low or no minimum balance & withdraw money as needed
Certificate of Deposit (CD)
Requires a certain amount be left on deposit for a stated time period to earn specified interest
Money making account & funds
offered by banks, savings and loan associations, and credit unions that requires a min. balance & has earnings based on a market interest rates.
-interest is exempt from taxes -don't have to pay federal income tax on earnings until bonds are redeemed
-current income bonds, earn interest every 6 months -Redeem 6 months after the issue date
Earns a combined rate consisting of... 1. a fixed rate for the life of the bond 2.inflation rate that changes twice a year 3. every 6 months a new fixed base rate is set for new bonds
Most Common amount is the required amount that must be kept on deposit to earn interest or avoid service charge
Fee & charges
Minimum balance service charges
they have recently gone up
frequency of compounding and interest computation method will affect the earnings on your checking account
loan made to protect from overdraw
Use of credit for personal needs(except home mortgage) by individuals & families in contrast to credit used for business purposes
based on peoples abilities & willingness to pay bills when due
"as the consumer goes, so does the economy"
Consumer credit is very important for our economy
Advantages of Credit
- Current use of goods and services -cushion for financial emergencies -easier to return merchandise -convenient when shopping -provides a record of expenses -permits purchase when funds are low -safer than carrying cash -needed for car rental, hotel reservations, shopping online
Disadvantages of Credit
-Temptation to overspend -longterm problems & slow progress towards financial goals -Ties up future income -potential loss of merchandise due to late or non-payments -credit cost money
Closed End Credit
One time loans for specific purpose paid back by specific time period -Mortgage, automobile, installment of furniture, appliances, and electronics -Most common...1. Installment sales credit 2. Installment cash credit
Open End Credit
Used as needed until line of credit max reached -Credit cards -department store cards -Home equity loans -revolving check credit -bank line of credit
Borrow money with agreement to repay along with interest within a certain amount of time
Parents & Family
Medium Priced Loans
Commercial Banks Savings and loan associations & credit unions
Finance & check cashing company Retailers such as car or appliance dealers bank credit cards & cash advances
Home Equity Loans
Loan based on home equity ( market value of your home and amount you have left on mortgage)
Credit Card Loans
Average CC holder has 9CC Financial charge=total amount paid to use credit
electronically subtract money from savings or check account -most common at ATMs
Stored Value Cards
Debt to Equity Ratio- Total Liabilities /Networth= Should be less than 1 Debt payment to ratio- Monthly Debt Payments/Net Monthly income
5 C's of Credit
Character- Pay bills on time Capacity- Can you repay Capital- Assets & net worth Collateral- Assets to secure the loan Conditions- Lenders will review how general economic conditions will affect your ability to repay your loan
Applying for credit
Add up basic monthly expenses & subtract this total from your take home pay If it doesn't cover monthly payment & still leaves funds for other expenses you CAN'T afford
Cost of Credit
Finance charge- $ amount you pay to use credit
Annual Percentage Rate- percent cost of credit on a yearly basis.
Dollar cost of borrowing interest- percent X rate X time
Add on interest
interest calculated on full amount of principal Interest added to original principal paymen=total/# of payments to be made
Identity Crisis- what to do?
Contact 3 major credit bureaus -Ask fraud department to institute fraud alert -request creditors to call you for permission before opening any new accounts in your name -Contact creditors- check for any accounts that have been tampered with or opened fraudulently -File a police report
Chapter 7 Bankruptcy
No longer owe- Retail store, bank credit card, unsecured, unpaid hospital/doctor bills. May still owe- Certain tax/fines, child support, educational loans, debt from willful/malicious acts.
Bankruptcy abuse act of 2005
More difficult to file forces chap. 13 repayment plan debtors must wait 8 years from last bankruptcy to file again.
Debtor w/regular income propose plan to eliminate debt over time Plan up to 5 years make payment to court appointed trustee
Know current tax laws as they affect you maintain complete & appropriate tax records make purchase & investment decisions that reduce your tax liability *Pay fair share but take advantage of tax benefits
Want to see the other 36 Flashcards in Finance Test 1 Chapters 1-5?JOIN TODAY FOR FREE!