Transcript Investor Boot Camp – Financial Fitness 201

Presented by Glendale Public Library
Instructors: Chuck Milliner and Annette Fisher
April 25
Preparing to Invest
May 2
Key Investment Concepts
May 9
Bank Products and US Treasury
Securities
May 16
Common Types of Investments,
and Retirement Savings Vehicles
May 23
Choosing the Right Investments
May 30
Managing Investment Risk
June 6
Evaluating Performance
June 14
Investment Professionals and
Safeguarding Your Investments
Two Main products
Checking Accounts – also called transaction accounts, which
allow you to transfer money by check or electronic payment
to a person or organization
Savings Accounts – also known as savings accounts, which
pay interest on your money in those accounts
 Cashier’s
checks
 Notary service
 Online banking and bill pay
 Lines of Credit
 Loans
 Investment accounts
 Commercial
Banks are insured against
loss by the Bank Insurance Fund (BIF) of
the FDIC – Federal Deposit Insurance
Company
 Savings
and loans are insured through
the Savings Association Insurance Fund
(SAIF) of the FDIC
 Credit
Unions are insured through the
National Credit Union Share Insurance
Fund (NCUSIF) which is administered
through the National Credit Union
Administration.
The FDIC –short for the Federal Deposit
Insurance Corporation - is an
independent agency of the United States
government. The FDIC protects
depositors against the loss of their
insured deposits if an FDIC-insured bank
or savings association fails. FDIC
insurance is backed by the full faith and
credit of the United States government.
If a depositor's accounts at one FDICinsured bank or savings association total
$250,000 or less, the deposits are fully
insured. A depositor can have more than
$250,000 at one insured bank or savings
association and still be fully insured
provided the accounts meet certain
requirements.
Effective October 3, 2008, the basic limit on federal
deposit insurance coverage was temporarily
increased from $100,000 to $250,000 per
depositor through December 31, 2009.
On January 1, 2010, FDIC deposit insurance for all
deposit accounts—except for certain retirement
accounts—will return to at least $100,000 per
depositor. Insurance coverage for certain
retirement accounts, which include all IRA
deposit accounts, was increased permanently to
$250,000 per depositor in 2006.
On October 14, 2008, the FDIC announced its temporary Transaction
Account Guarantee Program, providing depositors with unlimited
coverage for noninterest-bearing transaction accounts if their
bank is a participant in the FDIC’s Temporary Liquidity Guarantee
Program.
Noninterest-bearing checking accounts include Demand Deposit
Accounts (DDAs) and any transaction account that has unlimited
withdrawals and that cannot earn interest. Also included are lowinterest NOW accounts that cannot earn more than 0.5% interest.
Interest-bearing accounts include NOW accounts that can earn
more than 0.5% interest, other interest-bearing checking
accounts, Money Market Deposit Accounts (MMDAs), savings
accounts, and Certificates of Deposit (CDs). This program is
scheduled to end on December 31, 2009.
look for the official FDIC sign where
deposits are received. Beginning in 2007,
insured banks will display this new
official FDIC sign:
the balance of each depositor's account,
dollar-for-dollar, up to the insurance
limit, including principal and any
accrued interest through the date of the
insured bank's closing.
 money
invested in stocks, mutual funds,
life insurance policies, annuities, or
municipal securities, even if these
investments were bought from an insured
bank.
 U.S. Treasury bills, bonds, or notes. These
are backed by the full faith and credit of
the United States government.
 The
basic insurance amount is $250,000
per depositor, per insured bank.
 The $250,000 amount applies to all
depositors of an insured bank.
 Deposits in separate branches of an
insured bank are not separately insured
 Deposits in one insured bank are insured
separately from deposits in another
insured bank.
Deposits maintained in different
categories of legal ownership at the same
bank can be separately insured.
Therefore, it is possible to have deposits
of more than $250,000 at one insured
bank and still be fully insured.
 http://www.fdic.gov/deposit/deposits/in
sured/ownership.html
 Review
Single and Joint
 Federal
law requires the FDIC to make
payment as soon as possible. Historically,
the FDIC pays insurance within a few days
after a bank closing either by establishing
an account at another insured bank or by
providing a check.
 Deposits
purchased through a broker may
take longer to be paid because the FDIC
may need to obtain the broker's records to
determine insurance coverage.
Customers with uninsured deposits receive the
insured portion of their account as described
above. They will wait longer to receive payment
for some or all of their uninsured deposits.
The amount of uninsured deposits they may
receive, if any, is based on the sale of the failed
bank's assets. Depending on the quality and
value of these assets, it may take several years to
sell the assets. As assets are sold, uninsured
depositors receive periodic payment on their
uninsured deposit claim.
 Write
checks
 Online Bill Pay
 Transfer Funds
 Debit Card
 ATM withdraws
 Basic
 Lifeline
 Free
Checking
 Interest Bearing
 NOW – Super Now
 Express
 No-Frills
 Credit Union Share Drafts
 Relationship Accounts
Basic checking accounts let you deposit
and withdraw money and write checks to
pay bills and daily expenses. They are
perfect if you don't plan to keep a high
account balance.
The details of basic checking accounts are
different for each financial institution
Bare bones, low-cost for qualifying lowincome customers
This type of checking accounts waive many
of the fees banks may charge, such as
monthly service fees for low balances
and surcharges for ATM usage.
Lifeline checking accounts are meant for lowincome bank customers. Lifeline accounts have
low:
 Minimum deposit and balance requirements.
 Monthly fees, ranging from zero to $3 depending
on the bank.
 Limits on the number of checks per month that
you can write.
Certain states have laws requiring banks to offer
lifeline accounts. Currently, those states are:
Illinois, Massachusetts, Minnesota, New Jersey, New
York, Rhode Island and Vermont.
A way to reduce fees
 Typically
require you to maintain a
minimum balance in your account

Fees for ATM and check fees are
eliminated
Earn Interest on your account
 Usually
require more money to open
 A high minimum balance or you will be
charged fees
 Interest paid monthly
Be aware, the fees for falling below the
minimum balance may be more than the
interest you earn
A
NOW account (Negotiable Order of
Withdrawal) is a "Free Checking" and an
interest-bearing account offered by a
savings and loan or "thrift" institution.
 Super
Now has a higher interest rate and
a higher minimum balance.
Express checking accounts are designed
for people who are on the move and who
don't go inside the bank often. These
people prefer to bank by ATM, telephone
or computer.
Usually offer:
 Unlimited check writing
 Low minimum balance requirements
 Low or no monthly fees
Note: There is a catch. When you do visit
a bank branch, you can expect to pay a
fee to talk to a teller on either a per visit
or a monthly basis.
Many banks offer special checking deals if
you are age 55 or over or if you are a
student.
The benefits may include:
 Free personal checks
 Free cashiers or traveler's checks
 Wider ATM use
 Better rates on loans and credit cards
 Discounts on a variety of items including
travel or prescriptions
Most Credit Unions offer checking
accounts, called Share Drafts, often with
no service charges or reduced fees.
These accounts link all the accounts you
have with the bank. They typically offer
free checking and ATM withdrawals
along with other banks services if your
combined balance is high enough.
Does the financial institution:
 Pay
interest on a basic checking account?
Note: Most basic checking accounts do not pay
interest.
 Require direct deposit or a minimum balance?
 Charge a monthly fee for services?
 Charge a fee for each check you write over a
certain limit?
Does the financial institution:
 Charge
fee for online bill pay?
 Charge fee for ATM at other banks?
 Charge fee to download transactions?
 Is there a charge for using your debit card to
pay for a purchase?
 Is overdraft protection available?
The Golden Rule of Checking Accounts:
Only write checks for money you have
in your account. If you remember
nothing else, following this rule will help
you the most in keeping your account in
good standing.
 Regularly
balance your checkbook.
 Use the telephone, Internet, or ATM to
get the most current information about
your account.
 Ask your bank about their fees so that
you are not surprised when you get your
statements
 Don't get caught "floating".
 Use overdraft protection.
 You
forgot to stop automatic payments from
being taken out before you closed your
account.
 You close your checking account by letting
it go to a zero balance.
 A check you deposit in your account does
not clear or bounces, causing the account to
go into overdraft.
 You forgot about your recent ATM (or other)
withdrawals.
 You co-signed on an account that was
abused the other party.
 You
gave your PIN (Personal Identification
Number) to someone else and they took
funds from your account.
 You post-dated a check and it was cashed
too early.
 Your checks get lost or stolen.
 You're not receiving statements or
correspondence from your financial
institution.
 Account or handling error by the financial
institution.
 Checking
linked to savings account
 Line of credit
 Credit card charge
Banks may cover amounts and still charge
a fee. They usually pay the clear the
largest check first and then you get
charged a fee for the smaller ones.
 Savings
 Money
Market Accounts
 Money Market Mutual Funds
 Certificates of Deposit
 Usually
low minimum balance to
maintain.
 Usually no fees
 Allows frequent deposits and withdrawals
 May impose limits on transfers
 Earn compound interest (APY)
 Minimum
Balance
 Tiered Interest Rates based on size of the
account
 Write limited number of checks – usually
three
 Can withdraw in person
 FDIC Insured
Similar to money market accounts
• Pay interest at about the same rate
• May offer check writing privileges
• Usually no limit on number of checks – but may
need to be a minimum amount $500
Not FDIC Insured and could lose some
principal
 Fixed
Term
 Can rollover at maturity
 Less liquid than savings accounts
 Penalty if cash early
 Pay higher interest rates
 FDIC Insured
 Consider laddering
Although most individuals purchase CDs
directly from banks, many brokerage firms
and independent salespeople also offer
CDs.
These individuals and entities – known as
“deposit brokers” – can sometimes
negotiate a higher rate of interest for a CD
by promising to bring a certain amount of
deposits to the institution. The deposit
broker can then offer these “brokered CDs”
to their customers.
 Think
about your Financial Goals
 Find out when the CD matures
 Investigate any call features
 Confirm the interest rate you’ll receive
and how you’ll be paid
 Ask whether interest rate ever changes
 Research any Penalties for Early
withdrawal
Potential Pitfall – Do you understand the
difference between a CD’s call period and
maturity date? Don’t assume that a
"federally insured one-year non-callable"
CD matures in one year. It doesn't.
These words mean the bank cannot redeem
the CD during the first year, but they have
nothing to do with the CD's maturity date. A
"one-year non-callable" CD may still have a
maturity date 15 or 20 years in the future.
 Thoroughly
Check out the Background of
the Deposit Broker
 Identify the Issuer
 Ask about your Deposit Broker’s RecordKeeping
 Find out what would happen if you
needed to withdraw your money early
 Decide if higher risk is worth higher
rates
http://bankrate.com
 Allows
people to transfer money to
relatives or friends in their native
countries
Requires Individual Taxpayer Identification
Number
 Treasury
Bills
 Treasury Notes
 Treasury Bonds
 Treasury Inflation-Protected Securities
(TIPS)
 I Saving Bonds
 EE/E Savings Bonds
are short-term government securities with
maturities ranging from a few days to 52
weeks. Bills are sold at a discount from
their face value.
Are short-term government securities with
maturities ranging from a few days to 52
weeks.
Bills are typically sold at a discount from the
par amount (also called face value). For
instance, you might pay $990 for a $1,000
bill. When the bill matures, you would be
paid $1,000. The difference between the
purchase price and face value is interest.
 You
can buy bills from TreasuryDirect and
Legacy Treasury Direct - non competitive
bidding
 Effective April 2009, TreasuryDirect permits
accounts for both individuals and various types
of entities including trusts, estates,
corporations, partnerships, etc.
 You can also purchase through banks and
brokers either competitive or non-competitive
bidding
Original Issue Rate
The discount rate determined at
auction
Minimum Purchase
$100
Maximum Purchase
(in a single auction)
Noncompetitive - $5 million
Competitive – 35% of offering
amount
Investment
Increment:
Multiples of $100
Issue Method:
Electronic
Tax Considerations
Exempt from State and Local
Income Taxes, Subject to Federal
Income Tax
Security
Term
Maturity
Date
Discount
Rate %
Investment
Rate %
Price per
$100
4-week
06/04/2009
0.145
.0147
99.988722
70 Day
07/16/2009
0.145
.0147
99.971806
13 - week
08/06/2009
0.195
.0198
99.950708
26 - week
11/05/2009
0.330
.335
99.833167
52 - week
05/06/2010
0.530
.540
99.464111
Issue Date – May 07, 2009 - Treasury Direct.Gov
Treasury notes, sometimes called T-Notes,
earn a fixed rate of interest every six
months until maturity. Notes are issued in
terms of 2, 3, 5, 7, and 10 years.
 The
price of a note can be greater than,
less than, or equal to the note's face value
 Notes
pay interest every six months until
maturity. At maturity, the face value of the
note is paid to the owner.
 Treasury
bonds pay a fixed rate of interest
every six months until they mature.
 When a bond matures, the owner is paid the
face value of the bond.
 They are issued in a term of 30 years.
 You can buy Treasury bonds from
TreasuryDirect
 Bonds can be held until maturity or sold before
maturity.
 Bonds
can be held until maturity or sold
before maturity.
 Minimum Term of Ownership: None
 Interest Earning Period: To maturity
 Interest income is exempt from state and
local income taxes.
 Interest income is subject to federal
income tax.
Provide protection against inflation. The principal
of a TIPS increases with inflation and decreases
with deflation, as measured by the Consumer
Price Index. When a TIPS matures, you are paid
the adjusted principal or original principal,
whichever is greater.
 Pay
Interest twice a year at a fixed rate
 The rate is applied to the adjusted principal
 Interest rates rise with inflation and fall with
deflation
 TIPS are issued in terms of 5, 10, and 20 years
 TIPS Inflation Index Ratios can be used to easily
calculate the inflation adjustment to principal
on previously issued TIPS.
 Interest rate is usually lower than Treasure
Notes



The CPI reflects spending patterns for each of two
population groups: all urban consumers and urban wage
earners and clerical workers.
The all urban consumer group represents about 87 percent
of the total U.S. population. It is based on the expenditures of
almost all residents of urban or metropolitan areas,
including professionals, the self-employed, the poor, the
unemployed, and retired people, as well as urban wage
earners and clerical workers.
Not included in the CPI are the spending patterns of people
living in rural nonmetropolitan areas, farm families, people
in the Armed Forces, and those in institutions, such as
prisons and mental hospitals.

The CPI market basket is developed from detailed expenditure
information provided by families and individuals on what they actually
bought.

For the current CPI, this information was collected from the Consumer
Expenditure Surveys for 2005 and 2006. In each of those years, about
7,000 families from around the country provided information each quarter
on their spending habits in the interview survey.

To collect information on frequently purchased items, such as food and
personal care products, another 7,000 families in each of these years kept
diaries listing everything they bought during a 2-week period.

Over the 2 year period, then, expenditure information came from
approximately 28,000 weekly diaries and 60,000 quarterly interviews
used to determine the importance, or weight, of the more than 200 item
categories in the CPI index structure.

FOOD AND BEVERAGES (breakfast cereal, milk,
coffee, chicken, wine, full service meals, snacks)

HOUSING (rent of primary residence, owners'
equivalent rent, fuel oil, bedroom furniture)

APPAREL (men's shirts and sweaters, women's
dresses, jewelry)

TRANSPORTATION (new vehicles, airline fares,
gasoline, motor vehicle insurance)

MEDICAL CARE (prescription drugs and medical
supplies, physicians' services, eyeglasses and
eye care, hospital services)

RECREATION (televisions, toys, pets and pet
products, sports equipment, admissions);

EDUCATION AND COMMUNICATION (college
tuition, postage, telephone services, computer
software and accessories);

OTHER GOODS AND SERVICES (tobacco and
smoking products, haircuts and other personal
services, funeral expenses).
 Series
EE savings bonds are safe, lowrisk savings products that pay interest
based on current market rates for up to
30 years for bonds purchased May 1997
through April 30, 2005*.
 Series EE bonds purchased May 2005
and after will earn a fixed rate of return.
Current Rate
0.70% through October 31, 2009 (fixed
rate)
Minimum Purchase
$25 for a $50 EE Bond when purchasing
paper bond certificates
$25 for a $25 EE bond when purchased
electronically via TreasuryDirect
Maximum Purchase
(per calendar year)
$5,000 in TreasuryDirect and $5,000 in
paper bonds (purchase price)
Denominations
Paper bonds: $50, $75, $100, $200, $500,
$1,000, $5,000, and $10,000
Electronic bonds via TreasuryDirect:
purchase to the penny for $25 or more
Issue Method:
Paper Bonds or Electronic
 Minimum
term of ownership: 1 year
 Interest-earning period: 30 years
 Early redemption penalties:
• Before 5 years, forfeit 3 most recent months'
interest
• After 5 years, no penalty
 Interest
earnings are exempt from State and
local income taxes, but are subject to Federal,
State, and local estate, inheritance, gift, and
other excise taxes.
 Interest earnings are subject to Federal income
tax.
 Interest earnings may be excluded from
Federal income tax when bonds are used to
finance education (see education tax
exclusions). Restrictions apply.
I Bonds are a low-risk, liquid savings
product. While you own them they earn
interest and protect you from inflation.
Current Rate – 0.00% through October 31,
2009
 Checking
 Savings
 CD’s
 Treasury
Bills
 Treasury Notes
 Treasury Bonds
 EE/E and I Bonds