Title: Cash Management
1Cash Management
- Effective Management of all Your Monetary Assets
2Goal 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.
3Cash Equivalent Accounts
- Savings Accounts
- Checking Accounts
- Money Market Accounts
- Other Short Term Investments
4Cash Equivalent Accounts
- Maintain constant or nearly constant value
- Have liquidity
- Safety
5Four Tools of Cash Management
- Checking Accounts interest earning
- Savings Accounts
- Money Market
- Low risk longer term savings such as CDs and
Government bonds
6Providers of Cash Management Services
- Depository Institutions provide both deposit and
lending accounts - Commercial Banks
- Savings Loan Associations
- Mutual Savings Banks
- Credit Unions
7Providers 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.
8Providers 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
9Account Ownership
- Individual Ownership sole owner
- Joint Tenancy with Rights of Survivorship
- Tenancy in Common
- Tenancy by the Entirety
10Insurance 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
11Cash 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
12Checking Account Fees
- Per check and monthly service charge
- Minimum balance accounts
- Average balance account
- Account exception fees
13Endorsing a Check
- Blank endorsement
- Special endorsement
- Restrictive endorsement
14Other Types of Checks
- Travelers Checks
- Money Orders
- Certified Checks
- Cashiers Check
15Cash 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)
16Interest 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
17Cash 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
18Cash 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
-
19Cash 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
20Cash 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
21Cash 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
22Cash Management Tool 4
- Long Term, Low Risk Savings Instruments
- Fixed- time deposits
- Pays highest interest rate of all cash management
tools
23Certificates 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
-
24Savings 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
25Problem
- 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?
26Problem
- 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?
27Problem
- 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?
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