NAB Financial Products and Services 1 — Questions and Answers
Question 1: What is the primary difference between a savings account and a checking account?
- Savings accounts earn interest for deposited funds; checking accounts are designed for frequent transactions (Correct answer)
- There is no difference
- Savings accounts do not earn interest
- Checking accounts have higher interest rates
Correct answer: Savings accounts earn interest for deposited funds; checking accounts are designed for frequent transactions
Savings accounts earn interest on deposits while checking accounts facilitate daily transactions through checks, debit cards, and electronic transfers.
Question 2: What is a certificate of deposit (CD)?
- A time deposit that earns a fixed interest rate for a specified term (Correct answer)
- A stock certificate
- A business registration document
- A credit card type
Correct answer: A time deposit that earns a fixed interest rate for a specified term
A CD is a savings product where you deposit money for a fixed period at a guaranteed interest rate, typically higher than regular savings.
Question 3: What is compound interest?
- Interest calculated on both the initial principal and accumulated interest from previous periods (Correct answer)
- Interest calculated only on the original deposit
- A penalty for early withdrawal
- A fee charged by banks
Correct answer: Interest calculated on both the initial principal and accumulated interest from previous periods
Compound interest earns interest on interest, causing savings to grow faster over time compared to simple interest.
Question 4: What is a money market account?
- A deposit account offering higher interest rates than regular savings with some checking features (Correct answer)
- A stock trading account
- A foreign currency exchange account
- A business loan account
Correct answer: A deposit account offering higher interest rates than regular savings with some checking features
Money market accounts combine features of savings and checking accounts, offering higher interest rates with limited transaction capabilities.
Question 5: What does APY stand for in banking?
- Annual Percentage Yield — the total interest earned on a deposit over one year including compounding (Correct answer)
- Annual Payment Year
- Automatic Payment Yield
- Average Percentage Yearly
Correct answer: Annual Percentage Yield — the total interest earned on a deposit over one year including compounding
APY represents the real rate of return earned on a deposit, accounting for the effect of compounding interest.
Question 6: What is the FDIC and what does it do?
- The Federal Deposit Insurance Corporation insures bank deposits up to $250,000 per depositor (Correct answer)
- A type of bank account
- A credit rating agency
- A stock exchange
Correct answer: The Federal Deposit Insurance Corporation insures bank deposits up to $250,000 per depositor
The FDIC protects depositors by insuring their deposits at member banks, covering up to $250,000 per depositor per institution.
NAB Financial Products and Services 1
What is the primary difference between a savings account and a checking account?