Managing Your Cash. Cash Management $ The daily routine of handling money to take care of individual...
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Transcript of Managing Your Cash. Cash Management $ The daily routine of handling money to take care of individual...
Managing Your Cash
Cash Management$The daily routine of handling
money to take care of individual or family needs.
Cash Management
Cash Management
Effective cash management includes having available money for:
$Living expenses;$Emergencies;$Savings;$Investing.
Cash Management Tool
Five types of cash management tools: Checking Account Savings Account Money Market Deposit Account Certificate of Deposit Savings Bond
Checking Account$ Tool used to transfer funds deposited into an
account to make a cash purchase.
$ Checking accounts may be non-interest or interest earning.
$ Features may include: Minimum balance requirements; Charge transaction fees; Limited number of checks
written monthly. Reduces the need to carry large amounts of
cash.
Checking Account
Savings Account
Savings Account$ Account to hold money not spent on
consumption.$ Have a lower interest rate than other
cash management tools
Money Market Deposit Account
Money Market Deposit Account$ A combination savings/investment
plan in which money is used to purchase safe, liquid, securities minimum balance requirement tiered interest rates- amount of interest
earned depends on the account balance$For example: a balance of $10,000
will earn a higher interest rate than a balance of $2,500.
Money Market Deposit Account continued
$ limited to three to six transactions each month
$ Features of may include: Minimum amount required to open the
account often $1,000
balance falls below a specified amount earn a lower interest rate
Certificate of Deposit (CD)
$ Certificate of Deposit (CD) A deposit that earns a fixed interest rate
for a specific length of time Interest rates vary depending upon
specified time length.$The longer the length, the higher the
interest rate.
Certificate of Deposit continued
$ Features may include: Range from seven days to eight years in
length; Minimum deposits range from $100-
$100,000; If funds are withdrawn before the
expiration date, penalties are assessed; Different types to fit your needs
Standard- fixed Flexible- can add money and withdraw
on occasion free of charge
Savings Bonds
• A registered, non-transferable bond issued and backed by the U.S. Government
• "the All American Investment" • easy way to save money safely • get a good market return• Rates change every May and November
based on either current market rates or inflation.
Savings Bond• Can buy from bank, through payroll
deductions or from Federal Reserve• Two types• I Bond- • state and local income tax exempt • federal income tax can be deferred • If cashes in before five years • subject to a 3-month earnings
penalty• earn interest for as long as 30 years
Savings Bonds
• Series EE Savings Bond• Earn fixed rate of return• Buy for 50% of face value• Minimum $50 bond- Max $10,000 per year• $50 bond
– Buy for $25– When mature you receive $50
• 20 years to maturity
– Government tracks bond by SS#
Cash Management Tools
ToolAverage Interest Earned
Purchase Place
Special Features
Checking Account
1.5% Commercial Banks, Savings & Loan Associations, Credit Union
Can be used in place of cash, funds can be easily accessed
Savings Account
2.3% Commercial Banks, Savings & Loan Associations, Credit Union
Easily accessed, temporary holding place for funds
Money Market Account
2.6% Commercial Banks, Savings & Loan Associations, Credit Union
Minimum balance, limited transactions, tiered interest rates
Certificate of Deposit
4.0% - 5.4%, depending on the length of deposit
Commercial Banks, other institutions which accept deposits for a fixed period
Penalties for early withdrawals, no deposits or withdrawals are made after initial investmentSavings Bonds 4.0% - 5.4%,
depending on the length of bond
Commercial Banks, Credit Unions, employer payroll deduction plans
Tax advantages, a loan to the federal government
Liquidity How quickly and easily an asset can be
converted into cash. $ Investors should:
Invest in both liquid and non-liquid tools. Liquid assets are important for
emergencies when cash must be quickly accessed.
$ Cash management tools are protected by the U.S. Government against loss.
Liquidity
Liquidity
Checking Account Most Liquid
Savings Account
Money Market Deposit AccountCertificate of Deposit
Savings Bond Least Liquid
Low Risk
These five cash management tools are low risk: Insures the funds so the consumer
does not lose money on the investment.
However, they have lower interest rates.$Causes low returns
The End