Personal Finance Chapter 5 Flashcards

Study Notes

Key Financial Terms and Definitions

Direct Deposit: Automatic transfer of net pay into an employee's designated bank account, improving convenience and efficiency in payroll processing.
Automated Teller Machine (ATM): A computerized terminal enabling users to withdraw cash from their bank accounts, providing easy access to funds.
Debit Card: A cash card linked to checking or savings accounts allowing users to withdraw funds or make purchases directly without incurring debt.
Point-of-Sale Transaction: Purchases made via debit card at retail locations, restaurants, or service providers, facilitating instant payment for goods and services.
Commercial Bank: A for-profit financial institution offering comprehensive services like checking, savings, and lending, aimed at generating profit for its shareholders.
Savings and Loan Association (S&L): A financial institution specialized in offering savings accounts and mortgage loans, now providing services similar to those of commercial banks.
Credit Union: A nonprofit financial institution owned by members, providing banking services with a focus on member benefits and lower fees.
Certificate of Deposit (CD): A time deposit where funds are held for a fixed period at a specified interest rate, usually offering higher returns than regular savings accounts.
Money Market Account: A type of savings account requiring a minimum balance and offering variable interest rates, providing limited check-writing privileges.
Rate of Return: Represents the percentage increase in savings value due to earned interest, an essential measure for evaluating investment performance.
Compounding: The process where interest is earned on both the initial principal and previous interest, maximizing growth of savings over time.
Annual Percentage Yield (APY): Reflects the total interest earned on a $100 deposit over a year, including compounding, providing a clear view of earning potential.
Overdraft Protection: An automatic loan facility that covers checks written when account balances are insufficient, preventing account holders from incurring overdraft fees.
Stop-Payment Order: A formal request to a financial institution to prevent the cashing of a specific check, often used to avoid fraud or billing errors.
Endorsement: The payee's signature on a check, authorizing funds to be transferred to another party or facilitating the deposit of the check.
Bank Reconciliation: A document that identifies and reconciles discrepancies between a bank statement and a personal checkbook balance, ensuring accurate financial records.