Saving Basics
Fill in the blank:
The average American saves ___% of their income.
4.6
What is one reason why someone might choose a basic savings account over a CD?
Easier access to their money
What is the definition of interest?
The fee paid to borrow money
What do the letters "CD" stand for?
Certificate of Deposit
Define "nominal interest rate"
The printed or published interest rate
Fill in the blank: Financial advisors recommend that people save ______ their monthly income in an emergency fund.
Money in banks is insured by what government agency?
What do the letters "APY" stand for?
Annual Percentage Yield
What does the "rule of 72" help us calculate?
How long it will take to double your money
How does inflation affect the purchasing power of our savings?
It decreases our money's buying power.
According to the 50-30-20 rule, people should save at least what percentage of their gross income?
20%
What is one reason why someone might choose a CD over a regular savings account?
Higher rate of interest
What is the formula for calculating simple interest?
I = PRT
Kate deposits $2000 into a CD with a 4% APY. How long it will take for her money to double?
18 years (72 / 4)
How do you calculate the real interest rate?
Nominal interest rate minus inflation rate
What is a sinking fund?
It's a plan for saving. (1) Set a savings goal. (2) Set a time frame. (3) Calculate how much you need to save each month/week/pay period to reach your goal.
Fill in the blank: The FDIC insures bank deposits up to $ __________.
$250,000
Andy deposits $1000 in a two-year CD that has a 4% APY. If the bank calculates using the simple interest method, how much interest will Andy receive?
$80 ($1000 x .04 x 2)
Angel deposits $3000 into an account that pays a 10% APY. If Angel never withdraws money, and the bank uses the simple interest calculation, how much money will be in the account at the end of three years?
$3300 ($3000 x .10 = $300)
($3000 deposit + $300 interest = $3300)
Yung deposits $1000 into a 2-year CD that pays a 4% APY. The inflation rate is 4%. What is Yung's real interest rate?
0% (4% - 4% = 0%)
Monica wants to save $6000. She needs the money in 10 months. She gets paid every week. If we assume that there are four weeks in every month, how much will she need to save from every paycheck to reach her goal?
$150 from each paycheck
(6000 / 40 weeks)
4 weeks each month x 10 months = 40 weeks
The government agency that insures deposits at credit unions is the _______.
NCUA (National Credit Union Administration)
Why do banks pay interest to savers?
Because they lend savers' money to other people. Those people repay their loans plus interest. The bank shares that interest with the saver.
Which is better for savers: simple interest or compound interest? Explain.
Compound interest, because the saver receives interest on their original deposit AND accrued interest.
The nominal interest rate is 8%. The real interest rate is 2%. What is the inflation rate?
6%
(inflation rate = nominal interest rate minus real interest rate)