Unit 3: Financial Institutions & Saving Money

Commercial Bank

Pros: Easy Access, FDIC insured

Cons: Potentially high fees, interest can be high on loans and low on savings

Investment Bank

Pros: Access to vast investor networks, potential to unlock growth and expansion opportunities

Cons: High fees and commission can be costly, reliance on market conditions can be risky

Credit Unions

Pros: Better rates and lower fees, more willing to work with lower income individuals

Cons: Must be a member of that specific credit union, fewer branches and ATMs to lower banks

Savings and Loans Associations

Pros: Offers high interest rates on CD’s and savings accounts, more personalized service

Cons: Offer less financial products than other institutions, only a couple of local branches

Online Banking

Pros: 24/7 access, free banking

Cons: No physical branches, cash deposit can be difficult

What does FDIC stand for?

Federal Deposit Insurance Corporation

How much does the FDIC insure your account for?

$250,000

What does the NCUA stand for?

National Credit Union Administration

How much does the NCUA insure your account for?

$250,000

Who sets the interest rates?

Federal Reserve

What is the reserve requirement?

10%

What is liquidity?

The ability to get money if and when you need it

Savings Account

Money that is deposited in a commercial bank, credit union, online bank, or an S&L, interest (APY) is paid on the money in the account.

MMA (Money Market Account)

Interest earned savings account that is offered by an FDIC insured institution

CD’s (Certificate of Deposit)

Agreement with a commercial or online bank that allows these institutions to hold your money for a fixed period of time

What is the time value of money?

Relationship between time, money, and the rate of interest

What is the purpose of the rule of 72?

To see how long it will take you to double your money

What is principal?

Original investment

What is APY?

Annual Percentage Yield

Annual rate of interest paid to the depositor

What do banks do with the money that customers deposit with them?

Loan it out to other customers

When is compound interest better than simple interest? (think saving, investing, & borrowing)

Long term saving

Know how to use the compound interest formula

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

Know how to use the simple interest formula

A = P x r x t

Know how to use the rule of 72

72/rate = time