Personal Finance Chapter 5 Flashcards

Questions and Answers

What is a direct deposit?

A withdrawal from an ATM

A physical check deposited in a bank

A bank transfer of savings

An automatic deposit of net pay to an employee's designated bank account (correct)

What does ATM stand for?

Automated Teller Machine

What is a debit card?

A credit card that allows you to borrow money

A cash card that allows you to withdraw money or pay for purchases from your checking or savings account (correct)

A type of savings account

An investment account

What is a point-of-sale transaction?

A purchase by a debit card of a good or service at a retail store, restaurant, or elsewhere Signup and view all the answers

What is a commercial bank?

A for-profit institution that offers a full range of financial services Signup and view all the answers

What is a savings and loan association (S&L)?

A financial institution that traditionally specialized in savings accounts and mortgage loans Signup and view all the answers

What is a credit union?

A nonprofit financial institution that is owned by its members and organized for their benefit Signup and view all the answers

What is a certificate of deposit (CD)?

A savings alternative in which money is left on deposit for a stated period of time to earn a specific rate of return Signup and view all the answers

What is a money market account?

A savings account that requires a minimum balance and earns interest that varies from month to month Signup and view all the answers

What is the rate of return?

The percentage of increase in the value of your savings from earned interest Signup and view all the answers

What is compounding?

The process in which interest is earned on both the principal and on any previously earned interest Signup and view all the answers

What does annual percentage yield (APY) represent?

Amount of interest that a $100 deposit would earn, after compounding, for one year Signup and view all the answers

What is overdraft protection?

An automatic loan made to an account if the balance will not cover checks written Signup and view all the answers

What is a stop-payment order?

A request that a bank or other financial institution not cash a particular check Signup and view all the answers

What is an endorsement in banking?

The signature of the payee, the party to whom the check has been written Signup and view all the answers

What is bank reconciliation?

A report that accounts for the differences between the bank statement and your checkbook balance Signup and view all the answers

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.

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Test your knowledge with flashcards covering Chapter 5 of Personal Finance. This chapter focuses on key terms such as direct deposit, ATMs, and debit cards. Perfect for students looking to reinforce their learning in personal finance.