# Quiz 4: Managing Your Cash and Savings

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Major functions of cash management: Cash management is the management of cash and non-cash resources so as to gain the maximum benefit. It is day-to-day administration of cash by an individual or family. The major functions of cash management are as following: • It helps in effective saving programme. • It ensures adequate fund for household use. • Better cash management helps to overcome the financial difficulties.

Person JB, a registered nurse who earns $3,250 after taxes, has recently begun a review of her savings strategies and current banking arrangements. She is trying to decide if she should make any changes in regards to both of these situations. 1. To help Person JB decide if she should change her current banking arrangements, we can calculate the annual cost of each of the three checking accounts offered by her bank: Regular checking, per-item plan: To calculate the annual net cost of this checking account, multiply the $3 monthly fee by 12 months. Then, multiply the $0.35 check processing fee by the average of 18 checks written per month, and multiply that number by 12 months. $111.60 The annual net cost of the regular checking, per-item plan account is $111.60. However, the fee is waived with a minimum daily balance of $750. Regular checking, flat fee plan: To calculate the annual net cost of this checking account, multiply the $7 monthly fee by 12 months. The annual net cost of the regular checking, flat fee plan account is $84.00. However, the fee is waived with a minimum daily balance of $750. Interest checking: To calculate the annual net cost of this checking account, multiply the $7 monthly fee by 12 months. The annual net cost of the regular checking, flat fee plan account is $84.00. However, the fee is waived with a minimum daily balance of $1,500. Person JB normally carries an average daily balance of $795, though some months it has fallen below $750. Because of this, it appears that the regular checking, flat fee plan is the best option for her. Most months, her fees will be waived meaning that the cost of the checking account will be zero. With the amount of checks writes each month, the regular checking, per-item plan is more costly. Additionally, she does not keep a minimum daily balance of $1,500 as required by the interest checking account. 2. Person JB should consider opening the interest checking if she can increase her minimum daily balance to $1,500. At that balance, any fees will be waived. Additionally, Person JB will earn 3% interest (compounded daily). Instead of Person JB paying the bank, the bank will begin paying her. 3. Additionally savings and banking strategies that JB may want to consider include: • Increase the frequency of her money market deposits from every other month to every month and consider increasing the amount deposited. A money market account will earn regular interest while still allowing check-writing privileges • Consider investing in one of the CDs (certificate of deposit) offered by her bank that starts at 3.75% interest for six months. While the money invested in a CD must be left alone for a specified period of time and will charge a penalty if withdrawn early, they typically pay much higher interest than a checking, savings, or money market deposit account.