Personal Finance (AFN 221) - Savings Quiz

Course Information

• Course title: Personal Finance (AFN 221)
• Lecture topic: Savings
• Instructor: Andreas Milidonis
• University: University of Cyprus
• Email: [email protected]

Concept Map

• Introduction
• Savings
• Interest Rates
• Inflation & Time
• Money Management
• Consumer Borrowing
• Review & Midterm Exam (Credit)
• Mortgage
• Insurance & Risk Management
• Investing
• Risk & Return
• Review & Final Exam
• Biases
• Retirement

Learning Objectives

• Understand types and uses of financial services
• Recognize factors affecting financial services
• Assess costs and benefits of savings plans
• Identify factors evaluating savings plans
• Evaluate costs and benefits of payment accounts
• Plan for financial goals (e.g., college, housing)

Financial Services for Financial Planning

• Analyze factors influencing selection and use of financial services
• Recent trends in banking activities
  • Mobile banking apps
  • Mobile payment systems
  • Remote check deposit
  • Peer-to-peer lending (not yet in Cyprus)

Managing Daily Money Needs

• Importance of a cash management plan
• Common payment methods (cash, checks, credit cards, debit cards, online transfers)
• Consequences of overspending and using credit
• Importance of liquid assets for covering bills
• Using savings or borrowing to cover expenses
• Importance of interest-earning savings accounts or investments

Types of Financial Services

• Savings: Time deposits, savings accounts, certificates of deposit (CDs)
• Cash Availability and Payment Services: Demand deposits, checking accounts, other payment methods
• Borrowing: Short-term or long-term borrowing
• Investments and Other Financial Services: Insurance, investments, real estate, tax assistance, and financial planning
• Asset Management Accounts: Cash management account or wealth management account offered by investment brokers and financial institutions

Financial Service Activities Through a Smartphone

• Mobile banking options
• Payments and transfers
• Deposits
• Other services

Online and Mobile Banking

• Convenience and instant information access
• Privacy, security concerns, overspending, and online scams

Opportunity Costs of Financial Services

• Trade-offs between higher returns and liquidity for long-term savings
• High service fees for convenient ATM access
• Opportunity cost of lost interest from low-minimum-balance checking accounts

Financial Services and Economic Conditions

• Impact of changing interest rates and rising consumer prices
• Importance of staying informed of financial trends and prospects

Financial Institutions

• Deposit Institutions: Commercial banks, credit unions
• Other Financial Institutions: Life insurance companies, investment companies, mortgage companies, other financial service providers

Savings Plans

• Regular Savings Accounts: Low or no minimum balance, often called "share accounts" by credit unions.
• Certificates of Deposit: Fixed-term deposits requiring penalty for early withdrawal

Certificates of Deposit

• Fixed-term deposits
• Penalties for early withdrawal
• Several types available
• Evaluate earnings and costs before choosing a CD
• Consider creating a diversified CD portfolio with varying maturity dates

Money Market Accounts and Funds

• Savings account type with minimum balance and interest based on market rates
• Covered by federal deposit insurance
• Distinct from investment companies

Evaluating Savings Plans

• Factors to consider:
  • Rate of return
  • Inflation
  • Taxes
  • Liquidity
  • Safety
  • Restrictions and fees

Rate of Return

• Percentage increase in savings value measured against earned interest
• Compounding (interest earned on previously earned interest)

Annual Percentage Yield

• Percentage rate savers expect to earn
• Calculated using specific formulas and daily term lengths

Inflation and Tax Considerations

• Comparing savings rate to inflation rate
• Possible loss of purchasing power when inflation exceeds savings rate
• Taxes affect earned interest on savings and investment accounts

After-Tax Savings Rate of Return

• Calculating the actual return after deducting taxes
• Tax bracket influences the after-tax rate of return

Liquidity and Safety

• Ability to access savings without penalty or fees
• Risk of loss in savings or interest
• Deposit insurance offered by some institutions to cover potential losses

Restrictions and Fees

• Fees associated with different payment account types:
  • Monthly maintenance fees
  • Inactivity fees
  • Transaction fees
  • Transfer fees
  • Wire transfer fees

Evaluating Checking Accounts

• Crucial aspects for evaluation:
  • Restrictions
  • Fees
  • Interest rates
  • Compounding calculations
  • Minimum deposit requirements
  • Special services

Checking Account - Writing Checks

• Proper procedures for recording and deducting amounts to verify transactions
• Details for filling out checks

Reconciling Your Checking Account

• Matching bank balance with personal checkbook balance to identify discrepancies
• Reasons why balances might differ: Interest, uncleared checks, outstanding deposits

Payment Methods

• Various ways to make payments including bank checks, certified checks, cashier's checks, money orders, money transfer services, and traveler's checks.

Saving for a College Education

• Financial planning for child's college education costs
• Savings strategies for future expenses
• Calculating end-of-year contributions needed and time-value-of-money concepts

Test your understanding of savings and financial services in this quiz for the Personal Finance course (AFN 221). Explore the types, benefits, and costs associated with savings plans, as well as factors that influence financial decision-making. This quiz will help you assess your knowledge in planning for financial goals.