Financial Safety
Your Emergency Fund
$500
$1000
An Emergency Fund is money set aside to cover expenses that are Necessary, Unexpected, and Urgent. It is your first line of defense to prevent you from taking on high-interest debt when life surprises you.
3 months living expenses
6 months living expenses
Necessary? Unexpected? Urgent?
High
Fees
Fees
Liquidity
Fees
Low
The Bank's Mechanism
Annual Percentage Yield (APY)
They "Why" of APY
APY is the siple, single number that tells you how much money you earn on your deposit accounts (particular savings or CD) over one year. Unlike a basic interest rate, APY includes the effect of compounding (earning interest on interest), making it the most accurate rate to compare accounts. If you see an account with a higher APY, your money will grow faster.
Banks are able to pay you interest because your deposits are the Bank's Inventory.
- When you deposit money, the bank pools it with other customer's money.
- The bank then loans this money to others (car loans, mortgages) and invests it.
- The bank earns a large amount of interest and fees from loans, and earns from the growth of investments.
- The bank then gives you a small percentage of those earninggs back as interest on your account, incentivising you to keep your money deposited with them.
Certificate of Deposit (CD)
CDs are a safe place to put money you won't need for a set amount of time. In exchange for you giving up immediate access (liquidity), the bank guarantees you a higher interest rate.
Key Features of a CD
- Higher Interest: CDs typicially offer the highest interest rates among typical savings accounts.
- Fixed-Rate Guarantee: Your interested rate is locked-in for the entire duration of the term and will not change, regardless of what happens to the market.
- Maturity Date: The money is kept in the account until the CD "matures" (when the fixed term is over)
- Simple Management: Unlike other accounts, you generally do not make deposits or withdrawals during the term.
Money Rules (How it Works)
Initial Deposit: CDs require a minimum deposit to open the account, but they do not require a minimum daily balance like many savings accounts do. The Catch (Early Withdrawal): You can close the CD early and withdraw the funds if necessary, but you will be charged an early withdrawal penalty. This fee can often wipe out all the interest you earned.
Financial Safety
Megan Burgoyne
Created on October 20, 2025
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Transcript
Financial Safety
Your Emergency Fund
$500
$1000
An Emergency Fund is money set aside to cover expenses that are Necessary, Unexpected, and Urgent. It is your first line of defense to prevent you from taking on high-interest debt when life surprises you.
3 months living expenses
6 months living expenses
Necessary? Unexpected? Urgent?
High
Fees
Fees
Liquidity
Fees
Low
The Bank's Mechanism
Annual Percentage Yield (APY)
They "Why" of APY
APY is the siple, single number that tells you how much money you earn on your deposit accounts (particular savings or CD) over one year. Unlike a basic interest rate, APY includes the effect of compounding (earning interest on interest), making it the most accurate rate to compare accounts. If you see an account with a higher APY, your money will grow faster.
Banks are able to pay you interest because your deposits are the Bank's Inventory.
Certificate of Deposit (CD)
CDs are a safe place to put money you won't need for a set amount of time. In exchange for you giving up immediate access (liquidity), the bank guarantees you a higher interest rate.
Key Features of a CD
Money Rules (How it Works)
Initial Deposit: CDs require a minimum deposit to open the account, but they do not require a minimum daily balance like many savings accounts do. The Catch (Early Withdrawal): You can close the CD early and withdraw the funds if necessary, but you will be charged an early withdrawal penalty. This fee can often wipe out all the interest you earned.