Business 30

savings facts

-not all savings earn income -to earn income on savings, you must store it in a place with interest such as a bank or savings loan association. -if you put money into a bank's saving account, you are actually lending the bank your money. -fault of interest the bank receives is used to pay interest to you -saving is important to the economy because it generates loan money for people and businesses.

low rates of return

-since there is very little risk with a savings account, there is usually a low return. -the lower the risk, the lower the rate of return. -The higher the risk, the higher of value.

the cost of savings accounts

-some accounts charge a penalty for early withdrawal or if the account balance falls below a certain minimum. -other accounts charge a fee for each deposit and withdrawal. -the money you earn in interest is also considered income so you have to pay tax on it.

savings extra

-some personal finance experts suggest that people should try to save about 10% of their take home income. -all savings involve some sacrifice (opportunity cost)

Money Market Deposit accounts

a form of money market fund offered by banks, savings, and loans, and credit unions. -same characteristics and requirements of a money market fund. -one difference the Fed generally, insures the money.

Money market Funds

a kind of mutual fund or pool of money put into a variety of short term debt (loans of less than one year) by business and government. -In a way, you are landing your money to a business or the government to invest. -the interest rate varies from month to month. -withdraw your money at any time. -write checks on the account limited -requires high balances.

regular savings account

allow consumers to deposit or withdraw money at any time and to earn interest on the funds.

money market funds

are not federally insured; but brokerage firms have insurance on their accounts.

choosing a savings account

banks, savings and loans, savings banks, credit unions, and brokerage firms offer several types of savings accounts.

Brokerage Firms

buy + sell stock and bonds, offer money market funds.

common reasons

common reasons people save are to: -buy a home -pay college education others include: purchasing of less expensive items like: a good sound system, a car -you may experience financial emergencies in your lifetime. -mist u.s. workers receive social security income when they retire. -for most people,however, social security and retirement plans don't provide enough $ to retire comfortably they must rely on savings.

The interest rate

is higher than on a regular savings account. -but the rate does not change over the duration of the CD term. -cash CD before maturity date lose interest and have a pay penalty.

3 reasons

people maintain a savings plan for 3 reasons. -to make major purchases -to provide for emergencies -to have income for retirement

certificate of deposit

require to deposit a specific amount of money in an account for a set period of time. -length of time be 3 months, 1 year, 5 years.

savings

the $ you save

liquidity

the ability to quickly turn an investment intg. cash savings accounts have high liquidity because cash can easily be withdrawn.

simple interest

the interest earned only on money deposited into a savings accounts,called the principle. -when principle and interest are left in an account it earns the interest earned on both the principle and any interest earned on the principle. -compounding may happen annually,quarterly,monthly or daily.

rate of return

the percentage of increase in the value if your savings from earned interest.

inflation risk

the risk that the rate of inflation will increase more than the rate of interest on savings. -interest rates on most savings accounts fluctuate with inflation.

maturity date

which is when the money becomes available to you.

more functions

-banks, savings, loans, sayings bank, and credit unions offer them. -generally a low minimum deposit like $100 is required to open a regular savings account. -the interest rate varies from one financial institution to another. -rate also change over time. -withdraw money without any penalty -interest rate usually low. -banks charge if it falls below minimal amount.

Insurance against loss

-banks,savings, and loans, and credit unions are all insured. -the federal Deposit Insurance corporation insures bank accounts. -even if a bank fails, the FDIC will replace depositors accounts up to $100,000.