What is a Certificate of Deposit?

More commonly known as a C.D., a Certificate of Deposit is a non-accessible account that you can open with a bank. The depositor purchases a “CD” for a predetermined amount of money (often in hundred or thousand dollar increments). The bank then has the right to loan out the depositors money without fear of depositor withdrawal, and in exchange, the bank pays a higher interest rate.

Larger principal (amount) CD’s will yield higher interest rates. Longer term before repayment will yield higher interest rates. Penalties will be incurred if the depositor decides to cash in their C.D. before term completion.

The C.D. is also insured by the FDIC (What is the FDIC?) which makes it virtually risk free. These are great tools for investors who want more interest that would be yielded from a Savings Account, but want to remain risk free.

JP Morgan Chase Online Banking

In an age where I can purchase my clothes and food online, talk with my friends online, and even meet a spouse online—doesn’t it make sense that I can manage the funds in my standard bank accounts online?

It absolutely does.  Fortunately, the banks have heard our cry.

Online banking allows you to do everything that you used to do with your teller physically at the bank virtually over the internet. It is very easy to set up (different depending on which bank you bank with, simply ask your teller or search “[Bank Name] Online Banking”.

Why do I have several balances?

You may notice that your accounts each have two balances available.

1. Available Balance
   The available balance is the actual amount you have available to spend. This includes any “holds” or un-posted expenses on your account.
2. Posted/Present Balance
   The Posted/Present Balance is the amount that has already cleared your account.

What can I do with Online Banking?

Well, Like I said: Almost anything you can do in a brick and mortar bank.

1. Recent Activity
   This will outline all of the activity on your account for you for months, if not years, prior.
2. Transfer Funds
   This will allow you to transfer funds between your personal accounts, even accounts held at other banks.
3. Pay Bills
   By setting up online bill pay, you can have your bills automatically withdrawn from your account so you never pay another late fee again.
4. View Paper Statements
   This allows you to see all of your past paper account statements online in PDF form.
5. Order Checks
   This will allow you to order checks online.
6. View Rewards
   Many accounts allow for a rewards system when you use your debit card.  You’ll earn points for each dollar spent, etc.
7. Go to Customer Service

What is an Overdraft?

Overdrafting is the action of spending more from a checking account than you had deposited in the account. This commonly happens to new account holders or even occasionally to the seasoned depositor who simply miscalculated their expenses for a month.

The problem with this mistake is that it can be rather costly to the account holder. Often times an overdraft that totals under a dollar can result in $25.00 – $30.00 charges, depending on the Financial Institution.

What is Overdraft Protection?

Many banks offer an outstanding service called overdraft protection. This requires the account holder to have both a Checking Account and some form of Savings Account. By speaking with a teller, the holder can then have the two accounts linked, so that in the event of an accidental overdraft the necessary funds would be funneled from the Savings Account to the Checking Account in order to cover the gap.

This service is ordinarily free and takes only minutes to set up. It can save you hundreds of dollars after only a few miscalculations in spending.

How can I avoid Overdrafting?

Well, aside from simply relying on Overdraft Protection, there are several measures you’ll want to employ in order to avoid making this mistake and eating away at your savings.

1. Employ Online Banking (What is Online Banking?)
   Be sure  to check your balances regularly.  If you use a smart phone, many banks also have “apps” for checking your balance on the go.
2. While out and about, use your bank’s balance check phone number.
3. Be sure to balance your checkbook.

A savings account is a great place to store your money and earn a little interest, although they are a bit less accessible than a Checking Account (What is a Checking Account?)

As opposed to a checking account, when you store your money at a bank using a Savings Account, your money is not directly accessible (though it can be with a simple visit to the bank). By storing your money with the bank, you can be sure that your money is safe and secure.

The money is even further secured against bank failure by the FDIC (What is the FDIC?) as well.

Will I Earn Interest with a Savings Account?

You absolutely should. If you’re opening a Savings Account that pays zero interest, you should look into another bank. However, if you’re looking for any sizable interest a savings account is likely not the answer for you. The interest that you will receive will be very, very small. Often under 1% annually. But, minuscule interest is better than none at all.

Savings Account as Overdraft Protection

Many banks offer a great service called overdraft protection. Learn what Overdraft Protection is.

A checking account is an account held at a bank where they store and protect your money for you. This money is immediately available to you at all times, and the bank will usually provide extra services to you like a debit card, checks, and online banking.

By storing your money with the bank, you can be sure that your money is safe and secure.

The money is even further secured against bank failure by the FDIC (What is the FDIC?) as well.

Will I earn Interest?

Probably not, although it isn’t completely unheard of. Most checking accounts pay you via convenience and safety services as opposed to yielding actual interest. If you want to earn interest, you should consider looking into a Savings Account (What is a Savings Account?) or Investing.

Debit Card’s Convenience Factors

Most checking accounts are accompanied by a debit card.  This debit card makes it much easier to spend and access the funds in your account than to carry cash:

1. Mobility
   By carrying a debit card, you could have access to millions of dollars (if you were so lucky to have that amount in your checking account).  In order to have control over that same amount of money in cash, though, it would take carrying backpacks full of money.  This could be very heavy and inconvenient- not to mention it draws unwanted attention, which brings us to%hellip;
2. Safety
   If you carry cash, it is very easy for someone to steal from you.  There is little or no recourse and unless the police manage to catch the thief, you will likely never see your money again.
   With a debit card, however, as soon as it is stolen you can call your bank and cancel the card.  No thief will have access to it and your funds are much safer.

“Backed by the full faith and credit of the United States Government.”

But what does that mean and what does this “FDIC” stand for?

What is the F.D.I.C.?

The F.D.I.C. is the Federal Deposit Insurance Corporation. The FDIC was started after the Great Depression in order to “promote public confidence in the United States Financial System.” You see, when the depression hit, dozens of banks went out of business and people’s entire life savings simply disappeared.

It is the FDIC’s job to guarantee the deposits of all American Citizens in any FDIC member bank up to a predetermined limit. Due to the recession every individual account is insured up to $250,000.00 until December 31, 2013, after which it will return to its previous $100,000.00 level.

Why aren’t all banks FDIC Members?

Why wouldn’t a bank want to be an FDIC member? Well, most do. Almost every bank that you come in contact with will be FDIC insured. The problem many find with it though is that the bank gives up much control over risk taking. The FDIC breaks each bank into a category of “riskiness” based on how much capital (cash) they maintain (instead of lending out):

• Well capitalized: 10% or higher
• Adequately capitalized: 8% or higher
• Undercapitalized: less than 8%
• Significantly undercapitalized: less than 6%
• Critically undercapitalized: less than 2%

If a bank ever falls into the final category, they will be issued a warning by the FDIC. If the warning goes unheeded the FDIC can take over management from the bank.

What happens when a bank goes under?

The FDIC has two methods for dealing with failed banks and making right with the insured customers.

1. The Purchase and Assumption Model
   This is a fancy way of saying that they sell the bank’s assets (including your deposits) to another bank, who then takes over responsibility.  This is the preferred method.  The sale and acquisition is practically unnoticeable for the average customer and the customer can continue banking with their new bank just as they did before.
2. The Payout Method
   This is a less fancy way of saying that the FDIC sells all of the bank’s holdings and uses the proceeds (plus Government Money if necessary) to pay back the bank’s depositors.

What types of Accounts do the FDIC insure?

To be sure which accounts of yours are insured, check the FDIC website.
In general though, the FDIC covers “Deposit Accounts” which include:

• Checking Accounts (What is a checking account?)
• Savings Accounts (What is a Savings Account?)
• Time Deposit Accounts (CD’s) (What is a CD?)
• Foreign Currency Accounts
• Outstanding Cashiers checks, etc.

Wachovia offers a great savings program called Way2Save that competes with Bank of Americas Keep the Change Program

One of Wachovia’s newest services, the Way2Save account offers unbelievable interest rates and incredible ease of use.

I have been a customer of Wachovia for over 5 years now. I signed up for their Way2Save account over six months ago, and I am a very pleased customer. This account is Wachovia’s way of competing with Bank of America’s Keep the Change program.

Why is it Better?

Way2Save differs from other Savings programs in that it is only a three year program.

With a 5.00% APY it already exceeds anything else you’re going to find in this market! In year one of the program you can earn a BONUS 5.00% on all money up to $300! So at the end of year one, you can earn up to 10.00% INTEREST on your money up to $300.00 and %5.00 on anything above that!

Before you think you’re going to run to the nearest Wachovia Branch and deposit your entire life savings,
here is the catch:

I told you that it was Wachovia’s competition with Bank of America’s Keep the Change program. As opposed to rounding up to the nearest dollar amount with each use of your checking card like Bank of America does, Wachovia adds $1.00 to every transaction total and deposits it from your checking account to your Way2Save account. In addition to this you are able to set up your checking account to automatically deposit up to $100.00 every month.

So the two ways to get money into this high yield account are:

1. Use your checking card- with each swipe you get a dollar put into the account
2. Set up your checking account to auto-transfer up to $100 each month

So as you can see, you’ll not only be yielding far more interest than you would in any conventional savings account, but through it’s methods of auto-transfers using your checking card and your manually set up transfer, the Way2Save account is a great way to keep yourself accountable to your savings.

This graphic from Wachovia’s website illustrates your potential savings:

Apply Online!

If this account still sounds as good to you as I have found it to be for me, you can check it out and even apply Here!

Why are the feds and the investors making such a fuss about our current banking crisis? The American Car industry is in the very same condition as the banks, yet there is no $700 billion bailout plan put in place for them. What’s unique about the banking industry that requires so much extra attention and concern?

In the American economy all business is done between households and firms. This business is done in the Final Goods Market and the Resources Market. Goods like televisions, cars and lamps are sold in the Final goods Market by firms to the households in exchange for revenue. Resources used to manufacture these goods such as Labor and Raw Materials are purchased by the Firms FROM the households in exchange for income for the homes.

Though it may seem that the Firms actually own resources like raw materials, they don’t. Firms are divided into shares and shares are owned by households. (Even the CEO belongs to a household) So all resources are actually transitively owned by households, and must be paid for.

So if a firm produces a television for $1000, the homes must have been paid $1000 for their resources (including labor) — They then return that $1000 in exchange for the television.

Economy in a Nutshell

Theoretically, this is the way our economy should work. We have a problem though. Americans save some portion of their income. On average Americans spend about $0.75 out of every dollar they earn. For our example, let’s be conservative and say that they spend $0.80 out of every dollar and save $0.20 — This would mean that though the Firm had paid them $1000 for resources and manufactured the television, the households would only be able to spend $800 in the Final Goods market.

Clearly, our economy needs some sort of system to re-funnel that savings into the market. If not, the Government will be required to continue printing money to meet the need of a growing market and shrinking monetary supply, which will cause inflation to skyrocket.

And So We Have Banks

So we introduce the banks. With banks, people no longer keep their money under their mattresses, but invest it into savings accounts instead. The banks then re-lend this money to firms and households.

Let’s say that the bank takes the $200 invested by the households and lends $120 to the firms (who then reinvest it into the Final Goods Market) and $80 to the households (who then purchase more goods from the final goods market). We now have our full $1000 returned to the Final Goods market.

Banks act as a means of putting money from savings back into the spending market, completing the cylce, and solving the problem of savings.

In the American Economy the banks serve as a way of re-funneling the money saved by Americans back into the spending market.

Without the banks, we are destined to suffer the constant reprinting of the dollar. Inflation would run rampant causing Wall Street to collapse (sounds awfully familiar…).

This is why the Feds are so concerned by the potential collapse of the Banking Industry. It has only happened one other time- 1928, the cause of the Great Depression.

Will our economy survive the current recession without a huge collapse?

Income Allocation is the splitting up of your income. It’s the discipline of dividing your cash into multiple areas for unique spending, saving, and investment.

That doesn’t sound very fun now does it. It is an INCREDIBLY important principle though… One that each and every person who strives to manage their own finances should utilize.

What Should I Be Doing?

Before you throw all of your income into a single spending account, consider the consequences of immediate spending… It

Discipline is necessary to any kind of expertise, and allocating your income is no exception. I’ll use my own as my example for this particular lesson, laying out how I allocate my income using percentages for every dollar of that comes into my possession.

Whenever I receive any kind of income — and like I said, DISCIPLINE, so this means ANY kind of income, from my monthly paycheck to a birthday check — I immediately deposit it into a free checking account I have with Wachovia labeled “Spending Account”. From there it is immediately disbursed among several other accounts, each labeled as follows:

• 30% remains in my Spending Account
• 30% is transferred into my Bills Account
• 30% is transferred into my Investment Account
• 10% is withdrawn in Cash and placed into envelopes for my Tithe

Spending Account Example

It’s very simple — My spending Account goes many more places though.

For example, For every purchase that I make with my spending Debit Card, I have one dollar removed from the Spending account and automatically transferred into a Wachovia Way2Save high yield Savings account.

I also use this for longer term accumulation for large spending that doesn’t qualify as an “investment”. What is an example of this? Well, I hope that in the next five years I’ll be blessed enough to ask someone to marry me. So, to prepare for this sort of a purchase, I dedicate 10% of my spending account to an envelope on my desk with a circle drawn on it and no label, so that no one walking in will think I’m jumping the gun… but now you all know. Shoot.

Bills Account

My Bills account gets used for things like gasoline, groceries, etc.

This account is ONLY used for paying off bills. No tapping into this account to cover personal expenses. It’s all a part of that disciplinary lifestyle I keep referring back to.

Investment Account

My investment account is widespread, but ONLY used for purposes that will yield some sort of return. This could range anywhere from purchasing a domain for a website (not a fun website but one I think could yield a return) to a business flight.

Overview of MY Income Allocation

If there’s anything I would encourage you to do before doing ANYTHING else — Set up an income allocation procedure for yourself. This discipline is important because without it, none of these important fields of your personal finance will see a dime of your income. Each of the things that I account for within my list are important and necessary to devote a portion of my income to. If I didn’t make a point to move money into those accounts each and every time I received an income check, I would probably spend it before I could ever place it where it needed to be.

I believe that most Americans are more similar to myself in their irresponsible spending habits than those who can keep all their money together and still manage to plan for retirement and investments.

So to counter my irresponsible tendencies, I force myself to divide the checks immediately. It’s a surefire way to get things done automatically, saving me time, and saving me money.