[MUSIC] In this segment, we're going to talk about some of the common financial services that are available for cash management purposes. So just to start of,f I'm going to summarize the different types of services that we're going to be covering in this segment. And just provide kind of a general overview and comparison of those services. So what we're going to talk here over he next few minutes is everything from the use of cash to checking accounts to savings and money market accounts, and then finally certificates of deposit or CDs. All four of these are very common ways to manage or hold funds with a bank or a financial institution. And the thing I want to highlight before we get started here is that there's some very easy comparisons we can make, in terms of flexibility or liquidity, that these types of accounts offer, as well as the interest earnings that we may get by holding money in these different types of accounts. So you can see here that, as we move from cash to checking to savings to CDs, we're typically going to earn higher rates of interest. But we're also going to lose flexibility and liquidity in terms of access to our money. And I'll talk more about that as we go through each one of these things individually. The other thing that I want to highlight, and I'll try to come back to it at the end of the lecture, is that most the time, we're talking about an individual or a household. They're going to be using a combination or a mix of these account types just to simply take advantage of all the benefits of each, okay? So we're not typically looking at an individual who has all of their money being held in cash, pr all of their money being held in a checking account. We're typically spreading that out across the different account types, at least using two or three of the account types to hold some of the cash that we have available to us. So we'll start out with cash. Cash is the most liquid way to hold our money. And there's a number of good reasons for having direct access to cash. Cash is extremely convenient. Any retailer or any purchase that you make is typically going to accept cash, where that may not be the case if you're using some other form of payment. Cards for example, credit cards and debit cards, may not always be accepted. Cash is very useful in situations where making maybe very small purchases, where there's some kind of minimum purchase level required to be able to use a credit or a debit card. Cash is also often talked about as just being convenient, especially in group situations. Maybe you're going out to dinner with a group of friends and you're splitting the bill. And sometimes it gets to be annoying or troublesome when everybody throws in a credit card rather than being able to pay their share in cash. Tipping is another area, if you look into reasons to carry cash. A lot of times it's easier or preferred to tip your waitress or your barista with cash rather than adding that onto a credit card. Cash also can be very useful if you're the kind of person that, from a budgeting perspective, you're able to better limit your purchases by the amount of cash that you're carrying. So maybe rather than just having a budget laid out on paper, you withdraw the amount of cash that's available to you during the week or the month. And once you're done spending that, you're done spending for that time period, and that's the way that you keep yourself to your budget. Cash is also referred to as kind of the ultimate emergency fund, so there may be time periods when you just don't have access to your bank, you don't have access to an ATM. Cash is something that's nice to have on hand, at least some level of cash, to have in those situations. One of the kind of the common things that people say about cash is that cash is king. Again, it's accepted, typically, everywhere, and it can get you out of a situations when other forms of payment may not be accepted. All right, moving on to checking accounts. A checking account is just the basic account that's used to hold funds for kind of day-to-day activities. So maybe your day-to-day deposit and expense activities. Checking accounts provide very convenient and easy access to funds via cash withdrawals, whether you're physically going into the bank or doing that at an ATM. You can typically purchase checks or checks may be provided for free that you can use to pay for expenses directly out of that checkng account. And another thing that's grown in popularity and becoming kind of the more dominant way of using funds in a checking account Is through the use of check or debit cards. And we'll talk a little bit more about check and debit cards in detail in future segments. Something to be aware of, in terms of checking accounts as well as other accounts that we'll discuss, any limitations in terms of being able to access funds or deposit funds to a checking account, as well as any other rules and fees associated with your checking account, will depend on the account type as well as the institution that you're working with. So within the class of checking accounts, there's a broad range of checking account types, everything from free checking to joint checking accounts or other accounts that are going to have different fees and different rules associated with them. So just make sure that you understand the type of account you're using and the specific rules associated with that account. Another nice thing about checking accounts is that typically you're going to be provided with a regular monthly statement, and that will allow you to track some of your income and your deposits or expenses and withdrawals overtime. So that's very useful to take back, especially historical statements, to take back to that budgeting process just to determine where your money's going each time period. Finally, something that is specific to the US, so I will warn any international students that are watching this, this is specific to the US. But in the US, we do have insurance for checking accounts through the Federal Deposit Insurance Corporation. So checking accounts In the US are FDIC insured, at least up to $250,000, so something to keep in mind for users of US banks and financial institutions. Savings and money market accounts, again we're moving down the spectrum here in terms of maybe giving up a little bit of flexibility or liquidity relative to a checking account, but moving to something that's going to provide, most likely, more interest earnings on the funds that you have deposited. In a savings and money market, your funds are still relatively very liquid and easy to access, but there maybe limitations and rules on how often or how much the amounts of those funds that you can access during any time period. For example, there are federal regulations in the US that limit the number of monthly transfers, especially the number of transfers or deposits that are made through electronic or mobile means. Saving accounts may require a minimum amount to establish, and or they may have a minimum balance that you have to maintain overtime to avoid fees and penalties. Again, that's going to vary across the type of savings or money market account that you might have, as well as the financial institution that you're using. So just make sure that you're very clear and understanding of the account type that you're working with. Another nice thing about savings accounts and money market accounts is that if you're working with the same financial institution for both your checking and savings needs, you may be able to link those accounts so you can transfer money in between your checking and savings account relatively easily. And like I said before, savings accounts are going to typically earn interest rates that are going to exceed anything that you'll be able to earn on a checking account. Savings and money market accounts. Again, this is US specific, but these are also account types that are FDIC insured, again, up to $250,000 on individual accounts. Certificates of deposit or CDs are the last common financial service that we'll discuss in this segment. A CD is an account that, on the spectrum here that we've looked at, is going to be the least flexible or have the most restrictions in terms of access to your funds. But again, they're going to pay higher interest rates than you might see in a checking or a savings, or a money market account. So a CD is just simply a deposit account that's going to be defined by the amount of money that you deposit, the interest rate the financial institution is paying you, or that's being earned on the money, as well as the frequency of the calculations. So whether that interest is calculated on a weekly basis, monthly basis, semi annually, or annually. And then finally, the other factor that defines a CD is the term or the timeframe that you committed those funds. So just a simple example, we could think of taking $5,000, depositing that into a CD. The bank or the financial institution may promise to pay us a 2% annual interest rate on that, as long as we keep that money in that account over the next five years. So while we still are going to have access to those funds if we absolutely need them, we have committed to keeping that $5,000 in that CD account over the next five years to be able to earn that 2%. If we decode that we need to or want to withdraw that money early, there may be some fees associated or some penalties associated with withdrawing that money before the term ends. CDs are another category of account that are going to be FDIC insured, again, up to that $250,000 limit on individual accounts here in the US. All right. Another topic that I want to just briefly talk about are kind of the increase or rise of online and mobile banking services. And these provide a lot of advantages relative to physically visiting a brick and mortar bank. So many banking Institutions now offer at least limited online or mobile services. Some very common services that most of us can do online with our banks now is make deposits. Something as simple as taking a picture of a check with your phone and sending that through the bank's mobile app, or maybe texting it to a number, will allow us to deposit checks from virtually anywhere. We can also make transfers if we have multiple accounts with that financial institution, either online or on our cell phones. And we may also have online or mobile checks that we can automatically send to, or bill pay services that we can use to cover some of our regular expenses. The other nice thing about online banking is it's easy and electronic access to our statements. So that allows us to track the activity in our accounts, again to use that historical information for some of our budgeting purposes. And some banks now even offer online budgeting tools that we can use to even help us make that budgeting process simpler and easier. Finally, another really common and useful online service that many banks are offering is the ability to set up either email or text alerts, in case any suspicious activity does show up, any transactions over a certain size, or transactions that are occurring in a place where you don't regularly shop. You can set those alerts up and be notified of those as soon as they happen. Now while online and mobile banking does provide a lot of advantages, there are some points to consider. So some of the advantages again, 24 hour access from anywhere, as long as you have Internet connection or cell service for mobile services. But the downside of that is, even though you can do things at any time, those actions may not necessary be immediate. So typically banks, even if you make a deposit online or using your cell phone, if you do that outside of normal banking hours, it won't actually take effect until the following day or the following business day. Online banking is often viewed as being faster and more convenient. But there is, a lot of people do note, that you lose kind of that personal touch, personal costumer servicing connection with an actual human being at the bank. Another thing to think about with online and mobile banking services is, are you doing business with a financial institution that is purely or a dedicated online bank, or are you working with an institution that is just simply providing online services in addition to their brick and mortar set-up? So are you working with a bank that you could visit physically and go talk to a banker? Or are you working with an institution that is just dedicated online, where there is very limited ability for human interaction? Finally, security is an issue when we're talking about online or mobile transactions. It's often noted that security is always improving and efforts are always being made to make sure that security may be even better for online and mobile than it would be for in person physical transactions. But there always are continued concerns about people being able to access your accounts online if they can get your log in information, or issues associated with identity theft. And so there are both security advantages as well as kind of new additional concerns that the online and mobile banking services introduce. Alright, so to summarize this segment. We just spent some time talking about some of the very common financial services that are available to us through banks and other institutions that allow us to manage our cash flows each period. So we talked about holding cash, some of the benefits as well as some of the disadvantages of cash. And then went into talking about checking accounts, savings accounts, and certificates of deposit or CDs. There are trade offs among the account types. So we talked about the trade offs in terms of flexibility, liquidity and access to your funds versus the interest earned on those accounts. And also I wanted to highlight the fact that most individuals or families are going to utilize a mix of these account types. So to make sure that you do have flexibility and liquidity, you maybe want to hold some money in cash. You want to have a checking account, but then also take a portion of your liquid funds and have them in maybe less flexible accounts, such as saving or CDs, to be able to earn some interest on that money as well. And then finally, we talked a little bit online banking services and how they're becoming more popular and more widespread. They do offer many advantages and conveniences, but there are also downsides and things to consider as you compare those to more traditional banking services at a brick-and-mortar facility. [MUSIC] [SOUND]
