4 - 1 COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd Chapter 4 – Managing Your Cash and Savings

4 - 2 Chapter 4 – Managing Your Cash and Savings Chapter 4 - Learning Goals 1. Understand the role of cash management in the personal financial planning process. 2. Describe today’s financial services marketplace, both traditional and non-depository financial institutions. 3. Select the chequing, savings, electronic banking, and other bank services that meet your needs. 4. Calculate the interest earned on your money using compound interest. 5. Develop a savings strategy that incorporates a variety of savings plans. 6. Open and use a chequing account. Learning Goals

4 - 3 Chapter 4 – Managing Your Cash and Savings Internet Links and On Line Resources Credit Union Central of Canada ING Bank (internet bank)ING Bank PC Financial (internet bank owned by CIBC)PC Financial ICICI Bank (internet bank)ICICI Bank Canada Deposit Insurance Corporation (CDIC)Canada Deposit Insurance Corporation Order cheques online or for a list of websites providing this service.Order cheques onlinelist of websites Financial Consumer Agency of Canada A Working Women’s Guide to Financial Security, “Planning for Independence”A Working Women’s Guide to Financial Security Current rates found at Canoe MoneyCanoe Money Government of Canada on T-bills and other government financial securitiesGovernment of Canada Canada Savings Bonds Banking Basics: Chequing Account ChecklistChequing Account Checklist How to Read a bank statement Web Links

4 - 4 Chapter 4 – Managing Your Cash and Savings Key Chapter Terms and Definitions Cash management Chartered bank Credit union Trust companies Securities dealers Demand deposit Time deposit Money market mutual fund Asset management account Electronic Funds Transfer System Electronic Funds Transfer System Debit cards Automated banking machine (ABM) Automated banking machine (ABM) Compound interest Simple interest Nominal (stated) rate of interest Nominal (stated) rate of interest Effective rate of interest Guaranteed investment certificate (GIC) Guaranteed investment certificate (GIC) Canada treasury bill Canada Savings Bonds (CSB) Chequebook ledger Overdraft Overdraft protection Stop payment Account reconciliation Bank draft Traveller’s cheque Certified cheque Terms

4 - 5 Chapter 4 – Managing Your Cash and Savings Definitions Cash Management The routine, day-to-day administration of cash and near cash resources, also known as liquid assets, by an individual or family. Terms

4 - 6 Chapter 4 – Managing Your Cash and Savings Definitions Chartered Bank A financial institution in Canada that is chartered by the federal government under the Bank Act to provide banking services including deposit-taking in the form of chequing and savings accounts as well as lending services in the form of personal and corporate loans and mortgages. Terms

4 - 7 Chapter 4 – Managing Your Cash and Savings Definitions Credit Union and Caisses Populaire A member-owned financial cooperative that offers different types of chequing accounts, savings accounts, and loans to its members (depositors.) Caisses Populaire is the french term for credit union used in the province of Quebec, Ontario and Manitoba. Terms

4 - 8 Chapter 4 – Managing Your Cash and Savings Definitions Trust Company A deposit-taking financial institution registered under either federal or provincial law. Most are subsidiaries of major Canadian banks. Like banks they accept deposits and provide lending services. In addition, they are able to act as trustees (administer an estate) – hence their name! Trust companies have developed a number of other lines of business in service of the corporate community including maintaining shareholder’s registers, etc. Terms

4 - 9 Chapter 4 – Managing Your Cash and Savings Definitions Deposit Insurance A type of insurance that protects funds on deposit against the failure of the institution; insuring agencies include the Canada Deposit Insurance Corporation (CDIC) for banks and various provincial stabilization funds for credit unions. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Securities Dealers Securities Dealers (Investment Dealers) act as brokers for individual and corporate investors. In addition, they provide a wide range of services: Sell money market mutual funds Special ‘wrap’ accounts Credit cards Securities dealers also provide underwriting services (supports corporations and advises them and implements the design and sale of new securities) Terms

Chapter 4 – Managing Your Cash and Savings Definitions Canada Deposit Insurance Corporation A federal crown corporation with access to the consolidated revenue accounts of the Government of Canada – provides deposit insurance to customers of federally-regulated financial institutions (banks and most trust companies) Terms

Chapter 4 – Managing Your Cash and Savings Definitions Demand Deposit An account held at a financial institution from which funds can be withdrawn (by cheque or in cash) on demand by the account holder; same as a chequing account. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Time Deposit A savings deposit at a financial institution; so-called because it is expected to remain on deposit for a longer period of time than a demand deposit. Examples: Term deposits Guaranteed Investment Certificates Terms

Chapter 4 – Managing Your Cash and Savings Definitions Money Market Mutual Fund A mutual fund that pools the funds of many small investors and purchases high-return, short-term marketable securities offered by the Canadian government, major corporations, chartered banks and various government organizations. A mutual fund invested in money market securities such as: Government of Canada Treasury Bills Commercial Paper Bankers’ Acceptances Finance Company Paper Terms

Chapter 4 – Managing Your Cash and Savings Definitions Asset Management Account A comprehensive deposit account; combines chequing, investing and borrowing activities and automatically “sweeps” excess balances into a money market mutual fund and automatically provides loans when shortages exist. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Electronic funds transfer systems (EFTS) Systems that use the latest telecommunications and computer technology to electronically transfer funds into and out of customers’ accounts. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Debit cards Specially coded plastic cards used to transfer funds from a customer’s bank account to the recipient’s account to pay for goods or services. An ABM card is a debit card that also provides access to a variety of banking transactions through an ABM. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Automated banking machine (ABM) A type of remote computer terminal at which customers of a bank or other depository institution can make basic transactions 24 hours a day, 7 days a week. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Compound interest Interest earned by applying the nominal (stated) rate of interest to the sum of the initial deposit and the combined interest already earned. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Simple interest Interest that is paid only on the initial amount of the deposit. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Nominal (stated) rate of interest The promised rate of interest paid on a savings deposit or charged on a loan. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Effective rate of interest The annual rate of return that is actually earned (or charged) during the period the funds are held (or borrowed). Terms

Chapter 4 – Managing Your Cash and Savings Definitions Guaranteed investment certificate (GIC) A type of savings instrument issued by certain financial institutions in exchange for a deposit; typically requires a minimum deposit and has a maturity ranging from 30 days to as long as five or more years. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Canada Treasury bill (T-bill) A short-term (3-month, 6-month or 12-month maturity) debt instrument issued by the Canadian government in the ongoing process of funding the national debt. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Canada savings bond (CSB) A savings bond issued in various denominations by the Canadian government. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Chequebook ledger A ledgeer, provided with a supply of cheques, used to maintain accurate records of all chequing account transactions. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Overdraft The result of writing a cheque for an amount greater than the current account balance. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Overdraft protection An arrangement between the account holder and the depository institution wherein the institution automatically pays a cheque that overdraws the account. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Stop payment An order made by an account holder instructing the depository institution to refuse payment on an already issued cheque. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Account reconciliation The process of verifying the accuracy of one’s chequing account records in light of the bank’s records as reflected in the bank statement, which contains an itemized listing of all transactions within the chequing account. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Bank draft A cheque payable to a third party that is drawn on a bank on itself in exchange for the amount specified plus, in most cases, a service fee (of $5 or $10). Terms

Chapter 4 – Managing Your Cash and Savings Definitions Traveller’s cheque A cheque sold (for a fee of about 1.5 percent) by many large financial institutions, in denominations ranging from $20 to $100, that can be used for making purchases and exchanged for local currencies in most parts of the world. Terms

Chapter 4 – Managing Your Cash and Savings Definitions Certified cheque A personal cheque that is guaranteed (for a fee of $10 to $15 or more) by the bank on which it is drawn. Terms

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