Cash Management

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Cash Management

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Four Tools of Cash Management. Checking Accounts interest earning. Savings Accounts ... Cash Management Tool 2. Savings Accounts ... – PowerPoint PPT presentation

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Title: Cash Management


1
Cash Management
  • Effective Management of all Your Monetary Assets

2
Goal of Cash Management
  • Maximize interest earnings and minimize cost
    while maintaining adequate financial reserves for
    daily living expenses, emergencies, savings and
    contributions to investment programs.

3
Cash Equivalent Accounts
  • Savings Accounts
  • Checking Accounts
  • Money Market Accounts
  • Other Short Term Investments

4
Cash Equivalent Accounts
  • Maintain constant or nearly constant value
  • Have liquidity
  • Safety

5
Four Tools of Cash Management
  • Checking Accounts interest earning
  • Savings Accounts
  • Money Market
  • Low risk longer term savings such as CDs and
    Government bonds

6
Providers of Cash Management Services
  • Depository Institutions provide both deposit and
    lending accounts
  • Commercial Banks
  • Savings Loan Associations
  • Mutual Savings Banks
  • Credit Unions

7
Providers of Cash Management Services
  • Mutual Funds, Brokerage Firms Financial
    Services Companies
  • Mutual Fund is an investment company that invests
    the funds it raises from selling shares to the
    public. Not Insured.
  • Stock brokerage firms sell stocks, bonds, etc.
    Insured but NOT for investment losses.

8
Providers of Cash Management Services
  • Financial Services Companies offer a wide range
    of financial services including deposit and
    lending services. Called quasi-banks or nonbank
    banks. They accept deposits or make loans but
    not both. (Not Insured against loss)
  • Examples
  • Prudential Securities
  • Fidelity Investments

9
Account Ownership
  • Individual Ownership sole owner
  • Joint Tenancy with Rights of Survivorship
  • Tenancy in Common
  • Tenancy by the Entirety

10
Insurance on Accounts
  • FDIC Banks
  • NCUSIF- National Credit Union Share Insurance
    Fund
  • SAIF Savings Association Insurance Fund
  • Amount
  • 100,000 per social security number per financial
    institution

11
Cash Management Tool 1
  • Interest Earning Checking Accounts (demand
    deposits)
  • Special no minimum deposit, monthly fee
  • Regular minimum deposit, no interest, no fees
  • Lifeline banking account basic banking account
    income/net worth tested
  • Interest bearing NOW
  • Share draft account

12
Checking Account Fees
  • Per check and monthly service charge
  • Minimum balance accounts
  • Average balance account
  • Account exception fees

13
Endorsing a Check
  • Blank endorsement
  • Special endorsement
  • Restrictive endorsement

14
Other Types of Checks
  • Travelers Checks
  • Money Orders
  • Certified Checks
  • Cashiers Check

15
Cash Management Tool 2
  • Savings Accounts
  • Interest rates are typically .10 to .25 higher
    than those paid on NOW accounts
  • Time deposits
  • Rule that savers give 30 to 60 days notice for
    withdrawals
  • Fixed-time deposits (6 months or more)

16
Interest on Savings Accounts
  • Determined by
  • Amount of money on deposit
  • Method of determining balance
  • Interest rate
  • Frequency of compounding
  • Truth in Savings (APY) Annual Percentage Yield

17
Cash Management Tool 3
  • Money Market Accounts
  • Provide the opportunity for higher rates of
    interest.
  • .5 to 1.5 percentage points higher than those
    paid on NOW checking accounts

18
Cash Management Tool 3
  • Super NOW Accounts
  • Minimum deposits of 2,000 - 5,000 required
  • Higher interest than checking account
  • Minimum balance required
  • Limits on number of checks allowable

19
Cash Management Tool
  • Money Market Deposit Accounts
  • Requirements similar to Super NOW (higher rate,
    minimum deposit required, minimum balance
    required, limits on number of withdrawals)
  • Plus tiered interest rates are used depending on
    account balance

20
Cash Management Tool
  • Money Market Funds
  • Offered through mutual funds not insured
  • Provides opportunity for higher interest
  • Minimum deposit of 1,000 - 2,000
  • Number of withdrawals limited and the amount of
    withdrawals are limited

21
Cash Management Tool
  • Asset Management Account
  • One account with various components
  • Checking account,
  • Money market funds
  • One stop shopping opportunity for cash
    management
  • All activity on one monthly statement

22
Cash Management Tool 4
  • Long Term, Low Risk Savings Instruments
  • Fixed- time deposits
  • Pays highest interest rate of all cash management
    tools

23
Certificates of Deposits
  • Purchased in specific denominations (100, to
    10,000 or more)
  • Usually fixed rate of return (based on amount and
    time)
  • Usually insured
  • Penalties for early withdrawal

24
Savings Bonds
  • Series EE Bonds sold at 50 of face
  • Variable interest rates, maturity date is
    estimated (17 years max)
  • Series HH Bonds
  • Sold at face value, pay semi-annual interest, can
    no longer be purchased.
  • Series I Bonds
  • Sold at discount, interest rate tied to CPI

25
Problem
  • Twins Barbara and Mary are both age 22. Barbara
    begins investing 2,000 per year for 8 years then
    stops. Mary at age 32 begins investing 2,000
    per year for 33 years. Assuming they both earn
    8, how much money will each have at age 65?

26
Problem
  • You want a college fund of 30,000 for a child
    who is now 3 years old. You need the money in 15
    years. If you can get 7 return, how much must
    you invest now?

27
Problem
  • You plan to retire in 22 years. You set aside
    6,000 per year beginning this year. If you can
    get 7 return, how much will you have in your
    retirement fund when you retire?

28
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