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PF: Chapter 4
Chapter 4: Managing your Cash and Savings
| Question | Answer |
|---|---|
| Annual percentage yield (APY) | The amount of interest paid each year, given as a percentage of the investment. The APY makes it possible to compare interest rates across accounts that have different compounding periods. |
| Brokerage firm | A nondepository financial institution that helps its customers buy and sell financial securities. |
| Cash management | Management of cash payments and liquid investments. |
| Cash reserve | Liquid assets held to meet emergency cash needs. |
| Certificate of deposit (CD) | An account that pays a fixed rate of interest on funds left on deposit for a stated period of time. |
| Commercial bank | A depository institution that offers a wide variety of cash management services to business and individual customers. |
| Compounding | The frequency with which interest is calculated and added to an account. |
| Credit union | A nonprofit depository institution that is owned by its depositors. |
| Demand deposit accounts | Deposit accounts, such as checking accounts, from which money can be withdrawn with little or no notice to the financial institution. |
| Depository institutions | Financial institutions that obtain funds from customer deposits. |
| Discount bonds | Bonds that sell for less than their face value. |
| Federal Deposit Insurance Corporation (FDIC) | A government-sponsored agency that insures customer accounts in banks and savings institutions. |
| Life insurance company | A nondepository financial institution that obtains funds from premiums paid for life insurance, invests in stocks and bonds, and makes mortgage loans. |
| Maturity date | For a CD, the date on which the depositor can withdraw the invested amount and receive the stated interest. |
| Money market mutual fund | A mutual fund that holds a portfolio of short-term, low-risk securities issued by the federal government, its agencies, and large corporations and pays investors a rate of return that fluctuates with the interest earned on the portfolio. |
| Money market account | A savings account which pays interest that fluctuates with market rates on money market securities. |
| Mutual fund company | A nondepository financial institution that sells shares to investors and invests the money in financial assets. |
| Mutual savings institution | A savings institution that is owned by its depositors. |
| Nondepository institutions | Financial institutions that get funds from sources other than deposits. |
| Negotiated order of withdrawal (NOW) account | A type of checking account that pays interest. |
| Overdraft protection | An arrangement by which a financial institution places funds in a depositor’s checking account to cover overdrafts. |
| Regular checking account | A checking account that does not pay interest and requires the payment of a monthly service charge unless a minimum balance is maintained in the account. |
| Rule of 72 | A method of calculating the time it will take a sum of money to double that involves dividing 72 by the rate of interest earned on the funds. |
| Savings and loan (S&L)association | A depository institution that receives funds primarily from household deposits and uses most of its funds to make home mortgage loans. |
| Stock-held savings institution | A savings institution that is owned by stockholders. |
| Stop payment order | An order by which a financial institution promises not to honor a check that a depositor has written. |
| Time deposit account | A savings account from which the depositor may not withdraw money, without penalty, until after a certain amount of time has passed. |
| U.S. savings bonds | Bonds issued by the U.S. Treasury that pay interest that fluctuates with current Treasury security rates and that are exempt from state and local taxes. |
| Web-only financial institutions | Financial institutions that do not have physical locations but offer a menu of cash management accounts, loans, and investments. |
| Wire transfer | Electronic transmittal of cash from an account in another location. A wire transfer requires payment of a fee. |
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