Banking Checking and Savings

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1. Which of the following is typically a feature of a savings account but not a checking account?

• Ability to withdraw money from an ATM

• FDIC insured up to $250,000

• Your money earns interest

• Ease of making payments using a debit card

Answer explanation

A savings account typically earns interest on the deposited funds, while a checking account usually does not. This is a key feature that distinguishes savings accounts from checking accounts.

2. Tyreke has $5,000 to put into an account that earns compound interest. Which of the following is the BEST advice you can offer so that he can maximize interest?

• It’s ok to open an account with a low interest rates as long as you deposit your money early

• Deposit your money as early as possible in an account with the highest interest rate possible

• Wait for interest rates to rise above 5%, otherwise compounding doesn’t have any effect

• Compound interest will not have any effect at such a low dollar amount. Find different opportunities to earn interest on your savings.

Answer explanation

To maximize interest, Tyreke should deposit his money as early as possible in an account with the highest interest rate. Early deposits benefit more from compounding, and higher rates yield greater returns.

3. Which of the following is TRUE when comparing savings accounts and certificates of deposit?

• Savings accounts are FDIC insured while certificates of deposit are not

• Savings accounts allow you to access your money at all times while certificates of deposit require your money to be left alone for a set period of time

• Savings accounts typically have a higher interest rate than certificates of deposit

• Both savings accounts and certificates of deposit allow you to deposit money at any time

Answer explanation

Savings accounts provide immediate access to funds, while certificates of deposit require you to lock in your money for a specified term, making the second statement true.

What does FDIC stand for

• Federal Deposit Insurance Agency

• Federal Deposit Investment Corporation

• Federal Deposit Insurance Council

• Federal Deposit Insurance Corporation

Answer explanation

FDIC stands for Federal Deposit Insurance Corporation, which is the correct choice. It is a U.S. government agency that provides deposit insurance to depositors in American commercial banks and savings institutions.

What should the best savings accounts offer?

• High interest rates and monthly fees

• Low interest rates and no online bank transfers

• Strong interest rates, no monthly fees, and easy online bank transfers

• Monthly service charges and limited withdrawals

Answer explanation

The best savings accounts should provide strong interest rates to maximize earnings, have no monthly fees to avoid unnecessary costs, and allow easy online bank transfers for convenient access to funds.

A savings product that earns interest on a lump sum for a fixed period of time.

• Bounced check

• Savings bank

• Money market account

• Certificate of Deposit (CD)

Answer explanation

A Certificate of Deposit (CD) is a savings product that allows you to deposit a lump sum and earn interest over a fixed period, making it the correct choice. Other options do not fit this description.

An account at a depository institution that is used for a fixed period of time and allows restricted access to the funds deposited.

• Certificate of Deposit

• Checking Account

• Money Market Deposit Account

• Savings Account

Answer explanation

A Certificate of Deposit (CD) is an account with a fixed term and limited access to funds, making it the correct choice. In contrast, checking and savings accounts allow more flexible access.