Banking, Compound Interest, and the Federal Reserve System

Vocabulary flashcards covering fundamentals of banking accounts, interest calculations, the Rule of 72, and the structure and function of the Federal Reserve System.

Debit and ATM Cards

Cards that allow the account holder to withdraw cash or make deposits at an ATM, make purchases, and execute withdrawals electronically.

Interest

Money an institution pays you for its use of your funds.

Principal

The original amount of money deposited or invested.

Compound Interest

The method of computing interest where the interest rate is applied to the principal and any earned interest, often referred to as "interest on interest."

Compound Interest Formula

$A = P(1+r)^t$, where $A$ is the total amount (Principal + Interest), $P$ is the principal, $r$ is the rate of interest, and $t$ is time.

Rule of 72

The formula used to find the length of time, in years, it takes for an amount of saved money receiving compound interest to double, calculated by dividing the interest rate (expressed as a whole number) into $72$.

Federal Reserve System

The central bank of the United States that seeks to provide the nation with safe, flexible, and stable monetary and financial systems.

Board of Governors

The governing body of the Federal Reserve that creates the laws regulating the banking industry.

12 Reserve Banks

Regional banks of the Federal Reserve System that enforce banking laws and serve as a clearinghouse for checks and wires.

Key Interest Rates (Federal Reserve)

Interest rates adjusted by the Federal Reserve to stabilize the economy, which include the Federal Funds rate, Discount rate, and Prime rate.