Financial Institutions
What is the primary difference between a bank and a credit union?
Banks are for-profit institutions that serve the general public, while credit unions are nonprofit institutions owned by their members.
What is a checking account primarily used for?
A checking account is primarily used for everyday transactions, such as paying bills, withdrawing money, and making purchases using checks or debit cards.
How is a savings account different from a checking account?
A savings account is primarily for storing money and earning interest, while a checking account is used for daily transactions. Savings accounts often have withdrawal limits.
If you need to save $1,200 in 6 months, how much do you need to save per month?
$1,200 ÷ 6 = $200 per month.
What is an overdraft fee, and how can you avoid it?
An overdraft fee is charged when you spend more than what is in your account, and you can avoid it by keeping track of your balance or opting out of overdraft coverage.
What is the purpose of the FDIC, and how much does it insure for each depositor?
The FDIC insures deposits at banks up to $250,000 per depositor, per bank, to protect customers if the bank fails.
How does overdraft protection work, and why might you want it?
Overdraft protection allows transactions to go through even if there are insufficient funds. It then SWEEPS funds from a linked account to cover the shortage. This is useful to avoid declined transactions or overdraft fees.
What is the purpose of a Certificate of Deposit (CD)?
A CD is a savings account with a fixed interest rate and term, meaning you cannot withdraw the money before the term ends without incurring penalties, but it usually offers higher interest than a regular savings account.
If you want to save $5,000 in two years for a car, how much do you need to save each month?
$5,000 ÷ 24 months = $208.33 per month.
What does the term "NSF" stand for, and when would you be charged this fee?
NSF stands for "Non-Sufficient Funds." You are charged this fee when a transaction is attempted, but your account does not have enough money to cover it and you do not have overdraft coverage or protection
Why might someone choose to open an account at an online bank versus a traditional bank?
Online banks typically offer higher interest rates and lower fees since they don't have the overhead of physical branches.
What is the difference between a debit card and a credit card?
A debit card withdraws money directly from your checking account, while a credit card allows you to borrow money up to a credit limit and then pay it back later.
What is the 50-30-20 rule in budgeting?
The 50-30-20 rule suggests allocating 50% of income to needs, 30% to wants, and 20% to savings.
If you deposit $500 in a savings account with an interest rate of 2% per year, how much interest will you earn in one year?
$500 × 0.02 = $10 in interest.
What is the purpose of FDIC insurance?
FDIC insurance protects depositors by insuring their deposits up to $250,000 per bank in case the bank fails.
What role do financial institutions play in helping individuals save for retirement?
Financial institutions provide retirement accounts such as IRAs and 401(k)s and offer investment options to help grow savings over time.
What happens if you write a check, and there are not enough funds in your account to cover it?
If you do not have overdraft protection, the check may bounce, and you could be charged a non-sufficient funds (NSF) fee by your bank.
What is a money market account, and how does it differ from a regular savings account?
It blends checking and savings accounts by offering higher interest rates than normal savings accounts, while also allowing for checks to be written from the account; however, it also has higher minimum balance requirements.
If you want to save $3,600 in one year, how much should you set aside each week?
$3,600 ÷ 12 months = $300 ÷ 4 weeks = $75 per week
What is a dormant account fee, and how can you avoid it?
A dormant account fee is charged when there has been no activity in an account for a certain period. You can avoid it by making regular transactions or closing unused accounts.
How do banks typically make money from customers' checking and savings accounts?
Banks make money from fees (such as overdraft or maintenance fees) and by loaning out customer deposits at a higher interest rate than they pay on savings.
Why should you regularly review your checking account statement?
To ensure no unauthorized transactions, monitor spending, avoid overdrafts, and catch any potential errors or fraudulent activity.
Why is it important to have an emergency fund?
An emergency fund provides a financial cushion for unexpected expenses, such as medical emergencies or job loss, and should cover 3-6 months of living expenses.
If you want to buy a $1,200 computer in 9 months, how much do you need to save per day?
$1,200 ÷ 9 months = $133.33 ÷ 4 weeks = $33.33 ÷ 7 days = $4.76 per day
What is the difference between overdraft protection and overdraft coverage?
Overdraft protection links your checking account to a secondary account that will SWEEP money into your checking account if you happen to overdraft; therefore, no overdraft fee is assessed. Overdraft coverage will allow you to overdraft but there is no SWEEP in place so you end up being charged an overdraft fee.