2.1 - 2.3 Vocab Quiz

savings account

An account in which the bank pays interest for the use of the money deposited in the account.

interest rate

The percentage rate that is paid by a bank on money that is in some accounts.

principal

The balance, or amount of money, in an account, or amount borrowed.

annual percentage rate (APR)

The interest rate paid per year or charged per year.

simple interest

Interest that is calculated on the principal in an account, using the formula .

simple interest formula

The formula , where p is principal, r is the interest rate, and t is the time in years.

statement savings

An account where a consumer receives a monthly statement showing all activity, including deposits, interest earned, and any fees.

minimum balance

A certain amount of money that must be kept in an account as required by that particular bank.

money market account

An account that pays a higher interest rate than other types of accounts, but usually requires a higher initial deposit and a higher minimum balance, often with a limit on the number of transactions per month.

certificate of deposit (CD)

A certificate that states there is a specific sum of money on deposit and guarantees the payment of a fixed interest rate after a certain period of time, usually 7 days to 10 years; deposits and withdrawals cannot be made with a CD.

maturity

A specified date at which interest is paid on money in an account.

arithmetic sequence

A progression of numbers in which the difference between any two consecutive terms is a constant.

common difference

The constant that represents the difference between consecutive terms in an arithmetic sequence.

finite

Something that has an end and can be represented by a real number.

infinite

Something without end.

compound interest

Interest that is earned on the money deposited into an account plus previous interest.

annual compounding

A method for calculating interest so that it is computed once a year.

semiannual compounding

A method for calculating interest so that it is paid twice a year, or every 6 months.

quarterly compounding

A method for calculating interest so that it is paid four times a year, or every 3 months.

daily compounding

A method for calculating interest so that it is paid daily.

crediting

The act of interest added to an account by a bank.

compound interest formula

A formula that relates principal, interest rate, the number of times interest is compounded per year, and the number of years the money will be on deposit.

annual percentage yield (APY)

Is the simple interest rate required to give the same amount of interest as calculated by the compound interest formula for a year.