AFC Savings Strategies and Emergency Fund Planning 2

Question 1

Which savings vehicle is specifically designed for education expenses and offers tax-free growth when funds are used for qualified education costs?

Accepted Answer

529 Plan

Answer

Traditional IRA

Answer

Health Savings Account (HSA)

Answer

Flexible Spending Account (FSA)

Question 2

A Health Savings Account (HSA) requires the account holder to be enrolled in which type of plan?

Accepted Answer

A High-Deductible Health Plan (HDHP)

Answer

Medicare Part B

Answer

Medicaid

Answer

Any employer-sponsored health plan

Question 3

A Certificate of Deposit (CD) differs from a regular savings account primarily because:

Accepted Answer

CDs require a fixed term and typically penalize early withdrawal

Answer

CDs are not FDIC-insured at banks

Answer

CDs can only be purchased at credit unions

Answer

CDs earn lower interest rates than standard savings accounts

Question 4

Which of the following savings vehicles typically provides the HIGHEST liquidity combined with federal deposit insurance?

Accepted Answer

High-yield online savings account

Answer

Series I Savings Bonds

Answer

Treasury Bills

Answer

Stock index mutual fund

Question 5

A money market account (MMA) at a bank typically differs from a standard savings account in that it:

Accepted Answer

Often requires a higher minimum balance and may offer limited check-writing privileges

Answer

Is not FDIC-insured

Answer

Can only be used for business purposes

Answer

Earns the same fixed rate regardless of balance

Question 6

Series I Savings Bonds are particularly attractive as a savings vehicle during periods of high inflation because their interest rate:

Accepted Answer

Is partially tied to the Consumer Price Index (CPI), adjusting every six months

Answer

Is fixed at purchase and never changes

Answer

Is determined solely by the federal funds rate

Answer

Is guaranteed to exceed the stock market return

Question 7

Which automated savings strategy involves rounding up debit card purchases to the nearest dollar and transferring the difference to a savings account?

Accepted Answer

Round-up savings

Answer

Dollar-cost averaging

Answer

The envelope method

Answer

The 50/30/20 rule