Managing Your Cash & Credit Maximizing interest earnings Minimizing fees on all funds kept readily available for living expenses, recurring household expenses, emergencies, and saving and investment opportunities Having Cash equivalents Keeping $ Liquidity Financial Safety What is Cash Management? THE TASKS OF: Who Provides Financial Services? Banks and depository institutions Mutual funds Stock brokerage firms Financial services companies Debit cards ATMs Point-of-sale terminals Smart card and stored- value cards Pre-authorized deposits and payments Electronic benefits transfer Electronic Funds Transfer Electronic Funds Transfer Act Regulation E - Federal Reserve Board Disclosure statement Periodic statement Liability for unauthorized use EFT Regulations Interest-earning checking accounts Savings accounts Money market accounts Low-risk, long-term savings instruments Cash Management Tools 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 Checking Accounts Service fees Per-check charges Transaction charges Account exception fees CHARGES, FEES, AND PENALTIES: Ownership Rights Individual account Joint tenancy Tenancy in common Tenancy by the entirety Minors account Community property Trust Savings 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. PAY YOURSELF FIRST! Savings Accounts Statement savings account (passbook) Time deposits Fixed-time deposits Interest savings account Money Market Accounts Any of a variety of interest-earning accounts that pay relatively high interest rates and offer some limited check-writing privileges. Allow even higher returns in exchange for less liquidity (accumulate and transfer from MMA). Low-Risk, Long-Term Savings Instruments EE and Patriot Bonds (see SavingsBonds.com) 10 Things You Should Know About the "Patriot Bond" 1. Purchased over-the-counter and via internet 2. Series EE bonds will be inscribed with "Patriot Bond" title - making them no different from actual EE bonds 3. Purchased for half its face value - Increase in value monthly and interest is compounded semi-annually 4. EE/E Bonds purchased between May 1997 and April 30, 2006, earn a variable market based rate of return. Series EE Bonds issue dated May 2005 and after will earn a fixed rate of interest. Current yield is 1.20 % - effective until April 2010(same rate as EE bonds) 5. Available in denominations: $50, $75, $100, $200, $500, $1,000, $5,000 and $10, Maximum annual purchase limit is $15,000 ($30,000 face value) per person 7. Guaranteed to reach initial maturity (face value) in 17 years - however - there is a 3-month interest penalty if the bond is redeemed before 5 years 8. Will reach final maturity (completely stop earning interest) in 30 years 9. There is no state or local income tax on the interest earned 10. Interest earned could be tax exempt if used for education purposes 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, 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, 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 Bank From Home Bank-based programs Bill-paying programs Computer based programs Checks for Special Needs Travelers Check Money Orders Certified Checks Cashiers Checks Overdraft Protection Good faith agreement Insufficient funds Automatic funds transfer Automatic overdraft loan Reconcile Your Checking Account 1. Retrieve previous months 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. Credit Use and Credit Cards Credit is any situation in which goods, services or money are received in exchange for a promise to pay a definite sum of money at a future date. Before you use credit, think about... Could I pay cash or make a down payment? Do I want to use savings for this purchase? Does purchase fit with my goals and budget? Could I use the credit Ill need another way? Can I wait to buy it? What are the opportunity costs of postponing the purchase? What are the economic & psychological costs of using credit for the purchase? 6-3 Credit Use and Credit Cards 1:3 fear credit over-extension 1:2 are concerned about payments A RECENT SURVEY OF U.S. HOUSEHOLDS: Closed vs. Open-End Credit Advantages of Credit Current use of goods and services Demonstrates financial stability Use for financial emergencies Convenience when shopping Safer than cash Convenience Emergencies Identification Reservations Consume expensive products earlier Enjoy the good life Take advantage of free credit Consolidate debts Protection against ripoffs and frauds Reasons For Using Credit Volume of Consumer Credit Disadvantages of Consumer Credit Purchases are more expensive Temptation to overspend Possible financial difficulties Possible loss of merchandise due to late or non-payment Ties up future income Helpful Tips About Credit Always budget your credit spending carefully. Shop around for the lowest credit rates. Use credit only when doing so is to your advantage. Buy items on credit that will last at least until the last payment is due. Pay your bills on time Understand the credit contract before signing it. Notify the creditor if, for any reason, you can not make your payment. Keep an eye on your credit card when you give it to a salesperson. Tear up any carbons after you sign the receipt. Never give your credit card to anyone over the phone unless you initiated the call. Keep your receipt after you make charges. Compare them with your monthly statement. Keep a list of your credit card numbers and the issuers phone number in a safe place. Report stolen cards at once. After reporting a stolen card via telephone, follow up with a telegram or registered letter. Interest is costly Additional fees High-priced add-ons Liability for lost credit cards Tempting to overspend Privacy is a concern Reduces financial flexibility Reasons Against Using Credit How to Calculate Debt Payments-to- Income Ratio Fair Credit Reporting Act Is your credit report accurate? If you are denied credit based on your report, you can get a copy of your credit report free within 60 days of your request Obsolete information must be deleted Only authorized persons have access to your report Adverse data can be reported for seven years or bankruptcy for ten Open-Ended Charge Accounts Application Investigation Credit ratings and risk scoring PROCESS FOR OPENING: Build and Maintain Your Credit Rating Establish a steady work record Pay all bills promptly Opening a checking account and dont bounce checks Get a cosigner on a loan and pay back the loan as agreed Open a savings account and make regular deposits Check to see what is in your file Avoiding and Correcting Credit Mistakes Notify creditor of error in writing in 60 days Send it to the correct address They must respond within 30 days Credit card company has 90 days to resolve the problem Wont affect your credit rating while in dispute You can withhold payment on shoddy goods Fair Credit Billing Act Billing date/Due date Transaction/Posting dates Grace period/Minimum payments Credit for merchandise returns/Errors/ Correcting errors Managing a Charge Account CREDIT STATEMENTS: Annual Percentage Rate (APR) Periodic Rate Average Daily Balance Managing a Charge Account COMPUTATION OF FINANCE CHARGES: What Should You Do If You are Denied Credit? You have the right to know the specific reason why Ask yourself if you can afford the item Check your credit report You are entitled to have errors in your credit report corrected You have the right to provide a 100 word explanation Protecting Against Credit/Debit Card Fraud Sign new cards as soon as they arrive Treat the cards like money Shred anything with your account number on it Dont give your number over the phone unless you make the call Get a receipt after every transaction Check your statements for errors What Creditors Look For Character - do you pay bills on time? Capacity - can you repay the loan? Capital - what are your assets and net worth? Collateral - what if you dont repay? Conditions - what economic conditions would affect your repayment of the loan? Minimum Payments Equals Permanent Debt Credit card issuers often require a minimum monthly repayment as low as 1/36 or 1/48 of the outstanding balance. Such a payment is mathematically guaranteed to keep the user in perma-debt. Establish a Credit History Establish both checking and savings accounts Install telephone and bill to home address Request, acquire, and use an oil-company card Apply for bank credit card Ask bank for small short-term cash loan Pay off student loans Five Primary Areas of Interest in Calculating FICO Score