accounts and those who do not receive their benefits by direct deposit. An organization "puts" a certain amount of money or credit on the plastic card, which is then used by the recipient to make purchases at POS terminals or to obtain cash from ATMs.
Asset Management Account (AMA): Is a multiple-purpose, coordinated package that gathers most of the customer's monetary asset management vehicles into a unified account and reports them on a single monthly statement.
Credit Union (CU): A not-for-profit cooperative venture that pools the deposits of its member owners, which are then invested or lent to those member owners. The members of these all share some common bond, such as the same employer, church, union, or federal association.
Safety: Freedom from financial risk
Check Register: Where a written record of each check may be recorded.
Time Deposits: Are savings expected to remain on deposit in a financial institution for an extended period.
Discount Bond: A bond sold at less than its face value.
Bank Insurance Fund (BIF) of the Federal Deposit Insurance Corporation (FDIC): An agency of the federal government which insures state-chartered bank's customers' accounts.
Brokered Certificates of Deposit: Stock brokerage firms often buy CDs in volume to resell to individuals.
Financial Services Industry: Providers of monetary asset management services are collectively referred to as this.
Availability Float: Results from an individual or firm not being granted immediate availability on all deposited items.
Stock Brokerage Firm: A licensed financial institution that specializes in selling and buying stocks, bonds, and other investment alternatives. Such firms provide advice and assistance to investors and earn commissions based on the buy and sell orders that they process for their clients.
Restrictive Endorsement: Uses the phrase "For Deposit Only," written on the back along with a signature. It authorizes the financial institution to accept the check only as a deposit to an account. No one else can cash such a check.
Debit (or Check) Card: A plastic card that provides instant access to your checking account; it is issued by the financial institution where the user maintains his or her checking account.
Special Endorsement: Can be used to limit who can cash a check; to make this kind of endorsement, you write the phrase "Pay to the Order of [name]" on the back along with your signature. Can be used to sign a check over to another person.
Lifeline Banking Account: Offers access to certain minimal financial services that every consumer needs--regardless of income--to function in our society. An application's income and net worth determine acceptance.
Deposit Insurance: Deposits in depository institutions are insured against loss of both the amount of deposit and the accrued interest by various insurance funds.
Depository Institutions: Are organizations licensed to take deposits from and make loans to consumers, firms, or governments. They all can offer some form of government account insurance on their customer's deposits and are government regulated. They offer a wide range of financial services.
Interest Earning Checking Account: Simply a checking account that pays interest to the depositor.
Variable-rate Certificates of Deposit: These instruments pay an interest rate that is adjusted (up or down) periodically. Typically, savers are allowed to "lock in," or fix, the rate at any point before their CDs mature. Of course, this variability detracts from the main virtue of the fixed-rate CD; predictability.
Smart Cards and Stored-Value Cards: Plastic payment devices that use built-in computer chips or magnetic strips to store data and handle payment functions.
Blank Endorsement: Contains only the payee's signature on the back. Such a check immediately becomes a bearer instrument. It is wise to never do this to a check.
Stop-payment Order: Tells your bank not to honor a check when it's presented for payment.
Bearer Instrument: Meaning that anyone who attempts to cash it very likely will be allowed to do so, even if the check has been lost or stolen.
Average-Balance Account: A service fee is assessed only if the average daily balance of funds in the account drops below a certain level during the specified time period.
Savings and Loan Association (S&L): Focus primarily on accepting savings and providing mortgage and consumer loans. They offer checking services through interest earning NOW accounts.
Electronic Banking: Occurs whenever banking transactions are conducted via computers without the customer using paper documents or having face-to-face contact with financial services personnel.
Disclosure Statement: When you sign up for electronic banking services, the depository institution must inform you of your rights and responsibilities in one of these in written form.
Point-of-Sale (POS) Terminal: Computer terminal located at a store or other merchant location that allows the customer to make purchases electronically via a debit card or credit card.

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