Fin Lit Test 4-16

Checking Accounts

• Put money here when you need easy access

• Fewer limitations on when and where you can deposit your money

• Does not earn interest

• Ineffective savings account, highly effective transactional account 

Saving Accounts

• Used for investing

• Largely inaccessible 

• Accumulates interest over time

Savings Accounts

• Sets money aside for future use 

• High-yield savings accounts (Pay a higher interest rate)

• Low Risk (Money is safe, not in stocks, bonds, or mutual funds)

• Can lose purchasing power (Buy less than what you originally could due to inflation

Investing Accounts

• A way to grow money over time by putting it in stocks, bonds, or mutual funds

• A good way to reach a long-term financial goal

• Risk of losing money due to fluctuation in the stock market 

• The earlier the better

Simple Interest

• Interest earned on the original principal only 

• Formula- I = P x R x T

Compound Interest

• Interest on interest 

• Earn more

Formula- A = P(1 + r/n)^nt

Maximizing Account Benefits

• Set up direct deposit

• Avoid monthly fees

• Choose accounts with high interest rates

• Takes advantage of rewards programs

Protecting Financial Accounts

• Monitor account activity regularly

• Set up transaction alert

• Create a strong password

•  Enable two-factor authentication 

• Be aware of phishing scams 

• Report suspicious activity ASAP