An emergency fund is a reserve of cash sufficient to cover six months' worth of living expenses. It helps in case of unexpected events such as job loss, medical emergencies, or urgent repairs.
What are the key types of bank accounts?
Key types include Checking Accounts (for daily transactions), Savings Accounts (for short-term savings), Money Market Accounts (higher interest savings), and Certificates of Deposit (fixed-term, higher interest).
What factors impact interest rates on savings?
Interest rates depend on demand for loans, inflation, and central bank policies. High loan demand leads to higher interest rates to attract savers, while economic downturns reduce rates.
How does inflation affect savings?
Inflation erodes the purchasing power of savings. If inflation outpaces interest rates, savings lose value over time.
What is the difference between spending and saving?
Spending provides immediate gratification but reduces future financial security. Saving helps achieve financial goals, such as buying a home or preparing for emergencies.
What is credit management?
Credit management involves using credit responsibly, comparing costs of credit sources, and understanding the impact of borrowing on financial health.
What are secured and unsecured loans?
Secured loans require collateral (e.g., mortgages, car loans) and have lower interest rates. Unsecured loans (e.g., credit cards) do not require collateral but usually have higher interest rates.
How does APR impact borrowing costs?
The Annual Percentage Rate (APR) includes interest and fees, allowing consumers to compare credit sources. Lower APRs generally mean lower borrowing costs.
What factors affect credit scores?
Key factors include payment history, credit utilization ratio, length of credit history, types of credit used, and recent credit inquiries.
How do payday loans compare to bank loans?
Payday loans have extremely high interest rates and short repayment periods, often leading to debt cycles. Bank loans offer lower interest rates and longer repayment terms, making them a more sustainable option.
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