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Questions and Answers
The after-tax savings rate is unaffected by changes in interest rates.
The after-tax savings rate is unaffected by changes in interest rates.
False
Credit unions typically have higher fees and loan rates than commercial banks.
Credit unions typically have higher fees and loan rates than commercial banks.
False
Evaluation of checking accounts includes understanding associated fees and liquidity.
Evaluation of checking accounts includes understanding associated fees and liquidity.
True
The liquidity of a money market fund allows unlimited checks to be written.
The liquidity of a money market fund allows unlimited checks to be written.
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Savings plans are generally risk-free and guarantee returns regardless of market conditions.
Savings plans are generally risk-free and guarantee returns regardless of market conditions.
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Inflation can negatively impact the buying power of savings if the inflation rate is higher than the savings rate.
Inflation can negatively impact the buying power of savings if the inflation rate is higher than the savings rate.
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The After-Tax Savings Rate of Return is not affected by taxes on interest earnings from savings.
The After-Tax Savings Rate of Return is not affected by taxes on interest earnings from savings.
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Deposit insurance in Cyprus provides coverage for savings up to 100,000 euros per person per financial institution.
Deposit insurance in Cyprus provides coverage for savings up to 100,000 euros per person per financial institution.
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Compounding refers to interest that is earned only on the initial principal amount.
Compounding refers to interest that is earned only on the initial principal amount.
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Additional fees are often associated with early withdrawals from certain types of savings accounts.
Additional fees are often associated with early withdrawals from certain types of savings accounts.
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The formula for calculating the Annual Percentage Yield (APY) can only be used if the term has a stated maturity.
The formula for calculating the Annual Percentage Yield (APY) can only be used if the term has a stated maturity.
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Liquidity refers to how quickly and easily one can access their money without incurring losses.
Liquidity refers to how quickly and easily one can access their money without incurring losses.
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Savers do not have to worry about taxes on their savings until the year-end when they file their tax returns.
Savers do not have to worry about taxes on their savings until the year-end when they file their tax returns.
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Using a credit card for routine spending can lead to impulse buying and increased debt.
Using a credit card for routine spending can lead to impulse buying and increased debt.
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A cash management account is also referred to as an asset management account.
A cash management account is also referred to as an asset management account.
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Higher returns on long-term savings are typically associated with high liquidity.
Higher returns on long-term savings are typically associated with high liquidity.
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Automatic teller machines (ATMs) typically offer free transactions for all account holders.
Automatic teller machines (ATMs) typically offer free transactions for all account holders.
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A no-fee checking account with a minimum balance requirement allows for maximum interest earnings.
A no-fee checking account with a minimum balance requirement allows for maximum interest earnings.
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Liquid assets are essential for paying current bills and managing daily expenses.
Liquid assets are essential for paying current bills and managing daily expenses.
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Online banking offers benefits like convenience but also raises concerns about privacy and security.
Online banking offers benefits like convenience but also raises concerns about privacy and security.
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Using savings to cover routine expenses can improve one's net worth.
Using savings to cover routine expenses can improve one's net worth.
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Payment methods include cash, checks, and only debit cards.
Payment methods include cash, checks, and only debit cards.
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Reading financial publications can help in evaluating current trends and making informed financial decisions.
Reading financial publications can help in evaluating current trends and making informed financial decisions.
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A regular savings account usually has a high minimum balance requirement.
A regular savings account usually has a high minimum balance requirement.
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Credit unions refer to regular savings accounts as share accounts.
Credit unions refer to regular savings accounts as share accounts.
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Money market accounts are not covered by federal deposit insurance.
Money market accounts are not covered by federal deposit insurance.
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Money market funds are insured by the federal government.
Money market funds are insured by the federal government.
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Certificates of Deposit (CDs) impose penalties for early withdrawal.
Certificates of Deposit (CDs) impose penalties for early withdrawal.
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Creating a CD portfolio can involve CDs maturing at the same time.
Creating a CD portfolio can involve CDs maturing at the same time.
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When evaluating savings plans, considering all earnings and costs is unnecessary.
When evaluating savings plans, considering all earnings and costs is unnecessary.
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The after-tax savings rate reflects the interest earned after taxes are deducted.
The after-tax savings rate reflects the interest earned after taxes are deducted.
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Savings plans should not be evaluated based on their liquidity and safety.
Savings plans should not be evaluated based on their liquidity and safety.
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Restrictions and fees are irrelevant when choosing a savings account.
Restrictions and fees are irrelevant when choosing a savings account.
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Study Notes
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
Studying That Suits You
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Description
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.
