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
