Question

Herb has $20,000 in an interest-bearing time deposit with the Cherryhill Bank and Trust Company. Herb is earning a relatively attractive rate of interest on this account, but he had to agree not withdraw any of the funds until the end of a three year period. This type of account is known as a(n):

A) passbook savings account. C) individual deferred earnings account (IDEA).
B) negotiable order of withdrawal (NOW) account. D) certificate of deposit (CD).
Hal no longer receives a paycheck; instead, he has his employer deposit his pay directly into his account at the Mortonville Bank. He also has a card issued by his bank that looks like a credit card. When he shops at his local supermarket and department store, the retailer puts the card in a slot, and the appropriate amount of money is transferred from Hal's account to the store's account. Hal is making use of a(n):
A) funds exchange network. B) NOW card. C) debit card. D) automatic funds deposit card.

Answer 1

The first scenario describes a certificate of deposit (CD), as Herb has agreed to leave his funds in the account for a fixed period of time in exchange for a relatively attractive interest rate.

The second scenario describes a debit card, as Hal is using a card linked to his bank account to make purchases at a supermarket and a department store. The card deducts the appropriate amount of money from his account to pay for the purchases, rather than allowing him to borrow money on credit as a credit card would do.