Savings Basics
What type of account is mainly designed for everyday purchases, deposits, and withdrawals?
Checking account.
What does CD stand for in personal finance?
Certificate of Deposit
What is interest?
Money earned on savings or investments, or money charged for borrowing.
What is a stock?
A share of ownership in a company.
What is investment risk?
The possibility that an investment will lose value or perform worse than expected.
What is liquidity?
How quickly you can turn money or an account into spendable cash without losing significant value.
In general, what happens when you put money into a CD?
You agree to leave the money deposited for a specific term in exchange for interest.
What is compound interest?
Interest earned on both the original money and previously earned interest.
What is a bond?
A loan to a company or government in which the borrower generally pays interest and returns the principal according to the bond's terms.
What is return?
The money gained or lost on an investment, which can come from growth in value, dividends, or interest.
What type of savings account typically lets you earn interest while keeping your money relatively easy to access?
Savings account.
What does a CD's term mean?
The length of time you agree to keep your money in the CD.
Why can starting to save earlier help build wealth over time?
It gives your money more time to earn interest and for that interest to compound.
What is a mutual fund?
An investment fund that pools money from many investors to buy a collection of investments.
What is volatility?
How much and how quickly the price or value of an investment changes.
What is a high-yield savings account?
A savings account that generally offers a higher interest rate than many traditional savings accounts while still allowing relatively easy access to the money.
Why might someone choose a CD instead of a regular savings account?
A CD can offer a predictable interest rate for a set period, although the money is less liquid and early withdrawal may have a penalty.
Which strategy is generally more reliable: saving whatever money is left at the end of the month or automatically saving part of your income first? Why?
Automatically saving first, because the money is saved before it can be spent and the process is consistent.
What is diversification?
Spreading money across different investments so that poor performance of one investment has less impact on the overall portfolio.
In general, why are stocks considered riskier in the short term than some savings products?
Stock prices can be volatile and may rise or fall significantly, so their value is not guaranteed.
You want to earn interest on your money but also want limited check-writing or debit-card access. What type of account might fit these needs?
A money market account (MMA).
A CD has a guaranteed APY for its term, while other interest rates in the economy fall. What happens to the CD's agreed-upon rate?
It stays at the agreed-upon rate for the CD's term, assuming it is a fixed-rate CD.
Two people save the same amount of money each month. One starts at age 18 and the other starts at age 30. Assuming the same rate of return, why might the first person's money grow more over the long term?
The first person's money has more time to earn and compound.
Why can a mutual fund help an investor diversify?
One purchase can give the investor exposure to many different investments instead of putting all the money into one investment.
An advertisement says, "Guaranteed! Zero risk! Double your money quickly!" Is this a reliable offer? Why?
No. There's no such thing as zero risk.