Financial Lit. Chapter 5 Test

What is the purpose of a signature card?

So the bank can compare the signature on the check to the one on the card.

What are the two reasons for a checking account?

1.) it allows easy access 2.) it is a safe place to keep money 3.) to pay bills

Rule 72

72 divided by interest rate

What is the formula for calculating compound interest?

A = P(1 + r/n)^nt

What is a bounced check? How can one avoid issuing a bad check?

A bounced check is when you write a check out for someone to cash it however you don't have enough money to pay the check, so you are charged for it. You can avoid issuing a bad check by keeping track of your balance.

What are ATM fees and how can you avoid them?

ATM fees are charged when you use another banks ATM. You can avoid them by using your own banks ATM.

How does compound interest differ from simple interest?

Compound interest is earned on both the principal and the previous, while simple interest is earned on just the principal.

What is the formula for calculating simple interest?

I=Prt

How do certificate of deposit and a money market account differ from a regular savings account? How are they the same?

Interest rate stays the same for a CD and it is only for a certain amount of time, while a money market accounts interest goes up and down based on the market. They both are a safe place to store money.

Why is it important to be able to put aside money for long periods of time? Why should you, as a young person, start saving early?

It is important to be able to put aside money for a long period of time because then interest accumulated and you get more money. You should save money when you're young so you can have more money for future emergencies, retirement, and needs.

What are some advantages of direct deposit?

It is safer and more convenient than carrying checks to the bank, and it is available the next day.

What is meant by overdraft protection? How can you prevent the need for it?

Overdraft protection means that if you do not have enough money in your account to meet the banks required amount, then your bank will cover it. You can prevent it by keeping track of your checking account balance.

What is the purpose of completing a bank reconciliation?

To make sure your records are the same as the banks.

a discount bond issued by the federal government

US savings bond

How can one avoid a monthly service charge on your checking account?

You can meet the minimum balance requirement for the bank to avoid a monthly service charge on your checking account.

Why would you ask for a stop payment on a check?

You would ask for stop payment if you lose your check or change your mind about a purchase.

At what point should savings be moved to an investment type of account? Why?

Your savings account should be moved to an investment type of account when it reaches "critical mass" because you would be making more money.

a fixed amounted contributed or set aside on a regular basis over time

annuity

the process of adjusting checkbook and bank balances so they agree

bank reconciliation

a check issued against the bank's funds

cashier's check

a time deposit that pays a fixed rate of interest for a specified length of time

certificate of deposit (CD)

a written order to a bank to pay a stated amount to a person

check

a tool used to track checking account transactions

checkbook register

a demand account in which checks are drawn

checking account

interest earned on both principal and previously earned interest

compound interest

money added to a checking account

deposit

a signature written on the back of a check

endorsement

writing a check and planning to make a deposit later to cover it before the check is processed

floating a check

a checking or savings account that does not meet minimum wage requirements

inactive account

Accessing and managing your account online

internet banking

a bond's future value as stated on its face

maturity value

a type of check purchased with cash by the payer to be used towards paying the bills and is guaranteed

money order

a bank service to temporarily cover a shortage in your account

overdraft protection

a sum of money set aside on which interest is earned

principle

a secure container located in a bank vault

safe deposit box

a demand deposit account designed for the accumulation of money in a safe place for future users

savings account

interest compounded on principal once during a certain period of time

simple interest

an instruction to the bank to not honor a check

stop payment