Fin Lit 10 Study Guide

Commercial Banks

For-profit institutions owned by shareholders, offering full-service banking to individuals and businesses.

Credit Unions

Non-profit financial cooperatives owned by member-owners, typically offering lower fees and better rates for members.

Online/Neobanks

Digital-only financial institutions with no physical branches, providing low or no fees and competitive savings accounts.

Alternate Lenders

Non-bank financial services providing loans with high finance charges, often accessible to individuals with poor credit.

Checking Accounts

Transactional accounts for daily liquidity and bill payments, usually earning little to no interest.

Savings Accounts

Accounts designed for short-term savings, generally offering modest interest rates.

Money Market Accounts (MMAs)

Hybrid accounts providing higher interest rates with limited check-writing features.

Certificates of Deposit (CDs)

Timed deposit accounts with fixed interest rates, where funds are locked for a designated period.

FDIC

Federal Deposit Insurance Corporation insuring commercial bank deposits up to $250,000.

NCUA

National Credit Union Administration providing insurance for deposits in qualifying credit unions up to $250,000.

Principal ($P$)

The initial sum of money borrowed or invested.

Annual Percentage Rate (APR)

The annualized cost of credit expressed as a percentage.

Annual Percentage Yield (APY)

The actual annual rate of return earned on an investment, considering compounding interest.

Simple Interest

Interest calculated only on the principal, calculated using the formula: $I = P \times r \times t$.

Compound Interest

Interest calculated on both principal and accumulated interest, using the formula: $A = P \times (1 + \frac{r}{n})^{nt}$.

Rule of 72

Formula to estimate the time for an investment to double, approximated by $\frac{72}{r}$.

Credit Reporting Agencies

Entities that compile individuals' financial behaviors into credit reports, including Experian, Equifax, and TransUnion.

FICO Credit Score Breakdown

Credit score evaluation that includes factors like payment history, credit utilization, and length of credit history.

Secured Credit Card

A credit card requiring a refundable security deposit that typically becomes the credit limit.

Unsecured Loans

Loans that do not require collateral, resulting in higher risk and interest rates.

Fixed Rate Loans

Loans where the interest rate remains constant throughout the term.

Variable Rate Loans

Loans with an interest rate that can fluctuate based on market benchmarks.

Debt Avalanche Method

A strategy focusing extra payments towards the highest interest debt to minimize total interest paid.

Debt Snowball Method

A strategy where extra payments focus on the smallest debt first to build psychological momentum.

Buy Now, Pay Later (BNPL) Plans

Services that allow purchases to be split into fixed installments, often with low to no interest.