Savings Accounts

Front

What is a savings account?

Back

A savings account is a deposit account held at a financial institution that provides a modest interest rate. It is designed for individuals to save money while keeping it accessible.

Front

What is compound interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

How is compound interest calculated?

Back

Compound interest is calculated using the formula A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the number of years.

Front

What is simple interest?

Back

Simple interest is calculated only on the principal amount of a loan or deposit, without considering the interest that has already been added.

Front

What is the difference between compound interest and simple interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest, while simple interest is calculated only on the principal.

Front

What does it mean to 'pay yourself first'?

Back

'Pay yourself first' means to set aside a portion of your income for savings before paying any other expenses.

Front

How does inflation affect savings?

Back

Inflation decreases the purchasing power of money, meaning that the value of money in a savings account may decline over time if the interest earned is less than the inflation rate.

Front

What is the formula for calculating interest earned on a savings account?

Back

The formula for calculating interest earned is I = PRT, where I is the interest, P is the principal, R is the rate of interest per time period, and T is the time period.

Front

What is the impact of compounding frequency on interest earned?

Back

The more frequently interest is compounded, the more interest will be earned over time, as interest is calculated on previously accumulated interest.

Front

What is the significance of the annual percentage yield (APY)?

Back

The annual percentage yield (APY) reflects the total amount of interest earned on an account based on the interest rate and the frequency of compounding, allowing for a better comparison of savings accounts.