Personal Finance 20 Points Possible

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Ch. 5.1 Selecting Financial Services and Institutions

Ch. 5.2 Savings Plans and Payment Methods

KEY TERMS TO KNOW:

1) certificates of deposit, 2) money market accounts, 3) compounding

1. Take the quiz on page 123 and write your answers here: (2)
1. C
2. A
3. C
4. D
5. C
6. D
7. C
8. D

2. List and describe the three main types of financial services that banks provide. (3)
Savings- safe storage of funds for future needs.
Payment- the transfer of money from your account to businesses of individuals.
Borrowing- borrowing money for short term with a credit card or long term with a mortgage or
loan.

3. What is the FDIC? How much insurance do they provide on each account? (Go online to find the
current amount) (1)
Federal Deposit Insurance Corporation- insures each account in a federally chartered bank
up to $100,000 per account.

4. Describe each of the following types of deposit-type institutions: (2)

COMMERCIAL BANKS: for-profit institution that offers checking, savings, and lending.
Authorized to conduct business through a charter.

SAVINGS AND LOANS: specializes in savings accounts and mortgage loans but offers
many of the same services as commercial banks.

MUTUAL SAVINGS BANKS: specialize in savings accounts and mortgage, personal, and
automobile loans.

CREDIT UNIONS: non-profit financial institution owned, organized, and for the benefit of its
members

5. Do you have your own bank account? If so, what is the name of the bank and what type of bank is it
(from the list above)? If you don’t have your own account, name your parents’ bank. (1)
Yes, I have a bank account at Bank of America, a commercial bank.

6. Find out what types of savings accounts or available at your bank (or your parents’ bank). List each
savings account and the current rate of interest it earns. (2)
Standard- 0.03%
Gold- 0.15%
Platinum- 0.23%
Platinum Honor- 0.30%
7. Look at the questions on page 132 that you should ask when looking for a bank. Write down the 3
questions that are most important to you when choosing a bank. (1)
1. Is the institution FDIC or SAIF insured?
2. Does it have online banking services?
3. Where can you get the highest rate of interest on your savings

8. Complete the following chart of savings account alternatives: (4)

Type of Account Benefits (all) Drawbacks (all)
Regular Savings Accounts -low minimum deposit -low rate of return
-ease of withdraw
-insured
Certificates of Deposit -guaranteed return time -possible long-term deposit
(CDs) -insured -penalty for early withdraw
-high minimum deposit
Money Market Accounts -good rate of return -minimum balance
-some check writing -no interest
-insured -possible service charge
U.S. Savings Bonds -good rate of return -lower rate of return when
-low minimum deposit cashed in before maturity date
-guaranteed by government
-free from state and local taxes

9. Write the formula for Rate of Return: (1)

Rate of Return = (Total Interest Earned / Original Deposit) * 100

10. If you deposit $1000 in a savings account and earn $42 in interest after the first year, what is your
rate of return on that deposit? (show your calculations) (1)
4.2%

11. Which type of account earns the most money – an account that compounds monthly or an account
that compounds annually? (1)
Monthly

12. Define overdraft protection. What type of overdraft protection is on your checking account? (1)
Overdraft protection is an automatic loan made to you if you write a check for more money
than you have in your account.