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WHAT DOES THAT MEAN?
TERM
DEFINITION
compound interest
adding the interest earned on an account to the principal balance so that the earned interest earns interest. a calculator that has been preloaded with financial formulas such as the the compound interest formula. to commit money to buy assets with the expectation of the value of the assets increasing over time.
financial calculator
invest
liquidity
the ability to quickly convert an asset to cash.
Access vocab ashcards at www.c21publishing.com savings program that rounds up debit card purchases to the nearest dollar and automatically transfers the difference to a savings or investment account. a method for estimating the time it takes for a sum of money to double in value through compounding. interest that is paid out as it is earned and is not added to the principal balance. PRODUCT PREVIEW I. Saving Accounts This chapter continues with Unit 2’s theme of building wealth . In Chapter 2 The Battle of the Banks , you learned about savings accounts. A savings account is a deposit account that earns interest. While banks compete with one another to offer terms that will attract deposits, the rates paid on savings accounts are low and don’t differ much from bank to bank. Nevertheless, a savings account is an important step toward building wealth because it creates a financial safety net, which we’ll discuss below. The Great Savings Decline. The Federal Reserve Bank, the U.S. Commerce Department’s Bureau of Economic Analysis (BEA), and private economists carefully track the personal savings rates and habits of Americans because they are indicators of the nation’s economic health. Since the 1980s, savings rates in the U.S. have plummeted. Americans have essentially stopped saving! We have become a nation of spendthrifts. In fact, a Bankrate.com survey found that 76 percent of American households live paycheck to paycheck and have no savings set aside for an emergency. Experts tell us that much of this can be blamed on the consumption boom . People are overspending for consumer purchases and paying with a credit card. Unfortunately, this zero savings culture appears to be the new normal. Let’s start reversing this trend! round up account Rule of 72 simple interest
Chapter 8 | Super-Size Your Savings 136
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