Chapter 5

1. Chapter 5

2. Learning Objectives (part 1 of 2) • 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

3. 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 Learning Objectives (part 2 of 2)

4. How much liquidity should be held? • Most planners suggest 3 – 6 months • Depends on a variety of factors • Ability to lower standard of living • Current level of indebtedness • Ability to borrow against existing assets • Ability to find a new job quickly

5. Depository Institutions Providing Liquidity • Commercial banks • Savings and Loans • Mutual savings banks • Credit Union • Field of Membership

6. Types of Checks • Personal Check • Cashier’s (or bank) check • Traveler’s check • Money order

7. Types of Endorsements • Bank Endorsement • Signature only • Special Endorsement • Payable to Greg Tobey • Restrictive Endorsement • For Deposit Only • Qualified Endorsement

8. Writing a Bad Check • Insufficient funds • Correctible with payment of penalties and fees • Fraud

9. Errors in Writing Checks • Having the amount in dollars and the amount in words differ • The figure in words is binding • Failure to enter a date • Not necessary for processing • Failure to sign the check • May be processed without signature

10. Standard savings vehicles • Savings account • Certificates of deposit • Money market deposit accounts

11. Who Provides Deposit Insurance? • Federal Deposit Insurance Corporation (FDIC) • Bank Insurance Fund (BIF) • Savings Association Insurance Fund (SAIF) • National Credit Union Share Insurance Fund (NCUSIF)

12. How Deposit Insurance Works • Institution pays the premium • Based on name on the accounts, not per account • Currently $100, 000 per account name

13. Other Savings Vehicles • Savings Bonds (Series EE, HH, and I) • Treasury Bills, Notes, and Bonds • Money Market Mutual Funds

14. Series EE Savings Bonds • 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

15. Series HH Savings Bonds • 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

16. Series I Savings Bonds • 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

17. Buying Treasure Securities • Secondary Market (through a broker) • Open an account at a Federal Reserve Bank • Competitive bids • Non competitive bids

18. Money Market Mutual Funds • Hold extremely safe money market instruments • Price of shares market to $1 each day for ease of use • Can treat like a checking account

19. Money Market Instruments • Treasury bills • Commercial Paper • Negotiable CDs • Banker’s Acceptances • Repurchase Agreements