Transcript for: Managing Checking and Savings Accounts
Hi, class. Today, we are going
to go over Chapter 5. Chapter 5 is all about
checking and savings accounts, and knowing not only how to
manage our money in checking and savings accounts, but
some of the pros and cons from all of the various
different types of accounts, the different types of
banks, and you know, just being able to make good
decisions because we're fully informed with the facts. So let's go ahead
and go to our slides. And Learning Objective
1 is to learn the goals of monetary
asset management and the sources of
the financial services for these monetary assets. So an asset, remember,
is something we own. And a monetary
asset is something that is cash or cash-like. So something that
is a near cash item means something that can be
quickly converted to cash. Now, cash includes your
checking and savings account. They're going to include any
kind of temporary investment that can be quickly
converted to cash. If it can't be converted
to cash without a penalty and it takes more
than a few days, then it's not a
monetary asset, right? We should be able to quickly
convert those assets to cash for it to qualify
as a monetary asset. And so when we're talking
about the management of those monetary
assets, we're talking about how do we handle it? How do we handle our cash? You know, are we keeping
our cash safe and protected and controlled in
a bank account? Do we have cash on hand? Maybe we've stuck it
under our mattress. Hopefully, we have a
safe if we have money at home, any kind of
large amounts of money. And it also includes not only
your checking and your savings, but money market accounts
and certificates of deposit. And we'll talk about each of
those throughout this chapter. Well, who is the financial
service industry, right? The financial
services industry-- sorry, I talk too fast. I know it. I'm trying to slow down-- it comprises
companies that provide us the services such as
checking, savings, money market accounts, and CDs, and maybe
even includes investments for insurance and those
financial planning services. First of all, we have
depository institutions. And those are our checking and
savings account banks, right? Those depository
institutions will not only provide services to
individuals, they'll provide services to businesses. And they're also going
to provide loans. Commercial banks and savings
banks, otherwise known as SNL-- savings and loans banks-- typically are distinguished
because they are insured by deposit insurance funds, OK? Typically, it's the FDIC-- the Federal Deposit
Insurance Corporation. And that gives the
individual or business who have funds at
that institution some peace of mind that their
money will be protected. The commercial banks and
the savings and loans are also regulated by the Office
of the Comptroller of currency federally. Now, I've put table 5.1 in
here from the textbook, that gives us a list of typical
providers of the services, what they sell, and some example
of these well-known company names within each category. So you guys have heard of Wells
Fargo and Bank of America, Citibank, and Chase. These are your typical banks-- depository institutions,
right, where they're going to sell
checking, savings. They're going to do loans. They're going to do
credit cards, investments, and trust advice. So the primary banks
that we're familiar with, those national banks,
are pretty much going to offer a wide
variety of services. So we can do anything there. That doesn't mean they're the
best option for everything, because sometimes they're
a little too broad and maybe are going to charge
a little higher fees than some of the specialized providers. So if we want mutual
funds, we might go to T. Rowe Price,
Vanguard, Fidelity. Those are some of
the well-known names. And they're going to
sell us money market funds, some kind of tax exempt
funds, bonds, and stock. The mutual funds will have
those type of accounts within them, right? They're going to
sell mutual funds. And within those
mutual funds, we can have all those different
types of things within it. Now, a stock brokerage
firm is going to sell securities, right? And that's really
the stocks and bonds. They're also going to sell
mutual funds and possibly real estate investment trusts-- REITs. They're called REITs-- real
estate investment trust. It's a specialized
type of investment, OK? And the known names there
are Fidelity and Schwab. Now, if we're talking about
some financial services company that are a little more
broad, that they kind of do everything. They're even more broad
than your typical depository institution. And those are companies like
American Express, Edward Jones, Raymond James, OK? They're going to
do legal advice. They're going to do planning. They're going to help you with
basically everything related to your monetary
asset management. And then insurance
companies, right. Insurance companies
are going to help us with protection for life
insurance and property insurance and health insurance. You may not know, they
also often offer-- wow, that was alliteration-- they offer credit card
services and loans and financial planning. So companies like Allstate,
AETNA, State Farm, right? Those are companies that
you have heard about. So you can see what type
of provider they are, and what they provide, what
they sell, and who they are. Now, a current trend today
in the last few years are online banks. Online banks tend to
offer better rates than your traditional
brick and mortar bank. Brick and mortar is where
there's a physical building. But an online bank
doesn't always have a physical location. Some brick and mortar also offer
online services or online kind of banking equivalents. Like, Chase is really
big about that. You've probably seen some
commercials from Chase saying that they're kind
of taking the walls out of the bank and they're
bringing the big to you. So they're kind of big in
the online space right now. And although they
offer better rates, sometimes they lack in service. Now, Chase is trying to be
a differentiator, right, saying we're going online,
but we're giving you the same service that we've
always giving you in the banks. So just remember when you're
evaluating online banks, look to make sure they
have that FDIC coverage. You want to make sure that
any of your monetary assets that you've got deposited
in any financial provider, you know, any place where
you're putting your money, you want to have some
sort of protection. Now if it's in stocks and
bonds, your protection is pretty limited,
right, because they have to deal with the
market ebbs and flows. But if your money is in
a checking, savings, CD, money market account, you
want to make sure that there's some sort of protection. And that's typically the
FDIC insurance coverage. And we'll talk about
that in a little while. Now, there are some
additional options for monetary management. And those are credit unions
and mutual savings banks. So a credit union, they're
owned by the shareholders of the credit union. So unlike a big bank, like
Bank of America or Wells Fargo, whose bank is run
by the board of directors, and the management,
the shareholders of those big companies, really
don't have much of a vote. I mean, they could vote, right? Certain shareholders can vote. But really it's the board of
directors and the management of those large banks that really
make the decisions towards how they run their business. But a credit union on
the other hand, actively involves the people
who have funds on deposit at the credit union. So it's like a bank. It's your bank working for you. And credit unions can
be a great resource. They typically offer
lower loan rates. They're more favorable. Your FICO score
maybe doesn't have to be quite as high as if
you went to a Bank of America or Wells Fargo. And they're really
community based. So credit unions, if
you have the opportunity to join a credit
union, you might find a lot of those rate things. But again, sometimes
service is a little limited. Maybe credit unions don't
have as many locations to make your deposits or
withdrawals through ATMs. But they are insured. Now, they're not
insured by the FDIC. They're insured by the NCUSIF. So it's a credit union
fund that insures them. Mutual savings
banks are basically, you know, they're
insured by the FDIC. And mutual means it's
a combination, right? It's a mutual company. So there's more than one
thing going on there. Let's talk about
that FDIC insurance. And this deposit insurance
is really important. But you need to know
what the limits are. Now, I've never
really personally had to worry about the limits. I've never had over $250,000. Sorry, you know, I am
a financial instructor, but I'm not a big wig. I've never had $250,000 in
cash in one bank at one time. So it's something I
aspire to do one day. But any time you have money in
a bank, the maximum insurance on your money, it's $250,000. And that doesn't
matter whether you're an individual or a business. You have to remember if
your money is in one bank, then all you're protected
for is $250,000. Say you have $400,000 and you
want to have insurance on it. You would want to put
part of your money in Wells Fargo, part of
it in Bank of America, if you use those
big banks, right? But if you had $400,000, all
of it in Bank of America, and even though you
use the, I don't know, the Los Angeles
branch for $200,000, and the Fontana branch
for another $200,000. So you think, well, I got my
money in two different banks. No, because it's the
corporation of that bank. So if it's all in
Bank of America or if it's all in
Wells Fargo, you're not covered except
for up to $250,000. And again, it doesn't matter
if you are the single owner and you have multiple
bank accounts, right? You have a couple
of bank accounts in your name at that same bank. They'll add them all up. Even if they're joint-- so maybe
I have an individual account and then I have a joint
account with my husband. It doesn't matter. If my name's on
any bank account, that adds up to the
$250,000 limit, OK? And that includes if you
have retirement funds sitting in that bank. Maybe I have my checking
account and my savings account, but I've also had a
401(k) that I left my job and I decided to
put it in investment with Bank of America. Well, now maybe because
I put my 401(k) in there and I've had my 401(k),
just pretend, 40 years. Now if I look at my checking,
savings, and my 401(k), maybe I'm going to
be over that amount. And we've got to be careful
because then your full balance is not covered. So remember, one bank no
matter how it's split up-- in multiple accounts with
different owners, you know, maybe you as partial owner,
different types of bank account, checking, savings,
money market, CDs-- it's limited to $250,000. So if you have
more than $250,000 that you're keeping
in monetary assets, you want to make sure
you have it diversified in more than one bank. You know, maybe go
to a credit union. Maybe go to some of these
online banks, right? Use something that you
can spread out that wealth to cover to make
sure that you're covered with that insurance. Don't forget you can also
get monetary asset management through those mutual fund
providers, stock brokerage firms, and insurance
companies, just like I showed on that one slide. So after 5.1, you should
be able to identify the goals of the monetary
asset management. Really, we want to
keep our money safe. We want to make sure
it's controlled, right, that we can control kind of the
ins and outs of those funds, that we can easily access them. And then when would we
open a checking account versus a savings account? When would we open
an investment? It all depends on our goals. So that's it for
Learning Objective number 1 in Chapter 5.