Saving and Investing

How do interest-earning checking accounts work?

*Combines benefits of checking and savings. *Depositor earns interest on any unused money in his/her account.

The following factors reduce money earned and can even turn into a loss:

*Fees, charges, and Penalties - usually based on minimum balance requirements or transaction fees. * Balance Requirements - Some accounts require a certain balance before paying any interest * Balance Calculation Method - Most calculate daily. Some use average of all daily balances.

What are the features of a savings account?

- Are available at depository institutions - Some depository institutions require you to have a minimum balance. - The federal government mandates that savings accounts allow six electronic withdrawals each month.

Name 5 ways you can access funds in a checking account.

- Check - Automated Teller Machine (ATM) - Debit Card - Telephone - Internet

What are the benefits of owning a CD?

- No risk - Simple - No Fees , unless withdrawn early - Offers higher interest rates than savings accounts

What are the features of a CD?

- Offered by depository institutions - Funds are held for the designated time period, then CDs are simple with no risk and no fees. - Deposits in a CD can range from $100 to $ 250,000.

What are the Trade-Offs of owning a CD?

- Restricted access to your money. - Withdrawal penalty if cashed before expiration date. (Penalty might be higher than the interest earned)

What accumulates interest during the time you hold them?

- Savings Accounts - Individual Retirement Accounts - Money Market Deposit Accounts - CD

What are the Trade-Offs of having a Money Market Account?

- Usually requires a minimum balance of $1,000 to $250,000 - Limited number of checks can be written each month - Average yield (rate of return) higher than regular savings account.

Name the savings tools in order form Most liquid to Least liquid.

1. Checking Account 2. Savings Account 3. Money Market Deposit Account 4. Certificate of Deposit 5. Savings Bonds

What does it take to pay yourself first/save?

1. Commitment 2. Discipline 3. Delayed gratification

What are 3 ways to pay yourself first/save?

1. From each paycheck or allowance, deposit a set amount or percentage into your savings account before spending money on anything else. 2. At the end of the day, put all your change in a "savings" container. Once a month, deposit the money in a savings account. 3. Whenever you get unexpected money, put a portion of it into savings.

What are 3 reasons why you should save?

1. In case of an emergency. 2. To have the option of taking advantage of unforeseen opportunities. 3. To reach financial goals.

What are two other saving methods than Passbook Accounts-Simple Savings Accounts, and Interest-earning Checking Account?

1. Money-Market deposit accounts 2. Time deposits (certificate of deposits)

Name the savings tools in order form Highest interest to Lowest interest.

1. Savings Bonds 2. Certificate of Deposit 3. Money market Deposit Account 4. Savings Account 5. Checking Account

What is Retirement Plan?

A plan that helps individuals set aside money to be used after they retire.

What is the 401k plan?

A retirement savings plan funded by employee contributions and often matching contributions from the employer. - Contributions are taken from Pre-Tax salary and the funds grow Tax-Free until withdrawn.

What is Principle?

A sum of money owned as a debt or placed in a savings instrument, on which interest is calculated.

Individual Retirement Accounts (IRA) are?

Allows a person to save money for use in retirement, deferring taxes on the account's earning until the person begins to withdraw from the account. - Funds in an IRA may be invested in a broad variety of investment vehicles.

What is one thing you should remember about paying yourself first/saving?

Amount saved isn't as important as getting into the habit of saving.

How is interest expressed?

As a percentage rate over a period of time.

What is a CD?

Bank pays a fixed amount of interest for a fixed amount of money during a fixed amount of time.

What is Interest for borrowing and for Saving money?

Borrowing - The fee charged for using another's money or credit. Saving - refers to the amount you earn on the money you put to work by saving or investing.

How are Savings Bonds purchased?

Can be purchased for 50% of the face value.

Name the savings tool that is and interest earning savings tool allowing restricted access to the funds.

Certificate of Deposit

What does CD stand for?

Certificate of Deposit

Name the savings tool that is used to transfer funds deposited into the account to make a purchases.

Checking Account

What is a Money-Market Account?

Checking/Savings Account with minimum balance requirements with tiered interest rates

What is rule 72?

Helps ESTIMATE how long it will take for your money to double if it is earning compound interest. 72/Interest Rate = length of time

What are the benefits of having a Money-Market Account?

Immediate access to your money part of your money-that over and above the minimum balance

What is Compound Interest?

Interest is calculated on the principle amount and interest earned to that time.

What is the main factor in choosing a savings account?

Interest rate (Also called rate of return or annual yield)

How does a Money-Market Account work?

Interest rate paid built on a complex structure that varies with size of balance and current level of market interest rates. * You can access your money from ATM, a teller, or by writing up to three checks a month.

Stocks

Investments in which the investor has partial ownership of a company.

What is a Federal Insurance Corporation (FDIC)?

Is a federal government agency that insures member depository institutions against loss. Secures up to 250,000.

Income after retirement is usually____, so _____ rate is lower.

Lower, tax

In a retirement plan is the federal income tax immediately due on money put into a retirement account, or on the interest in makes?

No, The tax is paid when money is withdrawn

How does a passbook savings account work?

Originally named this because the depositor receives a booklet in which deposits, withdrawals, and interest are recorded.

What is another name for Retirement plan?

Pension Plan

What does the Truth Savings Act do?

Requires financial institutions to disclose the following information on savings account plans they offer: - Fees on deposit accounts - Interest Rate - Other terms and conditions

Name the savings tool that is used to hold money not spent on current consumption.

Savings Account

Name the savings/investment tool that is a discount bond purchased for 50% of the face value from the government.

Savings Bond

What are the two types of interest?

Simple and Compound

Why should you pay yourself first?

So that you can save money to reach financial goals.

What is Diversification?

Spreading investment funds through a variety of savings and investments to reduce risk.

What is Simple Interest?

The money your investment earns is based solely on the principle (your initial investment amount)

Dividend

The portion of corporate profits paid out to stockholders

Why are savings tools secure?

They are backed by government Insurance.

What is a Savings Tool?

They are secure and liquid accounts offered by depository institutions that assist in the management of a savings fund.

Why should you set savings goals?

They give direction for making plans and taking actions for future purchases and retirement.

Name and define the type of interest rate used for a Money Market Deposit Account.

Tiered Interest Rates - Means the amount of interest earned depends on the account balance.

Is there any penalties for retirement accounts?

Yes, penalty charges apply if money is withdrawn before retirement age, except under certain circumstances.

Are the funds in a savings account easily accessible?

Yes--withdraw in person, by ATM or on-line, may be limited number allowed/month

What is a Rate of Return?

Your annual income on an investment.

speculative Investment

considered a high-risk investment that might earn a large profit in a short time

Mutual Funds

investments that reduce risk to shareholders by investing in many different stocks