Personal Finance: Depository Institutions
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Questions and Answers

What is a depository institution?

Business that provides financial services to hold and return money.

What are two characteristics of commercial banks? (Select all that apply)

  • Not-for-profit
  • Usually large institutions (correct)
  • Open to anyone who wants to utilize a depository institution (correct)
  • For-profit (correct)

    • What are two characteristics of a credit union? (Select all that apply)

  • Not-for-profit (owned by members) (correct)
  • Higher interest rates and lower fees (correct)
  • Membership qualifications and benefits the members (correct)
  • For-profit

    • What does depository institution insurance cover?

    <p>Offers a safe and secure place to store money; FDIC insures $250,000 per depositor.</p> Signup and view all the answers

    What is interest?

    <p>The price paid for using someone else's money.</p> Signup and view all the answers

    What is an interest rate?

    <p>Percentage rate used to calculate interest, usually an annual rate.</p> Signup and view all the answers

    What is a checking account?

    <p>Quick access account for writing checks and withdrawing cash.</p> Signup and view all the answers

    What is a savings account?

    <p>Account that helps you manage your money and earn interest but has limited access.</p> Signup and view all the answers

    What is credit?

    <p>Borrowing money, usually through loans or credit cards.</p> Signup and view all the answers

    What is financial advice?

    <p>Information and assistance with a wide range of financial topics.</p> Signup and view all the answers

    What is a safe deposit?

    <p>Store valuable personal items.</p> Signup and view all the answers

    Match the following payment instruments with their descriptions:

    <p>Traveler's check = A check for a fixed amount that can be cashed after endorsement with the holder's signature. Certified checks = A check guaranteed by a bank. Cashier's check = A check guaranteed by a bank, drawn on the bank's own funds. Money orders = A printed order for payment of a specified sum, issued by a bank or post office.</p> Signup and view all the answers

    What are two activities that may be completed with online banking? (Select all that apply)

    <p>Access account</p> Signup and view all the answers

    How is mobile banking different from online banking?

    <p>A mobile app mimics online banking.</p> Signup and view all the answers

    What is a debit card?

    <p>A plastic card linked to your depository institution account.</p> Signup and view all the answers

    What are two activities completed with ATMs? (Select all that apply)

    <p>Check account balances</p> Signup and view all the answers

    What is an overdraft fee?

    <p>Charged fee if you withdraw more money than you have.</p> Signup and view all the answers

    What is an ATM fee?

    <p>Charged for using an ATM that belongs to another depository institution.</p> Signup and view all the answers

    What is a minimum balance fee?

    <p>Fee charged if you go below the required minimum balance.</p> Signup and view all the answers

    What is a sinking fund?

    <p>A way to save when you know you have a large purchase coming up.</p> Signup and view all the answers

    What is the compound interest formula?

    <p>FV = PV [1 + r/m] ^ mt</p> Signup and view all the answers

    Study Notes

    Depository Institutions

    • Businesses that provide financial services, enabling customers to hold and return money securely.

    Commercial Banks

    • For-profit institutions open to anyone seeking depository services.
    • Typically large entities with a wide range of financial products.

    Credit Unions

    • Not-for-profit institutions owned by their members, with membership qualifications.
    • Offer benefits that may include higher interest rates on savings and lower fees than commercial banks.

    Insurance for Depository Institutions

    • FDIC (Federal Deposit Insurance Corporation) insures depositors up to $250,000 per account in commercial banks.
    • NCUA (National Credit Union Administration) insures credit union deposits for the same amount.

    Interest

    • Represents the cost of borrowing money or the earnings on saved funds; applicable to loans and savings accounts.

    Interest Rate

    • The percentage used to calculate interest, typically expressed as an annual rate.

    Checking Account

    • Designed for easy access to funds; allows check writing, cash withdrawals, and online transfers, with minimal or no interest earnings.

    Savings Account

    • Structured for saving rather than daily expenses; earns interest but offers limited access to funds.

    Credit

    • The ability to borrow money, typically through loans or credit cards, requiring repayment with interest.

    Financial Advice

    • Guidance on various financial matters, encompassing a range of topics related to personal finance.

    Safe Deposit

    • A secure storage option within a bank for valuable personal items.

    Special Needs Payment Instruments

    • Includes tools such as travelers checks, certified checks, cashiers checks, and money orders for specific payment purposes.

    Travelers Checks

    • Pre-printed checks for a fixed amount that require endorsement for cashing or payment.

    Certified Checks

    • Checks guaranteed by a bank, ensuring sufficient funds for payment.

    Cashiers Checks

    • Checks issued by a bank, drawn on its own funds and signed by a cashier, providing guaranteed payment.

    Money Orders

    • Printed payment orders for a specified sum, available from banks or post offices.

    Online Banking Activities

    • Functions performed include transferring and accessing accounts, as well as applying for credit and paying bills.

    Mobile Banking

    • A banking method using mobile applications that replicate the functions of online banking.

    Debit Card

    • A plastic card linked directly to a depository institution account, allowing for electronic transactions.

    ATM Activities

    • Automated Teller Machines enable actions such as withdrawing and depositing money and checking account balances.

    Overdraft Fee

    • A fee incurred when withdrawing more money than is available in an account.

    ATM Fee

    • Charged when using an ATM that is not owned by the cardholder's depository institution.

    Minimum Balance Fee

    • A fee applied if the account balance falls below a specified minimum threshold.

    Sinking Fund

    • A savings strategy for planning ahead for large purchases, allowing for systematic saving over time.

    Compound Interest Formula

    • Future Value (FV) is calculated using the formula: FV = PV [1 + r/m]^(mt), where "PV" is present value, "r" is the interest rate, "m" is the number of compounding periods per year, and "t" is the number of years.

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    Description

    Explore key concepts in personal finance with this quiz on depository institutions. Learn about the characteristics of commercial banks and credit unions through interactive flashcards that enhance your understanding. Perfect for students and anyone interested in financial services.

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