Personal Finance Flashcards
(28 cards)
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.
What are credit cards common reward structures?
- Rotating categories: Often work on a quarterly structure and usually offer 5% for 3 months before changing. (e.g., Jan-Mar 5% cashback on gas)
- Flat-rate: Gives you a set of % of cashback on all your purchases. Perfect for credit card user who wants to go on autopilot when it comes to rewards and isn’t concerned about maximizing them all the time.
- Sign-on bonus: A sign-on bonus is often coupled with another form of reward but it’s used to lure you in. “spend $3,000 in the first 3 months and we’ll give you 30,000 bonus miles.”.
What is churning credit cards?
Frequently opening and closing credit cards just to get sign-on bonus.
Before you decide to churn cards, what should you do?
You need to establish an excellent credit history first and a strong-enough credit score to withstand applying for (and closing) multiple cards within a calendar year.
When do you need to file a tax return?
If you meet or surpass certain levels of income during the year.
How long does the IRS recommend keeping your tax paperwork after you file it?
For at least three years
If you are a full-time employee, you would receive a ________ detailing your earnings, as well as which taxes were withheld.
Form W-2
If you work freelance or on a contract, you may receive a _______ detailing what you earned.
Form 1099-NEC
You may receive documents showing dividends or interest earned on investments _______ or ______.
Forms 1099-DIV or 1099-INT
You can’t file your tax return until you’ve received a Form ____ or Form ____ from every place you have working during the year.
Form W-2 or Form 1099
