Unit 4: Savings test
Certificate Of Deposit (CD)
A certificate from a bank stating that the named party has a specified sum on deposit, usually for a given period of time at fixed rate of interest.
Certificate of Deposit (CD)
A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty.
Rule of 72
A popular trick to find out how long it will take your money to double depending on what interest rate you are receiving.
Pay Yourself First
A strategy for saving for the future by putting money aside before paying general monthly bills.
Online Savings Account
A type of Savings Account that is managed online.
Money Market Savings Account
An account similar to a traditional Savings Account but that typically pays higher interest. It requires a higher minimum balance, and may allow check writing from the account.
Direct Deposit
An automatic deposit of net pay to an employees designated bank account.
Certificate of Deposit
Colton saved $1 000 from his summer at WalMart. Which of these savings vehicles would work best for him if he doesn't need access to the money for a number of years AND wanted to earn the highest interest rate? Certificate of Deposit Checking account Regular savings account Money Market account
Needs savings wants
Everyone has WANTS, NEEDS and should have SAVINGS. Fill in the blanks with the correct responses. If you follow the 50-20-30 rule of budgeting you'll be putting 50% of your monthly income toward _______________ 20% of your monthly income toward _____________ and 30% of your monthly income toward ______________.
Months
Experts recommend that you accumulate enough to cover 3 to 6 __________________ of expenses in your emergency fund. Months Weeks Days Years
2%
In current markets which of these represents a competitive but realistic interest rate on a savings account? 10% 2% 5% 3%
Compound Interest
Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.
Simple Interest
Interest paid on the principal alone.
Emergency fund
Money set aside for emergency expenses.
Principal
Original amount of money saved or invested, separate from interest or earnings.
Account A because it offers a competitive rate and no fees
Sampson is a college sophomore who wants to open a savings account so he can save $50 per paycheck toward spring break in March. Account A offers an interest rate of 0.75% and no fees. Account B offers an interest rate of 1% and a low balance fee every month the account dips below $2500. Which account is a better option for Sampson?
Do her friends have accounts at the same bank?
Shelley is 15 and has a goal of saving $800 toward her prom and senior trip in 2 years; right now she has $20 total. She's planning to open a savings account to deposit money from each paycheck. Which factor should she be LEAST concerned with when choosing a savings account? Do her friends have accounts at the same bank? Is there a maintenance fee for this account? Does the account allow for free automatic deposits from her checking account? What is the minimum amount required to open the account?
The original deposit ($1 000); The year one account balance ($1 010)
Stanley deposits $1 000 into a savings account that pays 1% interest per year. At the end of the first year he's earned $10 in interest and there is $1 010 in the account. If the account has simple interest the 1% interest for year two would be based off ____________. If the account has compounding interest the 1% interest for year two would be based off ________________. (NOTE: The first choice goes in the first blank the second choice goes in the second blank) The year one account balance ($1 010); The original deposit ($1 000) The year one account balance ($1 010); The year one interest ($10) The original deposit ($1 000); The year one account balance ($1 010) The original deposit ($1 000); The year one interest ($10)
Federal Deposit Insurance Corporation (FDIC)
The U.S. corporation insuring deposits in the U.S. Against bank failure.
Interest
The rate charged for borrowing money, usually expressed as a percent of the amount borrowed.
Inflation
The rate when prices rise over an area of time and costumers purchasing powers decrease.
This account pays you interest on money you have put away for later to help your money grow.
Three of these statements best describe a checking account. Which statement best describes a SAVINGS account? This account typically allows an unlimited number of transactions per month. This account offers a convenient way to pay bills and access cash from an ATM. This account is automatically debited when you use a debit card. This account pays you interest on money you have put away for later to help your money grow.
Annually
When a bank says their savings account earns 1% interest that typically means you will earn 1% interest over what period of time (Note: this is not referring to the compounding frequency or frequency of interest payment)? Daily Monthly Annually (a year) Quarterly (three months)
Annual basis
When banks provide information about savings accounts they typically quote the interest rates they offer (e.g. 1%) on a... Per six months basis Per month basis Annual basis Per day basis
An account with 2% annual interest rate and no fees
Which combination of interest rates and fees are the better deal assuming you have an account with an average balance of $500? (Hint: Calculate which account would have higher balance in a year) An account with 20% annual interest rate and a $25 fee every time your account drops below $2000. An account with 10% annual interest rate and $5/month in fees An account with 2% annual interest rate and no fees An account with 5% annual interest rate and $3/month in fees
Pays for big ticket items like a vacation or designer clothing
Which of the following is NOT a good reason to create an emergency fund? Keeps you out of debt by giving you money to cover unexpected expenses Provides peace of mind Pays for big ticket items like a vacation or designer clothing Covers your expenses if you should lose your job
Save a certain percentage of each paycheck and deposit it directly in a savings account
Which of the following is an effective strategy for personal saving? Take out a payday loan so you can save before you receive your paycheck Save a certain percentage of each paycheck and deposit it directly in a savings account Cover all of your wants and needs and save whatever is left over Wait until the end of the month and save whatever is left in your checking account
Historically Savings accounts earn higher returns than investments in the stock markets.
Which of the following statements about banks is FALSE? Money in a bank is usually easy to access via ATM debit card or check Many banks pay interest on the money you deposit with them Historically savings accounts earn higher returns than investments in the stock market If it is FDIC-insured your money is safe even if the bank fails
A savings account offered by a bank that exists only online without physical bank branches
Which of these best describes what is meant by an online savings account? A savings account that provides electronic statements instead of paper copies A savings account offered by a bank that exists only online without physical bank branches Any savings account that has its own website A savings account with a mobile app
A savings account offered by a bank that exists only online without physical bank branches
Which of these best describes what is meant by an online savings account? A savings account with a mobile app A savings account offered by a bank that exists only online without physical bank branches Any savings account that has its own website A savings account that provides electronic statements instead of paper copies
A concern about inflation and its impact on the future cost of goods
Which of these is NOT a known reason that people impulse shop? A concern about inflation and its impact on the future cost of goods Strategic pricing and ads that lead you to believe that if you buy now you'll save overall New items make people feel good A sense that the product will make your life substantially better
Buying new sneakers the day they come out because you know others in your class will have them too
Which of these is an example of "Keeping up with the Joneses?" Buying plane tickets for vacation well in advance so that you'll benefit from cheaper prices Buying new sneakers the day they come out because you know others in your class will have them too Applying to the top colleges to see if you'll get accepted & what financial aid packages they'll offer Saving for retirement as soon as you graduate college to take advantage of compounding interest
Savings account at traditional bank online savings account 5-year CD 10-year CD
Which of these lists ranks the savings options from expected highest interest rate to lowest interest rate? Online savings account 5-year CD Savings account at traditional bank 10-year CD Savings account at traditional bank online savings account 5-year CD 10-year CD Savings account at traditional bank online savings account 10-year CD 5-year CD 10-year CD 5-year CD Online savings account Savings account at traditional bank
It is extremely difficult to open a savings account as you typically need at least $10,000 for your initial deposit
Which of these statements about savings is INCORRECT? It is extremely difficult to open a savings account as you typically need at least $10,000 for your initial deposit People often believe they are saving when they buy products at a listed discount even if they didn't need the product in the first place Billions of dollars is spent on marketing to persuade consumers to spend money instead of saving it Without a separate savings account to pay yourself first it's more likely that you'll spend all of your income each month
As soon as you graduate and have your first full-time job
Which represents the best time to start saving for your retirement? As soon as you graduate and have your first full-time job Right after you pay off your student loans At age 45 so you have exactly 20 years until retirement Once you are debt-free including paying off all credit cards auto loans and your mortgage
Saving goes into an FDIC insured bank while investing typically goes into stock or bond market.
Which statement best describes the difference between saving and investing? Saving is for low-income people while investing is for more affluent people Saving goes into an FDIC insured bank while investing typically goes into stock or bond markets Saving is done with small amounts of money and investing is done with large amounts of money Saving protects your money from inflation while investing involves a lot of inflation
The stock market historically has returns higher than the rate of inflation so your money can actually grow
Why is investing a better option than saving when it comes to planning for retirement? The stock market historically has returns higher than the rate of inflation so your money can actually grow Investing usually has lower interest rates so it offers a better deal Investing is guaranteed to produce the large sum of money needed for a happy retirement Investing begins as soon as you open a bank account so you can start early in life
No
Yes or No The majority of Americans have an emergency fund and sufficient amounts of money saved for retirement
Bank C
You are 18 years old opening your first savings account and are considering three options: BANK A is not FDIC insured has an interest rate of 5% and a minimum deposit of $25. Bank B is FDIC insured has an interest rate of 0.02% and a minimum deposit of $10 000. BANK C is FDIC insured has an interest rate of 0.01% and a minimum deposit of $50. All three have fees competitive with other banks. Which bank is the best option?
new TV, a new car, a house down payment
You are developing a savings plan and using short- medium- and long-term goals to motivate you. Which represents possible goals from short-term to long-term? Save for... Retirement, a house down payment, college tuition A new TV, a new car, a house down payment A new car, dinner with friends this weekend, a new bike Retirement, college tuition, a vacation
Aunt Sandy and her family don't have any money saved and their paychecks are just barely covering monthly expenses so they use every dollar every month
You overhear your Aunt Sandy tell your mom that she her husband and their kids are "living paycheck to paycheck." What does Aunt Tina mean by that?
20%
You want to take earnings from your part-time job to pay for a new laptop. Your monthly take-home pay is $500 and the laptop costs $1 200. What percentage of your pay do you need to save in order to buy the laptop in 12 months? 5% 10% 15% 20%
Allocate at least 10-20% of her paycheck to her savings account and adjust her spending so she can budget the remaining 80-90% going into her checking account
Your sister Raegan has her paycheck direct deposited into her checking and savings accounts each pay period. She asks you how she should split her paycheck between the two accounts. What is the best advice you could offer her to encourage her savings habit? Direct deposit the full amount of the check each month into her checking account and then decide later how much to put into savings Allocate at least 95% of her paycheck to her checking account and 5% to her savings account because you know that saving is hard for her Do not have her paycheck direct deposited since it is NOT a secure way to transfer money At least 20% of her paycheck to savings and the remaining 80% into her checking account
