Financial Plan General Mathematics – 2 Types of Accounts Banks offer several types of accounts to their customers. Following are the three most popular accounts used for daily transactions: Savings Account Checking Account Combination Account Electronic Savings Account Before you decide which account to open, you need to know how you plan to use the account. Savings Accounts As the name suggests, this type of account is good if you are interested in saving money because the bank pays interest. Different banks charge different interest rates for savings accounts. Interest rates may vary for different types of savings accounts at a particular bank. This type of account is recommended if you don’t want to make a lot of transactions (withdrawals) or if you don’t need your money immediately. So, this account is suitable for your budgeted monthly savings or the money you set aside every month for your annual expenses. Checking Accounts Typically, checking accounts have lower interest rates than savings accounts, but they also have lower service fees; Service charges are fees you pay for certain transactions. That is why checking accounts are used for day-to-day spending activities. You can use this type of account to budget money for monthly expenses and bills. Like savings accounts, you can withdraw money at any time just like a savings account, but you can also write checks. Combined Accounts If you don’t want to have multiple bank accounts, you can always open a combined account. This account is part savings and part checking, so it allows you to save and access your money every day. One difference between a combined account and a savings or checking account is the amount of interest you earn. Most of these accounts earn interest only if the amount of money in the account exceeds a certain amount. This means you have to save up to $500, for example, before you earn any interest. Electronic Savings Accounts This account is a form of savings account that has become more popular in recent years with the rise of online banking. Electronic savings accounts (or e-savings accounts) typically earn a higher rate of Page 2 of 16
3 interest than other types of savings accounts. You can only access them online, at an ATM or in person. This means you can only withdraw or transfer money in person, at an ATM or through direct payment online. This type of account is ideal for your monthly 10 percent savings, as well as saving for a future purchase or activity. Other accounts available include tax-free savings accounts, registered education savings plans, registered retirement savings plans, guaranteed income certificates and others. Service Charges Service charges include any fees you pay for services provided by a bank or financial institution. As you decide which type of account is best for you, you should be well informed of any fees (service charges) that may be charged to you. A list of service charges used by various banks is shown below: Monthly Fee: This is what you pay for having an account. Overcharge Protection: This fee is optional, you can choose to pay this fee to protect yourself from other chargers in case you accidentally withdraw more than what is available in your account. Interac Money Transfer Fees Online money transfer to someone via online money transfer: Money is transferred directly to someone else’s account. Charges for debits exceeding monthly limit: Some accounts allow only a certain number of free debit transactions. Once you exceed this number, you will be charged for each additional debit transaction you make that month. ABM Transaction Fee: If you withdraw money from an Automated Teller Machine (ABM) that does not belong to your bank, you will be charged by the bank. These machines are located in shopping malls, cinemas, airports etc. You will be charged this fee if you withdraw money from a machine associated with a bank other than your own. Monthly Statements/Bankbook Fee: If you request monthly statements or update your bankbook using the ABM feature, your bank may charge you a fee. As you can see, even if the account doesn’t have a monthly fee, you may have to pay a service fee for your account. In addition to the fees charged to your account, there are service fees you will have to pay if you use different features in ABM. These include the following: Full statements and short-statements in the United States Withdrawals Additional statement requests Page 3 of 16
Financial Plan General Mathematics
4 Since you never want to overpay, especially when it comes to banking, here are some tips to reduce the number of service charges you pay: Instead of going to a bank and paying your bills to a teller, some banks offer lower fees if you pay your bills through ABM or online. Many financial institutions offer youth and student accounts with low/low service charges to entice students to join their institution. Before you open an account, consider how often you use your debit card to make purchases. If you expect to use your debit card often, it is wise to choose an account that offers a large number of free transactions or an account with an unlimited number of transactions. Seniors sometimes also get special accounts because they are loyal to the company or because they live on their pension instead of a salary. Reduce the number of transactions you use (free if you have the maximum number). When you go to the grocery store, make sure you don’t forget anything and plan ahead for the week. If you have company over on Saturday, make sure you buy the ingredients for dinner with the rest of your groceries so it counts as just one transaction instead of several. Use your bank’s ABM whenever possible. Use online banking and get online statements, as these are often less expensive or free. As you can see, there are many details to consider when opening a bank account. Some accounts are more convenient than others. Also, choosing an account that works best for you can save you a lot of money. Most minors (below 18 years of age) especially youth or students choose to open savings accounts. Page 4 of 16
Msbshse Solutions For Ssc Maths Part 1 Chapter 4
5 Learning Activity 2.1: Types of Bank Accounts Show your work on loose sheets. 1. Set up the appropriate bank account for each of the following individuals: Shawna wants to buy a car in two years. Evan uses his credit card every day to pay for lunch at school. Alina is saving up for a trip to India, but she has to pay for shots, medicine and clothes before she leaves. Combined Account Savings Account Checking Account 2. Name three avoidable service charges you may experience when you have a bank account. Explain how you can reduce or avoid them. 3. What is the main difference between a savings account and a checking account? Explain why a checking account is a good choice for someone. 4. What makes a combination account different from savings accounts and checking accounts? Why is this type of account a good choice for someone? Page 5 of 16
6 What is an RRSP? A Registered Retirement Savings Plan (RRSP) is an individual savings plan registered with the Canadian federal government that allows you to save for your future on a tax-sheltered basis. An RRSP is a retirement savings investment portfolio of your choice. This can include a variety of investments: RRSP savings deposits, Treasury bills, GICs, mutual funds and bonds. What’s special about an RRSP is that your contributions to it are tax-deductible and your portfolio grows tax-sheltered. Who Should Have an RRSP? Anyone under the age of 70 who works, files Canadian income taxes and wants a secure retirement should consider having an RRSP. Here’s why: People who earn income through their job or self-employment can reduce their annual tax bill by saving for their future through an RRSP. For people with a company pension plan, RRSPs add extra comfort as they meet their retirement; For those without company pension plans, RRSPs can be a foundation for funding retirement.Married couples where one spouse earns more than the other can reduce their combined income through a marital RRSP. During retirement, an income-splitting strategy can be applied to reduce overall tax when RRSP funds are withdrawn. If you are planning to buy your first home or are interested in furthering your education, you can contribute to an RRSP, then use this money as a source of funding if you anticipate ups and downs.
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