Banking, Savings, and Investing

1. Banking, Savings, and Investing

2. Types of Financial Institutions Commercial Banks Savings and Loan Associations All that a full service bank can do Focuses more on plans for investors and mortgage loans • Called Full Service banks • Open checking and saving account • Buy U.S. Saving Bonds • Take out loans • Rent safety deposit boxes • FDIC- Federal Deposit Insurance

3. Credit Unions • Services are for members only • Members share common bonds- union, company, or professional organization • Non-Profit- ran by members so operation cost are lower • Insured by National Credit Association (NCUA)

4. Electronic Banking • ATM- Automated Teller Machine • Use 24 hrs.; many locations; withdraw; tranfer; deposit • Automatic transfer of funds • Direct deposit; auto pay; can use phones/ apps • Online Banking • Use of computer or phone; paper less; 24hrs; less expensive to bank for not hiring a teller

5. Checking Accounts May have small fee to maintain Easy way for direct deposit and immediate withdrawal Establishes credit Detailed record on spending and deposits Three major types: Regular (budget account; minimum-balance account; interest bearing account)

6. Checking Accounts To pay someone with a check, you must endorse the check: Blank endorsement: can be cashed by anyone it is made out to with your signature on the front Restrictive endorsement: on back of check write in the box, for deposit only by (name); Pay in order to; Both allows on the person issued the check to cash and protects you from lost/stolen checks

7. Using a Debit Cardconnected to the checking account • Smart Card- advanced debit card • Embedded computer chip for tracking and gaining program rewards- flights, rental cars, hotel • Just tap on the receiving screen • Cash card- pre-paid type of debit card • Put up to the amount you want on the card • Never any overdrafts as it is only for amount put on card • Reloadable

8. How to balance a checkbook May receive a monthly, bimonthly or quarterly bank statement- record of your checks. Make sure this agrees with your records Cancelled checks- bank have cashed Outstanding checks- checks have not cleared the bank

9. Types of checks Traveler’s- cashed around the world in travels, can be replaced if lost or stolen Cashier’s- large sum of money, drawn from your bank, no chance to bounce as signed by bank officer Certified- personal check with bank guarantee will be paid; immediate taken from account Money Orders- made out specific amount to a specific person; paid with checking account; safer to mail

10. Safe Deposit Box • Small metal containers that protect renter’s property in the vault • Fire and theft proof • Jewelry, wills, deeds, birth certificates, stocks, bonds, insurance policies, etc. • Key kept at bank, must provide needed identification, and two keys are needed.

11. Savings accounts have Interest Simple Interest Compound Interest Used more often to calculate interest Interest is paid on deposit and on the interest Daily, monthly, quarterly, annually $1000.00 deposit earn $105.20 per year if at 10% rate • Interest is paid on money initially deposited • $1000.00 deposit will earn $100 after a year with a rate of 10%

12. Regular Savings Account • Can deposit any amount • Withdraw any amount • Possibly no fees of penalty • Pays lower interest rates • Any time and anywhere

13. Types of Saving Account Money Market (Deposit) Certification of deposits (CD) Pays a higher interest rate that is set Requires you to commit your money for a specific amount of time 30 days to ten years Minimum deposit is required Cashed before time, you will lose money • Pays slightly higher rate • Requires a minimum deposit, often $1000.00 or more • Maintain a balance of set minimum in order to gain interest • Restricted withdraw or transfers

14. Securities • Stock, Bonds, Money market funds, and Mutual funds • Represents either ownership or indebtedness • Corporations and government issue to get money to operate and expand • Sold and traded on stock exchanges/ markets • Sold at banks and savings institutes, not secure and risky

15. Investing Stocks Bonds A certificate of debt or obligation issued by a corporation or government (an official IOU) Among the safest investments possible Safety of bond depends on the credit rating of the bond issuer (high rating: little risk, vice versa) Corporate Bonds- issued by corporations Municipal Bonds- issued by state, county, and city governments U.S. Government Bonds- issued by the federal government • A share in the ownership of a company. When stock is purchased, part of the ownership of the company is purchased • Preferred Stock- stockholders are paid set amounts regardless of the companies profits, and have a higher chance of being paid if the company fails • Common Stock- stockholders are paid increasing or decreasing amounts depending on how the company fares from selling their stock

16. Investing (continued) Mutual Funds Money Market Funds A type of mutual fund that only deals with high interest, short-term investments Consisting of U.S. Treasury Bills and certificates of deposit Various market rate and cashed in at any time • A company that collects money from a number of investors and invests the money in securities. • When stock is purchased in mutual funds, the owner becomes a part investor in all of the securities invested in the fund • Allows the investor to gain from multiple investments instead of a single investment • Balanced Funds- investments in a variety of securities (preferred stock , common stock, bonds) • Specialized Funds- investments in securities of certain industries (such as utilities) • Growth Funds- investments in common stock with growth potential

17. Retirement • Individual Retirement Account( IRA) saving plan-can invest in an IRA your income, and so can a nonworking spouse. Pay taxes on your investment when withdrawn after retirement and interest is not taxed until after withdrawal. Roth IRA- the amount you contributed is taxed Keogh plan- tax deferred for self employed or unincorporated companies. Invest up to 25%

18. Real Estate • Investment in land or building • Considered a long term investment • homeowners can deduct interest on income from what you pay on mortgage or property taxes • Profitable turn a rounds • Some invest in undeveloped land and sell it for a profit once cleared of debris and property is being built.