Navigating Compound Interest for Financial Literacy

The video tutorial explains how money can earn more money through saving and investing. It covers interest-bearing accounts like savings and checking accounts, CDs, and bonds, highlighting their benefits and risks. The tutorial also discusses inflation and the power of compounding interest. It introduces stocks and mutual funds as investment options, comparing them with traditional savings products. The video emphasizes the importance of choosing the right financial products to meet personal goals and leveraging compounding for better returns.

What is the primary reason people choose to keep money in savings accounts?

• To hide money from authorities

• For long-term investment purposes

• To earn interest while keeping the money safe

• To avoid taxes

What does FDIC insurance on a bank account provide?

• Investment advice

• Safety of deposits up to a certain amount

• Guarantee of high interest rates

• Protection against stock market fluctuations

What type of financial product is a CD?

• A time-bound deposit with penalties for early withdrawal

• A high-interest loan

• A risk-free stock investment

• A government bond

Why might online bank accounts offer higher interest rates than brick-and-mortar banks?

• They face more significant risks

• They operate internationally

• They have higher customer satisfaction

• They have lower overhead costs

How does inflation affect money saved under a mattress?

• Increases its value over time

• Decreases its purchasing power

• Has no effect

• Converts it into foreign currency

What is compound interest?

• Interest calculated on the initial deposit only

• Interest on interest, growing the amount faster

• A fixed interest rate for life

• A government-regulated interest rate

What is the advantage of compound interest compared to simple interest?

• It only applies to long-term loans

• It allows interest to be earned on previously earned interest

• It accumulates at a slower, more stable rate

• It is only available to high-value accounts

What is a key benefit of investing in mutual funds?

• Guaranteed fixed returns

• Diversification to reduce risk

• High short-term profits

• No risk of loss

What is the primary risk associated with purchasing stocks?

• The company may perform poorly, reducing stock value

• Mutual funds might outperform individual stocks

• Fixed interest rates may decrease

• Banks may fail to provide dividends

How does the return on investments in the stock market generally compare to traditional savings accounts?

• Fixed like savings accounts

• About the same

• Lower due to higher risks

• Higher, reflecting potential greater returns