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personal finance test- savings and different accounts (4.1-4.3)

Terms in this set (43)

how to calculate simple interest
I=PRT
traditional savings account def
A traditional saving account is a default savings account that is offered by a instore bank- like you have to go through the bank, these usually do not come with checks and may require a higher minimum balance fee. Also the interest rates on these accounts are usually very low compared to other accounts.
min balance-$100 dollars or less
money is not stuck
online savings account def
An online savings account is only offered online through a bank and offers a much higher interest rate. The best online banking accounts can offer you a higher APY because the bank you are using saves money by not having additional branches to help support the online banking. It is the best savings account and typically you do not have to meet a minimum balance. You might have to pay a higher yield what if you have a higher balance
interest rate-1.05%
min balance-none
money not stuck
CD account def
A savings account with a fixed maturity date, specified interest rates and can be issues in any denomination except for the minimum investment fees. This account limits your access to the funds until a certain date. These are usually issued by a regular bank. This is like a time deposit. When this account reaches its maturity date, the principal and interest you earned can be withdrawn.
interest rate-1.09-2.71%
min balance-2500
money is stuck
MMA account def
A deposit account that may come with higher interest rates, checks and debit cards. They require a higher minimum balances. A MMA is a good account if you have at least the minimum balance at all times that you want to earn some interest on it. You open an account by providing a initial deposit, next the deposit will begin to earn interest at a variable rate. You can also access your funds at anytime but there is a limit on how many checks you can write.
interest rate-0.01-0.02%
min balance-500
checks/money added to it
not stuck money
when do you spend money from your emergency fund
when you have an emergency-you lose your job, crash your car, medical emergency
difference between saving for short ,medium and long term goals
long term=retirement
short term=savings
medium=saving enough to buy something without loan
invest def
expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture.
if you are saving or investing def
saving is for short term goals and investing is for your money to grow more of a long term goal
how much of your paycheck you should save according to experts
20%
-put some into 401K
-build an emergency fund
-work on higher education bills
what does living paycheck to paycheck mean
individual must meet all financial obligations with current earnings from one pay cycle to the next
what is a realistic interest rate for a traditional savings account
0.01%
impulse shopping def
unplanned decision to buy a product or service, made just before a purchase
how much money do you need to have an emergency fund?
$500-6 months worth of your income
does the average citizen gave an adequate emergency fund and retirement fund
no
when is the best time to start saving
the earlier the better because overtime your money will gain interest and it will add up to a lot of money and if you invest earlier your money had more time to gain interest than if you invest later in life
how to calculate how to make an emergency fund account
-find monthly expenses times 6 months
-find the percent of gross pay they want to put towards it
-divide the month expenses by the gross pay number
three reasons its better to save to retirement/investing early
-it will add up overtime
-the sooner you start the more money you will make
-when you are young you have more time to save and if you mess up there is time to fix it
how does inflammation make it hard to save long term in a traditional saving account
inflammation makes the price keep going up, the .1% interest rate in your savings account wont keep up with how everything has doubled in price
50,20,30 rule
50%expenses
20% savings
30% whatever you want
why is it important to have the 30% in the 50,20,30 rule
so that you can buy stuff that you want when you want it while still saving money
3 things to consider when trying to choose what kind of savings account to get
-interest rate
-minimum balance
-weather your money is tied up
-if it is FDIC insured
What does it mean to "pay yourself first"?
-take the money when you first get paid and put some into your saving account
Summarize how compound interest helps you to accumulate savings even faster.
-it gains interest on the money you invest which helps you make more and more
How does the age at which a person starts saving impact the amount they can earn in compound interest?
-start saving young because the longer it sits there the longer it will accumulate and make you more money
Today's savings accounts typically offer interest rates below 1%. How does this impact the power of compounding?
-it is not a whole lot of compounding because the rate is not very high so you are not making as much money as you could with higher rates
How do you distribute your money when using the 50-20-30 rule?
50% goes to your personal finances/necessities, 20% goes to savings, investments, credit card payments... and 30% goes to flexible spending
Explain how compound interest is different from simple interest.
Simple interest is mostly used on loans while compounding is better used in everyday life- you invest your money into an account and depending on the rate it will compound a certain amount every year. The longer your money sits there the more money you make
What does it mean to set up an "automatic deposit" and why is this a good savings strategy?
Automatic deposit means that your bank will take a certain amount out of your direct deposits and put them into a savings account so that you can pay yourself first
Five Reasons Why We Impulse Buy
-acceleration of shopping
-makes me feel better
-great deal
-when supplies are limited
Living Paycheck to Paycheck:
-they don't chose to save
-they like to impulsive buy
-3 to 6 months that you should have enough living expenses
Inflation and Its Effects on Your Savings:
-invest so that you can make money on it
Why do you think they recommend saving 3-6 months' of expenses in your emergency fund?
-to help build it up and it will become a habit it will save you more
Why shouldn't you keep your emergency fund money in your checking account?
-because you might actually spend that money
What is meant by the phrase "Keeping up with the Joneses" and how does this concept impact savings habits?
-it makes you want to spend your money to be just like Everyone else its a want that makes you save and spend
When developing a savings plan, why is it important to take inflation into account?
-it's important because a inflation rate might sound low, but if your long-term savings aren't growing at the same or a higher rate, your funds may quickly be depleted
Give two reasons why it's vital that you contribute monthly not only to savings but also to an emergency fund.
-then also to savings so that you have money just in case you need to pay off rent bills or food, just in case you lose your job.
would putting $20 per paycheck into an account to help pay for books during college be investing or saving?
saving
would contributing 3% of your paycheck into a 401K plan offered through your job be investing or saving?
investing
would buying shares of stock in your fav clothing line be saving or investing
investing
would giving your cousin $5,000 to help start business, in exchange for 5% of his monthly profits be saving or investing
investing
would depositing your annual income tax return into an account until you have enough to buy a car be saving or investing
saving
name two ways that saving and investing are different
saving is short term while investing is long term, investing will make you more money for your future while savings does not make a lot of money
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