Intro to Banking
Define "checking account" and explain one primary use for it.
A checking account is a deposit account used for everyday transactions (deposits, withdrawals, bill payments, debit card use). Primary use: paying bills and making daily purchases.
One-word: Money taken out of an account.
Withdrawal
Define "savings account" and "high-yield savings account."
Savings account = a liquid, interest-bearing account for holding money; High-yield savings account = similar account that offers a higher APY, often online or with conditions.
Given principal $7,000 at 3% APY compound annually, compute the value after 1 year. Show formula and answer.
V=7000(1+0.03)^1=7000×1.03=7210.00
Define "stock", "bond", and "mutual fund" in one sentence each.
Stock = a share representing ownership in a company
Bond = a debt instrument where an investor loans money to an issuer in exchange for interest and principal repayment
Mutual fund = a pooled investment vehicle that buys many securities to provide diversification managed by a fund manager.
Define "credit card" and "debit card" and give one key difference between them.
Credit card: a card that allows you to borrow money from a lender up to a limit for purchases; Debit card: a card that withdraws funds directly from your checking account. Key difference: credit creates debt (repay later), debit uses your existing funds immediately.
One-word: When your account goes below zero because of a transaction.
Overdraft
Define "emergency fund" and recommend the best account type for it, with justifications tied to liquidity and safety.
Emergency fund = 3–6 months of living expenses set aside for unexpected costs. Best account: a liquid, insured savings or high-yield savings account, or money market account.
Find the value of an account earning 3% APY on $7,000 for 5 years (compound interest)
8114.92
Explain two ways investors can make money from stocks and give a short example of each.
Dividends: periodic cash payments from company profits (e.g., company pays $1/share annually).
Capital gains: selling a stock for more than purchase price (buy at $20, sell at $30 → $10 capital gain per share).
Explain FDIC (or equivalent) insurance and why it's important when choosing a bank.
FDIC insures depositors' money up to the coverage limit if a bank fails; it's important because it protects depositors from losing insured funds up to $250,000.
One-word: Protection that prevents overdraft by linking accounts.
Overdraft protection.
Explain how saving can protect (or fail to protect) purchasing power against inflation; use an example with numeric rates.
If APY on savings is lower than inflation, real purchasing power falls. Example: 0.5% APY vs. 2% inflation → real value decreases ≈ 1.5% per year.
Calculate the value of $2,500 invested for 3 years at 3.5% APY (compound annually). Show calculation and final value.
2771.80
Contrast ETFs with mutual funds.
Mutual funds are priced once per day and bought/sold at that end-of-day price; ETFs trade all day on exchanges at market prices.
Define "credit union" and list two ways a credit union typically differs from a commercial bank.
A credit union is a member-owned, not-for-profit financial cooperative. Differences: (1) often lower fees and higher savings rates; (2) membership requirements and typically fewer branches/services.
One-word: A written instruction to a bank to pay a stated sum to a payee.
Check
Describe advantages and disadvantages of Certificates of Deposit (CDs) vs. regular savings accounts.
CDs: higher fixed rates but funds locked for a term and penalties for early withdrawal- good for medium-term goals you can lock away. Savings accounts: lower rates but high liquidity- better for emergency funds and short-term needs.
Compute the future value of $20,000 at 1.5% APY after 10 years (compound annually). Show work and final value.
$23210.82
Explain the tax treatment contrast between Traditional IRA and Roth IRA and give one scenario when a Roth IRA is likely more advantageous for a young worker.
Traditional IRA: contributions may be tax-deductible now and withdrawals in retirement are taxed. Roth IRA: contributions are after-tax and qualified withdrawals are tax-free. Roth is advantageous for a young worker who expects to be in a higher tax bracket in retirement because they pay taxes now at a lower rate and withdraw tax-free later.
Explain the difference between APR and APY and state which term is more important when comparing a loan versus a savings product.
APR (Annual Percentage Rate) measures the yearly cost of borrowing (loans, credit); APY (Annual Percentage Yield) measures the yearly effective return on savings including compounding. For loans compare APR (lower is better); for savings compare APY (higher is better).
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List and explain three considerations someone should check before opening a savings account.
(1) Fees (monthly maintenance, ATM fees) — reduce returns;
(2) APY / interest rate and compounding frequency — determines growth;
(3) Minimum deposit/balance requirements and account access (ATM/online) - affects usability and potential fees. Also confirm FDIC/NCUA insurance.
If inflation is 2% and your savings APY is 0.5%, is your purchasing power increasing or decreasing and by how much approximately?
Decreasing by about 1.5% per year (0.5% − 2% = -1.5%).
Rank the following from riskiest to safest: speculative investing, individual stocks, diversified index funds, CDs - and justify the ranking
speculative investing; individual stocks; diversified index funds; CDs