Saving Money

Saving Money

Are you ready to test your knowledge about savings? This ten-question multiple-choice quiz will explore some fundamentals regarding the various types of savings accounts and their benefits. After completing all ten questions, click "What's my grade?" at the end of the quiz to see how you did.

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What is a savings account?
A savings account is a type of account offered by banks, credit unions or other financial institutions that earn interest and allows you to store your money for short or long-term safety. Savings accounts may offer different interest rates based on your account balance or other factors.

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What are the benefits of having a savings account?
A savings account allows a consumer to save money in an interest-bearing account that offers FDIC or NCUA insurance protection. There are multiple types of saving accounts that have different benefits to earn you more money over time. Most of these are appropriate places to keep funds for emergencies. Using a non-interest earning bank account makes you miss out on earning potential.

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What are the most popular types of savings accounts?
A traditional savings account allows a user to earn interest, and allows the funds to be accessible on demand. There are high-yield savings accounts that would offer higher yields. Money market accounts may also offer higher rates and often require minimum balances to avoid monthly fees.

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Which of these is a drawback of a traditional savings account?

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Which type of savings account most often offers the highest interest rate?
Certificate of deposit (or certificate) accounts, also known as CDs, tend to pay the highest interest rates, in exchange for the promise of keeping your money deposited for a defined period. If you withdraw money from the account, you will typically have to pay an early withdrawal fee. The amount of time can vary from 6 months to 5 years. The longer the time, the higher the interest rate.

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How is a certificate of deposit different from other savings accounts?
Compared to the other savings accounts, CDs typically offer the highest interest rates in exchange for locking away your funds until the maturity date. Consumers who are looking for higher yields on their long-term savings are the most frequent users of CDs or certificate accounts.

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What would happen if you cashed in your CD account before the maturity date?
CDs will give you a guaranteed interest rate in exchange for locking your funds away until the maturity date. If there is an early withdrawal, the account owner will suffer a withdrawal penalty that will require payment. Early withdrawals on a CD are penalized as a portion of the interest earned on the account, depending on the term length of the CD account.

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What is a money market account?
A money market account is a type of savings account that requires a minimum deposit. It often offers a debit card and checkbook, but transactions are limited number to a fixed number of times each month. The account also offers higher interest rates in comparison to a traditional savings account.

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What type of savings account should you open if you want easy access to your funds?
A traditional savings account is the easiest type of savings account to get if you want easy access to your funds. CDs make you lock your funds away until the maturity date; if accessed too soon, you will suffer a withdrawal penalty. Money market accounts offer a debit card and checkbook for easy withdrawals; however, there is a limited amount of transactions that can be made each month.

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If you made an initial deposit of $1,000 to a savings account with 1.00% APY and also made a $100 deposit each month for a year, how much would you have in your account at the end of the year?
If you were to make an initial deposit of $1,000 with a $100 monthly contribution at 1.00% APY for a year, you would have $2,216.57 in accumulated savings at the end of the one year period. In total, you would have made $2,200 worth of contributions while earning $16.57 in interest over time.

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