Certificate of Deposit (CD) - Ms. Staring's Class - About



Unit 3: Banking and Investments notesThere are a lot of different ways to invest your money, and they can be really safe or really risky…Investment = Return =Risk = Type of InvestmentWhat is it? (definition)Return (Income Generated)Risk (high or low)Comments (other important information)Checking AccountsSavings AccountsCertificates of Deposit (CDs)BondsStocksMutual FundsInteractive: NGPF Online Bank SimulationIt’s Saturday morning, and you leap out of bed because it’s time to…?CHECK YOUR ONLINE BANK ACCOUNT! YES!!!!Part I: Set up your account. You’ve just opened a checking and savings account at a local bank earlier this month with a deposit of $250 in each account. Access the NGPF OnlineBank Simulator and set up your digital account for the first time by clicking Create an Account in the upper right and following the prompts.?For the ALERT section, ? IF THE CHECKING OR SAVINGS ACCOUNT FALLS BELOW 200. Then, log in using your new account details you just set.Part II: Do Some Online Banking. In the upper right, set the SIMULATION DATE to January 17, and push GO. Navigate to Account Activity to see what’s happened this month in your Checking Account.?What is your current balance in the Checking Account? Is it more or less than you started the month with??To get in the full swing of things with online banking, you set up direct deposit with your job at Burger Bucket. You want to verify that it’s working correctly: You’re supposed to be paid twice a month.?Did your direct deposit work correctly? If so, what days did you receive your pay? How large was each deposit??What fee(s) have you incurred on your account so far? How could you prevent them from happening in the future??You want to make sure your account reflects the spending you’ve actually done, so you pull receipts out of your clothes pockets from the last two weeks and find two for Cool Snacks, one for Cafe Club, one from a sale at Clothing Rack, and an ATM slip for a withdrawal of $30.?Are there any items reflected on your Account Activity that you can’t account for? What are they?What might be a plausible explanation for the extra entry? Give at least two possibilities.?Switch over to the Account Activity for your Savings Account.?What’s happened so far in your Savings Account??Thinking back to your personal finance course, you remember you should “pay yourself first” by regularly contributing some of your income to your Savings Account. Use the Make a Transfer feature to move $35 from your Checking Account into your Savings Account.?How much is in your Savings Account now??What is the new balance in your Checking Account??You’re working part-time, you’ve got your own bank accounts… It’s time to finally subscribe to online streaming TV and movies from GetFlix at a monthly cost of $11. You can’t be bothered to remember to pay your bill on-time every month, so use Pay a Bill and follow the prompts onscreen to set up auto payment to GetFlix, 2000 Maple Street, Anytown, PA 15068. Your payment is due the first of every month.?For what date did you set your first bill pay to GetFlix? After seeing the ALERT that appears, will your bill be paid in time for February 1st??Fast Forward: Change the SIMULATION DATE to May 17 and push GOPart III: A Few Months Later...Online checking is SO easy, you realize it’s mid-May and you haven’t monitored your account as closely as you had intended to. Log into your Savings Account.?Describe what transactions you see in your Savings Account since opening it in January.?You intended to “pay yourself first” with $35 into your savings account every month, but it looks like that’s not happening regularly. What could you do to fix the problem??12. Give one short-term and one long-term priority you have for your online bank accounts. Explain why you chose these goals and how you plan to achieve them.How Do Consumers Access Their Checking Accounts?3175026035What percentage of consumers do not access their checking account by visiting their bank’s branches?What demographic factors do you think determine how a consumer accesses their checking account?How do you think this chart will change over the next 20 years? What segments do you expect to grow/decline? What implications might this have on the banking industry?Name at least two advantages of accessing your account online or banking using your smartphone?Checking and SavingsWhen you go to a bank to open a new account, you will have a variety of account types and features to choose from. Should you choose the basic checking option or an account that earns interest? Do you want the convenience of a bundled checking and savings account or the higher returns of a money market account?To make these decisions, it’s helpful to first understand the differences between the most common bank account types. Here are some definitions to help you navigate your banking needs:Checking account:?A checking account offers easy access to your money for your daily transactional needs and helps keep your cash secure. Customers can use a debit card or checks to make purchases or pay bills. Accounts may have different options or packages to help avoid certain monthly service fees. To determine the most economical choice, compare the benefits of different checking packages with the services you actually need.Savings account:?A savings account allows you to accumulate interest on funds you’ve saved for future needs. Interest rates can be compounded on a daily, weekly, monthly, or annual basis. Savings accounts vary by monthly service fees, interest rates, method used to calculate interest, and minimum opening deposit. Understanding the account’s terms and benefits will allow for a more informed decision on the account best suited for your needs.Certificate of Deposit (CD)CDs are a good place to put extra money for relatively short amounts of time.CDs are considered a safe investment, but their low interest rates mean your money grows slowly.You must pay penalties if you withdraw your money before the CD has fully matured.Sold by banks, certificates of deposit (better known as CDs) are low-risk –- and relatively low-return — investments suitable for cash you don’t need for months or years. If you leave the money alone during the investment period (known as the “term” or “duration”), the bank will pay you an interest rate slightly higher than what you would have earned in a money market or checking account. All gains from CDs are taxable as income, unless they are in a tax-deferred (IRA) or tax-free (Roth IRA) account.CDs are among the safest investment a persona can make. The interest rate is determined ahead of time, and you’re guaranteed to get back what you put in, plus interest once the CD matures. What’s more, if the bank goes belly up, your deposit is probably insured by the?FDIC?for up to $250,000.??Traditional CD: You receive a fixed interest rate over a specific period of time. When that term ends, you can withdraw your money or roll it into another CD. Withdrawing before maturity can result in a hefty penalty.BondsA bond is a debt investment where investors lend money to an entity for a defined period of time at a fixed interest rate. Types of BondsBonds may be issued by a corporation or a government entity and are rated by independent companies based on their credit worthiness. After all, a bond is basically a loan so the issuer’s credit is an important factor in the interest rate they must pay. When an entity issues a bond, they are making a promise to the bondholder to pay a certain amount of interest at specified times throughout the life of the bond. Then, at the expiration of the bond, they are to repay the principal of the bond. If a bond is issued by a company it is called a corporate bond while those issued by the US government are called savings bonds. Bonds are not the most exciting investment by any means. They are not flashy and you do not hear of people becoming millionaires through bonds. However, they are a very important part of a diversified portfolio. Although they may not make millionaires at the rate of stocks or other investments, you can be assured that millionaires and savvy investors around the world are using bonds to manage cash flow, create reliable income, and help protect their portfolio over the long term.Understand the Value of BondsBonds may be issued in denominations as small as $100, but often require purchases of $1000, or even $10,000 or more. The original amount that the bond was issued for is called the face value, nominal value or par value and the yield when the bond is issued is called the coupon yield or coupon rate (or just coupon). That value never changes for the life of the bond, although the price it is traded for will fluctuate greatly from the time the bond is issued until it is called for payment. This is how the interest rates are affected on the bond on the open market and even at issue. Bond prices and interest rates have an inverse relationship, so as interest rates rise, the price of bonds lowers and vice versa. StocksThrough buying stock, not only are you taking ownership in a company that you like and use on a regular basis, but you are investing in your own financial future. Of course, you should not simply buy a stock because you like a certain product or company, but it is a great place to start looking. When one buys a share of stock, they are in essence buying a share or a piece of a company. At one time, shares were traded with actual stock certificates. However, it is rare to see a physical stock certificate these days. Instead, shares are usually held in trust electronically and transactions are made over telephone and computer networks.Stock Holders Have Certain RightsHolding shares of stock gives the owner certain rights, usually including one vote for every share owned. The vote is counted at shareholder’s meetings, where the board of directors and officers of the company present the company’s annual report. The report includes financial statements from the past year as well as forecasts for future growth. During the meeting, votes are taken on items such as board members and other pre-determined issues. Most shareholders do not actually attend the meetings, although all shareholders have the right to attend. Instead, many vote their shares by proxy. This is usually done either by mail or electronically on the internet. Being a shareholder also entitles the owner to a share in the company’s profits if regular dividends are paid. Not all companies pay dividends, though. Where Stocks Are TradedMost stock is traded on an exchange, such as the London Stock Exchange or the New York Stock Exchange. There are several major exchanges around the world and not every stock is listed on each exchange. Some stocks, however, are listed on multiple exchanges. This is most common with large international companies. For instance British Petroleum is listed on the New York Stock Exchange as well as the London Stock Exchange. Only certified stockbrokers, also called traders, brokers, brokerage firms, etc., are allowed to initiate stock trades. For that reason, if you want to buy or sell shares of stock, you must do so through a certified broker. There are many different?UK stockbrokers and brokerage firms?available either through a local office or from the comfort of your own home on the internet.Mutual FundsThis fund type investment offers instant diversification across a wide spectrum of investments, but it has its own specific advantages and disadvantages. Mutual funds, sometimes simply called funds, are considered by many to be the cornerstone of any investment portfolio. What is a Mutual Fund?A mutual fund is often referred to as a pooled investment. What that basically means is that one fund contains a wide array of investments. In purchasing a quality mutual fund, you would then own the equivalent of very small shares in many different companies, usually dozens or even perhaps a hundred or more in one fund. In reality, you do not own any of the shares of the individual companies, only shares in the fund.The fund is controlled by the fund manager, who oversees the day to day trading and activity of the stocks in the fund. His job is to execute the fund’s objective, which may include goals such as aggressive growth, high dividend yields, or slow and steady growth and income. The fund will also have an outline for the types of investments that the manager may make, such as in domestic or foreign equities (or both), income investments like bonds and gilts, commodities and derivatives, or any combination of these and other investment types. Whatever the rules, they will be laid out clearly in the fund’s prospectus, which must be issued to each investor prior to or upon purchase. This is somewhat of a guide book to the fund and thoroughly explains, along with the fund’s objective, its fees, manager’s profile, price and earnings history and top holdings, among other things. The prospectus should be reviewed before agreeing to purchase any mutual fund and any questions about it should be answered before deciding on the fund. Although it can be quite a large document, the important features can be scanned and understood in order to make an informed decision. These most important sections include the fund’s objectives, strategies (how it will achieve its objective), performance history, risk strategy, distribution policy, manager profile and the fund’s fees and expenses.Mutual Fund FeesThe fees and expenses are one of the areas of focus for most investors, and rightly so. They can eat away at the fund’s gains and an otherwise attractive fund can be ruined by high expenses and fees. When purchasing a fund, there are several different fee options. You may pay a purchase fee up-front, called a front-end load, you can pay the fee when you sell the fund, called a back-end load, or you may purchase a fund with no sales fee, called a no load fund.Mutual funds can indeed be the cornerstone upon which an entire investment portfolio is built. With the breadth of fund options and investment strategies available, it would even be possible to invest only in mutual funds and be very comfortable doing so. The most important keys to investing in funds are to understand the fund’s objective, strategy and risks, be comfortable with the fund manager (long tenure is best), estimate potential gains by evaluating long-term historical data, and keep expenses in check by choosing cost efficient, low expense funds. ................
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