Study Guide for Exam 2
Family Financial Management
What are the unique features of the different cash management “tools,” or accounts available?
Which accounts offer state, federal or both income tax advantages?
Credit Unions, US Treasury Bills (state and local income tax exempt), US series EE Bonds (state
and local income tax exempt)
Which accounts offer more access to your money?
Less access to your money?
Checking accounts, savings accounts, Brokerage Asset management accounts,
MMMF offer you more access to your money while CD, Treasury bills, and US EE series bonds offer
you little access to your money.
With which account are you likely to experience a reduction in interest and a penalty if you make an
Certificates of Deposits, US EE series Bonds, US treasury bills
Which accounts offer check writing privileges?
Which do not?
Savings accounts, checking accounts, have check writing privileges offer check writing and are
not limited. Money market deposit accounts and money market mutual funds offer check writing
privileges, but they are limited.
CD’s, US Treasury Bills, and US series EE bonds do not offer check writing
How do earnings or interest rate compare across the accounts?
CHECKING ACCOUNTS – demand deposits are non-interest bearing and NOW accounts are
SAVINGS ACCOUNTS – low returns/earnings
MMDA – can sometimes have high rates of interest, but sometimes can be variable
CD – fixed rate of interest for a fixed amount of time
MMMF – return rates from 2% - 17%, but interest rates change daily
TREASURY BILLS – no periodic interest payments, but they mature to the full face value
US EE BONDS – interest rates vary with the market rate, interest occurs until it reaches full face
What is a NOW account? –
Negotiable Order of Withdrawal accounts. They are interest bearing
Assuming you can meet the minimum account requirement, what account might be the best alternative
for an emergency fund?
Can you suggest another good alternative?
Give an example of account that
would be inappropriate?
A savings account would be a good choice, but a MMDA would be better. A CD would not be a
good emergency fund.
Your sibling is a college freshman and earned $6,000 last summer.
She only anticipates needing $2,000
for expenses during this academic year.
What account(s) would you recommend?
Money Market Deposit Account would be the best.