Savings Flashcards

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Certificate of Deposit (CD)

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A savings alternative where money is left on deposit for a specific period to earn a specific rate of interest, guaranteed by the FDIC.

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Interest

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The cost of using money, paid by banks to depositors and by borrowers to lenders.

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Compound Interest

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Simple Interest

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Calculated as a percentage of the principal over a certain period. Formula: Interest = Principal × Rate × Time

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IRA (Individual Retirement Account)

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A retirement savings account with significant penalties for early withdrawal before age 59 ½. Taxes on interest are deferred until withdrawal.

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401K

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An investment plan funded by employee contributions for retirement, with no taxes paid until withdrawal. Penalties apply for early withdrawal before age 59 ½.

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Money Market Account

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Offers higher interest rates than a savings account, with a minimum balance requirement and limited transactions.

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Principal

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The amount of money that is invested, saved, or borrowed.

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Rate

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The percentage used by banks to calculate the amount of interest received or due.

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Rule of 72

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A method to estimate how interest rates affect savings. Divide 72 by the annual interest rate to estimate the years needed to double your money.