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PF: Chapter 4

Chapter 4: Managing your Cash and Savings

QuestionAnswer
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Demand deposit accounts Deposit accounts, such as checking accounts, from which money can be withdrawn with little or no notice to the financial institution.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.
Created by: 531742212