1. Chapter 5: Managing Your Cash

2. Objectives
Explain the importance of effective cash management and list the four tools of cash management.
Compare and contrast the primary providers of cash management opportunities in today’s financial services industry.
Understand the uses of electronic funds transfer and the legal protections available for it.
Understand the criteria for choosing and using various types of checking accounts and the importance of having an interest-earning checking account.

3. Objectives
Identify the potential benefits of opening a savings account as well as key factors to consider when comparing savings account.
Explain the importance of placing excess funds in a money market account.
List the potential benefits of putting money into low-risk, longer-term savings instruments.

4. What is Cash Management?
Maximizing interest earnings
Minimizing fees on all funds kept readily available for living expenses, recurring household expenses, emergencies, and saving and investment opportunities
THE TASK OF:

5. What is Cash Management?
Cash equivalents
Liquidity
Safety

7. Types of Financial Services
Savings-time deposits
Payment Services-demand deposits
Borrowing
Other Financial Services-insurance protection, investments, trusts. Asset management account or cash management account.

8. Electronic Funds Transfer
Debit cards
ATMs
Point-of-sale terminals
Smart card and stored-value cards
Pre-authorized deposits and payments
Electronic benefits transfer

10. Cash Management Tools Interest-earning checking accounts
Savings accounts
Money market accounts
Low-risk, long-term savings instruments

11. Savings PAY YOURSELF FIRST!
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!

12. Money Market Accounts
Any of a variety of interest-earning accounts that pay relatively high interest rates and offer some limited check-writing privileges.

13. Low-Risk, Long-Term Savings Instruments
Allow even higher returns in exchange for less liquidity (accumulate and transfer from MMA).

14. Low-Risk, Long-Term Savings Instruments
Certificates of Deposit (CDs)
U.S. Government Savings Bonds
EE (Patriot Bonds) I Bonds
College Savings Trust Funds

15. Financial Services and Economic Conditions

16. Who Provides Financial Services?
Banks and depository institutions
Mutual funds
Stock brokerage firms
Financial services companies

18. Types of Financial Institutions
Commercial Bank
Federal deposit insurance coverage
Savings and Loan, Mutual Savings
Credit Union
Other: Insurance, Investments, etc.
Saving Services
Payment Services
Borrowing
Life Insurance Companies
Investment Company, Brokerage Firm
No Federal deposit insurance coverage
Credit Card, Finance Company
Mortgage Company
ONLINE FINANCIAL INSTITUTIONS . . .Web-based financial services through:
Established banks and other financial institutions offering online services
Financial businesses operating on the internet-no physical locations other than ATM access
Internet payment services that transfer funds between buyers and sellers

19. High Cost Financial Services
Pawnshops
Check-Cashing Outlets
Payday Loans
Rent-To-Own Centers
Refund Anticipation Loans
Auto Title Loans

21. 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.  
Electronic purchases are purchased for face value. Paper purchases are 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 .60%- effective until April 30, 2011
5.  
Available in denominations: $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000
6.  
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

22. Evaluating Savings Plans
Rate of Return
Compounding
Truth in Savings
APY
Inflation
Tax Considerations
After Tax Savings Rate of Return
Liquidity
Safety
Restrictions and Fees

25. After-Tax Savings Rate of Return
To calculate your after-tax savings rate:
Determine your marginal tax rate
Subtract your marginal tax rate from 1.0
Multiply the result by the yield on your savings account
This is your after-tax rate of return
Example:
You are in the 28% tax bracket
= .72
(Assume your savings account pays 6.25%)
.0625 x .72 = .045
4. Your after-tax rate of return is 4.5%

26. Checking Accounts
Allows transfer of deposited funds to merchants and service providers, as well as to accounts at other financial institutions.

27. Checking Accounts CHARGES, FEES, AND PENALTIES: Service fees
Per-check charges
Transaction charges
Account exception fees
CHARGES, FEES, AND PENALTIES:

28. You Can Bank From Home Bank-based programs Bill-paying programs
Computer based programs

29. Checks for Special Needs
Traveler’s Check
Money Orders
Certified Checks
Cashier’s Checks

30. Overdraft Protection Good faith agreement Insufficient funds
Automatic funds transfer
Automatic overdraft loan

31. Reconcile Your Checking Account
1. Retrieve previous month’s 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.

32. Reconciling Your Checking Account