Future Business Leaders of America (FBLA) Personal Finance Practice Test

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What is the principal in the context of a savings account?

  1. The fees charged for maintaining the account

  2. The amount of money you deposit

  3. The interest earned on the account

  4. The monthly withdrawal limit

The correct answer is: The amount of money you deposit

In the context of a savings account, the principal refers to the initial amount of money that you deposit into the account. This is the base amount on which interest is calculated. Understanding the principal is crucial because it directly impacts the growth of your savings through interest accumulation. When you deposit money into a savings account, you are increasing the principal, and as the bank pays you interest, it is calculated as a percentage of this principal amount. The larger the principal, the more interest you can earn over time, which is fundamental in building savings and managing personal finances effectively.

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