1. Management of Monetary Assets
Chapter Five
Management of Monetary Assets

2. What Is Monetary Asset Management?
Monetary Assets – cash and near-cash items that can readily be converted to cash.
Monetary Asset (Cash) Management – encompasses how you handle all of your monetary assets.
Cash Equivalents –
retain a constant or nearly constant value.
have ready liquidity.
Liquidity – the speed and ease with which an asset can be converted to cash.
Safety – freedom from financial risk.

3. The Four Tools of Monetary Asset Management
You need a low-cost, interest-earning checking account from which to pay monthly living expenses.
You might want to maintain a small savings account in a local financial institution.
When income begins to exceed expenses regularly, you can consider opening a money market account.
Your monetary asset management plan is complete when you transfer some funds into longer-term savings instruments.

4. Figure 5.1: Four Tools of Monetary Asset Management
Add the rest of title? “(with Illustrative Interest Rates Earned on Funds)”

5. Who Provides Monetary Asset Management Services?
Financial Services Industry – providers of monetary asset management services.
Banks and Depository Institutions
Mutual Funds
Stock Brokerage Firms

6. Banks and Depository Institutions
Recognized and regulated by the federal government as firms hat offer loans and banking services to businesses and individuals.
These include
Commercial Banks – corporations chartered under federal and state regulations.
Savings and Loan Associations (S&Ls)
Credit Unions (CUs)
Mutual Savings Banks (MSBs)

7. Deposit Insurance Is a Feature of Depository Institutions
The maximum insurance on all of your single-ownership accounts is $100,000.
The maximum insurance on all of your joint accounts held with other individuals is $100,000.
The maximum insurance on all of your retirement accounts is $100,000.
A maximum of $100,000 in insurance per beneficiary is payable on “death accounts.”

8. Mutual Funds
An investment company that raises money by selling shares to the public and then invests that money in a diversified portfolio of investments. You can keep money on account with these investment companies and purchase and sell funds when you want
Following from earlier edits and suggestions, this heading (flush left) would then be “2. Mutual Funds” and following slide would be “3. Stock Brokerage Firms”.

9. Stock Brokerage Firms
Licensed financial institution that specializes in selling and buying stocks, bonds, and other investment alternatives
Typically offer money market mutual fund accounts (operated by mutual funds) into which clients place money while waiting to make their investments

10. Electronic Banking
Electronic Banking – occurs whenever banking transactions are conducted via computers without the customer using paper documents or having face-to-face contact with financial services personnel.
Electronic Funds Transfers (EFTs) – funds are shifted electronically among various bank accounts.
Direct Deposits – having your paycheck or other regular income deposited directly into your account rather than being paid by check.
Preauthorized Payments – having certain payments, such as monthly utility bills, automatically paid by your bank when billed by the entity to whom the payment is owed.

11. You Can Do Your Banking with an Automatic Teller Machine
Automated Teller Machine -ATM a computer terminal through which customers may make deposits, make withdrawals, and complete other financial transactions.
Personal Identification Number (PIN) – confirms that you are authorized to access the account.
ATM Transaction Fee – may be assessed for using an ATM.

12. You Can Make Purchases at POS Terminals Using a Debit Card
Point-of-Sale (POS) Terminal – a computer terminal located at a store or other merchant location that allows the customer to make purchases electronically via a debit or credit card.
Debit (or Check) Card – a plastic card that provides instant access to your checking account.
Smart Cards and Stored-Value Cards
Smart Cards and Stored-Value Cards – plastic payment devices that use built-in computer chips or magnetic strips to store data and handle payment functions.

13. Monetary Asset Management: Tool #1 – Interest-Earning Checking Accounts
Checking Account – allows you to write checks against amounts you have on deposit, thereby transferring your deposited funds to other people and organizations.
TYPE: NOW Account- Negotiable Order of Withdrawal earns interest or dividends as long as minimum- balance requirements are satisfied.

14. Protect Yourself from Checking Account Overdraft Fees
Bank Agreements to Use to Avoid Bad Check Fees:
automatic funds transfer agreement
automatic overdraft loan agreement and
bounce protection agreement.

15. Payment Instruments for Special Needs
Traveler’s Checks
Money Orders
Certified Checks
Cashier’s Checks

16. Monetary Asset Management: Tool #2 – Savings Accounts
Statement Savings Account (or Passbook Savings Account) – permits frequent deposits or withdrawals of funds. ]

17. Savings Account Interest
The calculation of interest to be paid on deposits in financial institutions is primarily based on four variables:
the amount of money on deposit
the method of determining the balance
the interest rate applied and
the frequency of compounding.
Annual Percentage Yield (APY) – a percentage based on the total interest that would be received on a $100 deposit for a 365-day period given the institution’s annual rate of simple interest and frequency of compounding.

18. Monetary Asset Management: Tool #3 – Money Market Accounts
Money Market Account – any of a variety of interest-earning accounts that:
pay relatively high interest rates and
offer some limited check-writing privileges.

19. Super NOW Accounts
Super NOW Account – a government-insured money market account offered through depository institutions
* Minimum initial deposit $1,000-$2,500

20. Money Market Deposit Accounts
Money Market Deposit Account (MMDA) – has minimum-balance requirements and tiered interest rates that vary with the size of the account balance. The higher the balance the higher the interest rate

21. Money Market Mutual Funds
Money Market Mutual Fund (MMMF) – a money market account in a mutual fund investment company (rather than at a depository institution).
Minimum Deposit = $500-$1,000

22. Asset Management Accounts
Asset Management Account (AMA or All-in-One Account) – a multiple-purpose, coordinated package that gathers most of the customer’s monetary asset management vehicles into a unified account and reports them on a single monthly statement.
Minimum = $10,000- usually carries fees ie. $100 annually

23. Monetary Asset Management: Tool #4 – Long-Term Savings Instruments
Involves placing money into long-term savings instruments for a given period of time (anywhere from 6 months to two years or longer)
Instruments include
Certificates of deposit
U.S. Government Savings Bonds

24. Certificates of Deposit
Certificate of Deposit (CD) – an interest-earning savings instrument purchased for a fixed period of time.
Adjustable-Rate CDs – pay an interest rate that is adjusted periodically.
Bump-Up CDs – allow savers to bump up the interest rate once to a higher market rate and add up to 100 percent of the initial deposit whenever desired.

25. U.S. Government Savings Bonds (you can earn interest for up to 30 years)
Series EE Savings Bonds – U.S. government savings instruments that are purchased for 50 percent of their face value. Called “Discount Bonds” cause you pay less than the face value. When it matures you receive the face value
Series I Savings Bonds – not discount bonds but instead are purchased at their face value. Has a fixed interest rate + an inflationary rate based on CPI. Guarantees the bond will outpace inflation

26. Golden Rules of Managing Monetary Assets
Choose an interest-earning checking account for your checking account needs and reconcile the bank statement monthly.
Minimize ATM fees by making fewer large withdrawals rather than more frequent small withdrawals.
Monitor your bank fees and, if necessary, change financial institutions to avoid fees.
Build and maintain an emergency fund sufficient to cover three months of expenses and keep those funds in higher-interest accounts like Savings, and Money Market Accounts.
Start saving regularly when you are young. The sooner you start, the more funds you will amass over time.

27. Financial Planning Worksheet: Comparing Checking Account Options Worksheet
Step 1—My Checking Account usage Patterns
How many checks will I write per month?
_____________
How many ATM transactions do or will I perform each month?
What is the lowest dollar balance I will likely have in my account each month?
What is the highest dollar balance I will likely have in my account each month?
What is the average dollar balance I will likely have in my account each month?
Will I conduct my checking account on-line?
Will my paycheck be electronically deposited into my checking account?

28. Financial Planning Worksheet: Comparing Checking Account Options Worksheet (cont’d)
Step 2—Net Earnings (or Costs) on My Checking Account
Current Account
Account Option #1
Account Option #2
Account Option #3
Name of financial institution
Type (name) of account
Item
A. Monthly interest or dividends earned
Fees:
ATM usage fees (charged by my bank)
Total per check transaction fees
Monthly account maintenance fee
Overdraft fees
On-line access fees
Low-balance fees
Other fees
B. Total fees
C. Net earnings or costs (A - B)