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Chapter 5: Managing Your Cash. Explain the importance of effective cash management and list the four tools of cash management. Compare and contrast the primary providers of cash management opportunities in today’s financial services industry.
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Explain the importance of effective cash management and list the four tools of cash management. Compare and contrast the primary providers of cash management opportunities in today’s financial services industry. Understand the uses of electronic funds transfer and the legal protections available for it. Understand the criteria for choosing and using various types of checking accounts and the importance of having an interest-earning checking account. Objectives
Identify the potential benefits of opening a savings account as well as key factors to consider when comparing savings account. Explain the importance of placing excess funds in a money market account. List the potential benefits of putting money into low-risk, longer-term savings instruments. Objectives
Maximizing interest earnings Minimizing fees on all funds kept readily available for living expenses, recurring household expenses, emergencies, and saving and investment opportunities What is Cash Management? • THE TASK OF:
What is Cash Management? • Cash equivalents • Liquidity • Safety
Who Provides Financial Services? • Banks and depository institutions • Mutual funds • Stock brokerage firms • Financial services companies
Electronic Funds Transfer • Debit cards • ATMs • Point-of-sale terminals • Smart card and stored-value cards • Pre-authorized deposits and payments • Electronic benefits transfer
EFT Regulations • Electronic Funds Transfer Act - 1978 • Regulation E - Federal Reserve Board • Disclosure statement • Periodic statement • Liability for unauthorized use
Cash Management Tools • Interest-earning checking accounts • Savings accounts • Money market accounts • Low-risk, long-term savings instruments
Checking Accounts • Allows transfer of deposited funds to merchants and service providers, as well as to accounts at other financial institutions.
Types of Checking Accounts • Demand deposits (traditional) • Special checking • Regular checking • Lifeline banking • Interest-earning checking • Share draft
Service fees Per-check charges Transaction charges Account exception fees Checking Accounts • CHARGES, FEES, AND PENALTIES:
Individual account Joint tenancy Tenancy in common Tenancy by the entirety Minor’s account Community property Trust Ownership Rights
Current income that is not spent on consumption; provides source of emergency funds and/or temporary place for funds in excess of daily living expenses. Savings • PAY YOURSELF FIRST!
Statement savings account (passbook) Time deposits Fixed-time deposits Interest savings account Savings Accounts
Any of a variety of interest-earning accounts that pay relatively high interest rates and offer some limited check-writing privileges. Money Market Accounts
Money Market Accounts • Super NOW Accounts • Money Market Deposit Accounts (MMDA) • Money Market Mutual Funds • Asset Management Accounts (AMA)
Low-Risk, Long-Term Savings Instruments • Allow even higher returns in exchange for less liquidity (accumulate and transfer from MMA).
Low-Risk, Long-Term Savings Instruments • Certificates of Deposit (CDs) • U.S. Government Savings Bonds • EE (Patriot Bonds)I Bonds • College Savings Trust Funds
EE and Patriot Bonds(see SavingsBonds.com) 10 Things You Should Know About the "Patriot Bond"
I Bonds(see SavingsBonds.com) • Current Rate for November 1, 2009 to April 2010 is 3.36% [.30% fixed rate + (2 x 1.53% semi-inflation rate) + (.30% fixed rate x 1.53% semi-inflation rate)] • Savings bonds purchased BEFORE Nov 1st, 2007 are NOT earning the CURRENT RATE ABOVE!Denominations Available: $50 , $75 , $100 , $200 , $500 , $1,000 , $5,000 and $10,000. Series I bonds are issued only in registered form and are not transferable. The bonds may be either in book-entry or definitive form.You can purchase up to $5,000 worth of I Bonds annually (each calendar year). NOTE: You can purchase up to $5,000 in EE Bonds as well, totaling $10,000 max annually in paper bonds as of January 1, 2008. An individual may also purchase $5,000 in ELECTRONIC EE Bonds as well as an additional $5,000 in ELECTRONIC I bonds; for a grand total of $20,000 in savings bonds per calendar year. This number is down from the limit of $60,000, prior to January 1, 2008. I Bonds are an accural type security interest is added to the bond monthly, and paid when a bond is redeemed (cashed). Can be purchased at most local financial institutions, or payroll savings plans. (ie: banks, credit unions and the internet. • You cannot exchange I Bonds for HH Bonds.You cannot exchange EE Bonds for I Bonds. (You CAN cash in your EE bonds and use the money to purchase I Bonds, however, the interest earned on the EE Bonds must be reported on your Federal Income Tax return in the year you cash the bonds.)There is a 3 month penalty for cashing in an I Bond before it is five years old.
You Can BankFrom Home • Bank-based programs • Bill-paying programs • Computer based programs
Checks forSpecial Needs • Traveler’s Check • Money Orders • Certified Checks • Cashier’s Checks
OverdraftProtection • Good faith agreement • Insufficient funds • Automatic funds transfer • Automatic overdraft loan 5 - 26
Reconcile YourChecking Account • 1. Retrieve previous month’s statement. • 2. Place checks in order by check number/date of issue. • 3. Compare canceled checks with transaction register. • 4. Subtract any charges from transaction register. • 5. Compare with deposit slips. • 6. List all outstanding checks. • 7. Compare register and statement balances.
