Personal Finance Chapter 10

The FDIC insures a depositor's money up to

$100,000

How is a credit union different than a commercial bank?

Credit unions allow customers to have part ownership in the non-profit organization. They also have higher interest rates on savings and lower rates on loans. Commercial banks are insured by the FDIC and have several different services.

Why should you save?

For expected/unexpected needs

A deposit that earns a fixed interest rate for a specified length of time

Certificate of Deposit (CD)

Why does a regular savings account offer a lower interest rate than a CD?

Savings accounts allow you to take money out whenever you want without a penalty; whereas CD's have a set maturity date and if you take out money before the date, you will have a withdrawal penalty

Stocks and bonds issued by corporations or by the government

Securities

Investors who buy and sell securities through a __________, who works at a brokerage firm

Stockbroker

Why might you choose to save your money in a commercial bank when another institution offers a higher interest rate?

Commercial banks offer more services and are much more convenient

Interest computed on the principal plus accumulated interest

Compound Interest

T/F: When you deposit money in a savings account, the financial institution pays you dividends for the use of money

False; interest

The actual interest rate an account pays per year with compounding included

Annual Percentage Yield

A type of savings plan whereby you set aside money at a financial institution for a set period is a ___________________?

CD

Money set aside for a specified length of time at a specified rate is called _________

CD

The amount of money left over after the bills are paid

Discretionary Income

______________________ is what you have left over to spend for what you wish (after bills are paid each month)

Discretionary income

Federal insurance for depositors in commercial banks and savings and loans is provided by the _______________

FDIC

Having money withheld from your paycheck and sent directly to your savings is a plan called _______________________ deduction

automatic payroll

Money paid by financial institution for the use of the saver's money

Interest

What should you consider when choosing a financial institution for your savings?

Liquidity, safety, convenience, interest earning potential, fees, and restrictions

The date on which an investment becomes due for payment

Maturity Date

The day on which a certificate must be renewed or cashed in is called _________________

Maturity date

A combination savings-investment in which the money deposited is used to purchase safe, liquid, securities

Money Market Account

Deposits kept in credit union are insured by the ___________________

National Credit Union Administration

Which of the following is not an exampke of long-term savings goal? a. Homeownership b. college education c. retirement d. automobile purchase

automobile purchase

T/F: Financial institutions can offer interest compounded daily because of computers that make rapid computations possible

True

T/F: If a depositor withdraws part or all of a CD before its maturity date, there will be an early withdrawal penalty

True

T/F: Rate of return and annual percentage yield are the same

True

T/F: Some ways to make saving easier include direct deposit and automatic deductions

True

T/F: The money you save will depend on discretionary income, the importance of savings, needs, and wants, and your willpower to forego present spending

True

T/F: When choosing a financial institution in which to place savings, you should consider safety, liquidity, convenience, and purpose

True

Which of the following do banks usually offer? a. ATMS b. Numerous Locations c. Drive-up window d. all of the above

all of the above

Interest drawn on the sum of the original principal plus interest is called _________________ interest

compound

Of the following items, which pays the highest total interest when deposits are withdrawn at irregular times?

compounded daily

When a CD is cashed before its maturity date, the depositor must pay ______________ penalty

early withdrawal

Money that is paid for the use of money is called

interest

The ability of an asset to be converted into cash quickly without loos of value

liquidity

The capability of financial resources being readily converted to cash is called _______________

liquidity

A sum of money in a savings account on which interest is earned

principal

The amount of money you place in savings is called _________________

principal

Which of the following items is the most liquid? a. home b. regular savings c. CD d. automobile

regular savings

The greater the ___________ you are willing to take, the higher the rate of interest you will recieve

risk

A savings account at a credit union

shared account

A person who buys and sells securities for investors

stockbrokers

T/F: Deposits in savings and loan associations and commercial banks are insured by the FDIC

true

T/F: Emergencies, vacations, social events, and major purchases are examples of short-term needs

true