Personal Finance Flashcards
When choosing a financial product such as a bank account, what are the 5 things you should know?
- Make sure your bank has FDIC insurance.
- You don’t need to pay unnecessary fees on a checking or savings account, such as maintenance, annual fees, minimums, and overdraft protection.
- Your savings account should be earning an interest rate of at least 0.75% APY.
- Credit card rewards are worth it only if you avoid both overspending and paying interest.
- Ditch credit cards with an annual fee and find a card that rewards your regular spending, which might be a basic, flat-rate card.
What does FDIC insured mean?
Federal Deposit Insurance Corporation. It means that you’re protected up to $250,000 should your bank go under.
What does FDIC insurance cover?
It insures money you’ve stored away in a bank account, not money you’ve invested.
Covered accounts include:
• Checking accounts
• Savings accounts
• MMDA (Money market deposit accounts)
• CDs (Time Deposits such as certificates of deposits)
• NOW (Negotiable Order of Withdrawal)
• Cashier’s checks, money orders, and other official items issued by a bank.
What is a checking account?
Where you keep your daily-use money
What is a savings account?
Where you keep the money you don’t need right away (plus, you can make only six withdrawals from this account per month by federal law)
What is a MMDA?
Money Market Deposit Accounts: A checking and savings hybrid. These accounts typically earn more interest than a checking account, but there are also restrictions on how much you can deposit and/or withdraw each month.
What are CDs?
Time deposits such as certificates of deposit: A certificate of deposit offers you a higher interest rate, but you have to lock the money up for a predetermined period of time. Taking it out sooner means potentially paying a penalty and losing some of the interest you earned.
eg.) You might earn 1.50% APY but you have to deposit at least $1,000 and keep it in the account for the min of 2 years to earn and keep all the interest.
What is a NOW?
Negotiable order of withdrawal accounts: Similar to a checking account except you likely earn a higher interest rate, but you may have to give written notice before you take money out- sometimes even as much as 7 days.
What doesn’t the FDIC insure?
Your investments: • Stock, bond, and mutual investments • Life insurance • Annuities • Municipal securities • Safe-deposit boxes or their contents • U.S. Treasury bills, bonds, or notes
What are Annuities?
Invested lump sums of cash that are meant to provide a monthly stream of income in the future, usually in retirement.
What are municipal securities?
A bond (buying of debt) from a state or local government.
What are bank fees you shouldn’t be paying:
Bank Accounts: • Annual fee • Maintenance fee • Minimum-balance free • Overdraft fee • Overdraft-protection fee • Early account closure fees • Lost card fee • ATM fees
Credit Cards:
• Annual fee
• Activation fee
• Monthly fee
What does APY mean?
Annual Percentage Yield. It factors how often interest is applied to a balance (e.g., daily, monthly or annually).
What does the bank do with your money?
With the funds you deposit into a bank are used to make loans to other customers, and you can be sure those customers are paying way more than 0.01% in interest.
The bank is using your money to make an auto loan to the guy down the street who just rolled into the neighborhood on a new set of wheels.
The bank uses your money to make a loan to someone else with a 3% APR and thank you by giving you only 0.01%, thats why you should find a savings account with a higher APY.
How can internet-only banks afford to offer a high percent APY?
They don’t have to buy land, build a brick-and-mortar location, hire staff, pay property taxes, and cover hefty electric bills.
This simple, effective cost-cutting measure yields immediate results to put in customer pockets.
