Managing Your Cash

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.

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.

• Maximizing interest earnings

• Minimizing fees on all funds kept readily available for living expenses, recurring household expenses, emergencies, and saving and investment opportunities

What is Cash Management?

THE TASK OF:

• Cash equivalents

• Liquidity

• Safety

What is Cash Management?

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 - 1978

• 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

• Minor’s 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.

Money Market Accounts

• Super NOW Accounts

• Money Market Deposit Accounts (MMDA)

• Money Market Mutual Funds

• Asset Management Accounts (AMA)

Allow even higher returns in exchange for

less liquidity (accumulate and transfer from

MMA).

Low-Risk, Long-Term Savings Instruments

Low-Risk, Long-Term Savings Instruments

• Certificates of Deposit (CDs)

• U.S. Government Savings Bonds

• EE (Patriot Bonds)I Bonds

• College Savings Trust Funds

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 $10,000

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

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, 2008. 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, 2008. 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 BankFrom Home

• Bank-based programs

• Bill-paying programs

• Computer based programs

Checks forSpecial Needs

• Traveler’s Check

• Money Orders

• Certified Checks

• Cashier’s Checks

OverdraftProtection

• Good faith agreement

• Insufficient funds

• Automatic funds transfer

• Automatic overdraft loan

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Reconcile YourChecking 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.

Reconciling Your Checking Account

Reconciling Your Checking Account

The Bank Statement Your Checkbook

Balance on current bank statement $ 643.96

Current balance in your checkbook $ 295.91

Step 1. Date Amount Step 3.

Add up outstanding checks 10-4 70.00

10-6 130.00

10-7 111.62

Subtract total of fees or

other charges listed on bank statement $ 215.75

Subtract ATM withdrawal $ – 100.00 Subtract the total $ – 311.62

Step 2. Date Amount Step 4.

Add up deposits in transit 10-2 60.00 Add interest earned $ + 2.18

10-5 90.00

Add direct deposits $ + 300.00

Add the total $ + 150.00 Adjusted bank balance $ 482.34 Adjusted checkbook balance $ 482.34