Finance Quiz: A Practice Test! Trivia

A money market savings plan is a type of savings account where the interest rate can fluctuate from month to month. This means that the rate of return on the savings can change depending on market conditions and other factors. Money market accounts often offer higher interest rates compared to regular savings accounts, making them an attractive option for individuals looking to maximize their savings.

A mortgage company is not considered a deposit institution because it does not accept deposits from individuals or offer traditional banking services. Instead, mortgage companies primarily focus on providing loans for purchasing or refinancing real estate properties. In contrast, mutual savings banks, savings & loan associations, and credit unions are all deposit institutions that accept deposits from customers and offer various banking services such as savings accounts, loans, and credit cards.

A savings & loan association is a type of financial institution that focuses on providing savings accounts and mortgage loans to its customers. Therefore, it specializes in these two specific types of services, making the statement "A savings & loan association specializes in savings accounts and mortgage loans" true.

The statement is false because the Federal Deposit Insurance Corporation (FDIC), not the FBI, is responsible for insuring bank accounts in federally chartered banks. The FDIC provides insurance coverage of up to $250,000 per depositor, per account category. The FBI, on the other hand, is a law enforcement agency that investigates federal crimes and protects national security.

If you deposit $100 in an account with an annual interest rate of 5 percent compounded yearly, after 12 months, you will have $105. This is because the interest is compounded annually, meaning that at the end of each year, the interest is added to the initial deposit. In this case, after 12 months, the interest earned would be $5 (5% of $100), resulting in a total of $105.

A credit union is a type of financial institution that operates on a cooperative basis, where its members are the owners. Unlike traditional banks that are owned by shareholders, credit unions are owned and controlled by the individuals who use their services. Members of a credit union have the ability to vote on important decisions and elect a board of directors to represent their interests. Therefore, the statement that a credit union is owned by its members is true.

The Federal Deposit Insurance Corporation (FDIC) is responsible for insuring depositors against losing their money in the case of a bank failure. This means that if a bank fails and is unable to return the depositors' money, the FDIC will step in and reimburse the depositors up to a certain amount. This insurance provides a sense of security to depositors and helps maintain confidence in the banking system.

To earn high-interest rates on a certificate of deposit, you must leave your money in for the entire duration of the deposit. This means that you cannot withdraw the funds before the agreed-upon term ends. By committing to keeping your money in the deposit for the specified period, you are rewarded with higher interest rates as the bank can rely on your funds for a longer period of time.

Money orders are not considered a savings alternative. They are a form of payment that allows individuals to send a specific amount of money to someone else. Unlike the other options listed, money orders do not provide any interest or investment opportunities to help grow savings.

Credit cards allow you to borrow money for a short term. Unlike debit cards or prepaid cards, credit cards provide a line of credit that allows you to make purchases or withdraw cash even if you don't have the funds available in your account. However, you are required to pay back the borrowed amount within a specified time period, usually with interest. This borrowing feature of credit cards provides flexibility and convenience to users, allowing them to make purchases and manage their finances effectively.

A restrictive endorsement does not allow you to transfer a check to an organization or another person. A restrictive endorsement limits the use of the check to a specific purpose or restricts the person or entity who can cash or deposit the check. It may include phrases like "For deposit only" or "Pay to the order of [specific person or entity]." This type of endorsement ensures that the check can only be used as intended and cannot be transferred to someone else. Therefore, the correct answer is false.

A certificate of deposit (CD) is the best financial service for saving money over a period of years. This is because CDs offer a fixed interest rate and a predetermined maturity date, allowing individuals to earn higher interest rates compared to other savings accounts. The money deposited in a CD is locked for a specific period, usually ranging from a few months to several years, which encourages individuals to save for the long term. Additionally, CDs are insured by the FDIC (Federal Deposit Insurance Corporation), providing a level of security for the deposited funds.

When writing a check, it is important to include the current date, the name of the payee, and your signature on the front. However, an endorsement on the back is not necessary when writing a check. Endorsements typically occur when the payee signs the back of the check to transfer it to someone else. In this case, since you are the one writing the check, there is no need for an endorsement on the back.

A prepaid phone card is not an example of a debit card because a debit card is linked to a bank account and allows the cardholder to make purchases by deducting funds directly from the account. On the other hand, a prepaid phone card is a form of payment for telephone services that is purchased in advance and does not require a bank account. Therefore, the statement is false.