Consumer Ed, Chapter 12, Savings
Allows you to accumulate money for future purchase To earn income
2 Benefits of Saving
Automatic Transfers (Checking to Saving) Direct Deposit (Paycheck to Savings) Payroll Deductions (Paycheck to Employee Savings Plan)
3 Types of Automatic Savings
Series EE Series HH Series I
3 Types of Savings Bonds
Liquidity Earnings (APY) Taxes Restrictions Fees & Service Charges
5 Factors in Choosing Saving Options
Emergency Fund Recurring Expense Future Purchase Financial Goals Retirement
5 Reasons to have a Savings
Certificate of Deposit
A certificate issued by a bank to a person depositing money for a specified length of time.
Savings Accounts
A financial institution deposit account that pays interest and allows withdrawals.
Term
A period of time during which money must be kept on deposit.
Recurring Expense
A saving account you can access to pay for expected expenses such as real estate taxes and insurance premiums
Emergency Fund
A savings account you can access quickly to pay for unexpected expenses or emergencies; at least three to six months of living expense
Savings Plan
A step-by-step approach for putting money aside in savings.
Money Market Accounts
Accounts that offer higher interest rates than standard bank rates but with greater restrictions
Truth in Savings Act 1991
Act that helps consumers make comparisons by requiring financial institutions to tell them the APY
Investing
Committing money in the hope that it will make more money over time; not as liquid
Compound Interest
Interest calculated on both the principal and the accrued interest
0.25%
Interest on a saving account has a stated interest rate of 3%, the monthly interest rate is what?
.5%
Interest on a saving account has a stated interest rate of 6%, the monthly interest rate is what?
Higher interest rate over time earns most money so shop around
Long-term effects of Interest Rates
First year not a lot of money in made, but the more years the bigger the difference
Long-term effects on Compounding
"Time is Money"
Longer you leave money on deposit to earn interest, the more quickly that interest starts to add up.
Savings
Means setting aside present income for future use; liquidable
Savings Bonds
Nontransferable debt certificates issued by the U.S. Treasury.
Series EE
Savings Bond that is to hold an investment that increases in value.
Series I
Savings Bond that is to hold an investment that's protected against inflation
Series HH
Savings Bond that is to obtain current income in the form of interest payments
"Pay Yourself First"
Set aside money for saving first then spend what is left.
1. Decide what you're saving for (item) 2. Set a specific goal (set total amount) 3. Breaks your long-term goal in short-term goals (break total into small amounts each month) 4. Save regularly and consistently (don't touch) 5. Put your savings to work (earn interest) 6. Keep your saving goal in mind (pictures, charts)
Steps in Saving
18 years
Suppose you are making 4% APY on a deposit of $500, how long will it take you to double your amount?
9 years
Suppose you are making 8% APY on a deposit of $800, how long will it take you to double your amount?
2.5%
The APY for an account paying 2.5% simple interest is?
3.25%
The APY for an account paying 3.25% simple interest is?
Simple Interest
The amount of interest based on a principal amount and not on earned interest.
Rule of 72
The amount of time it takes for money to double in value (72 ÷ APY = Years)
Liquidity
The ease with which an asset can be converted into cash.
Money Market Fund
Type of mutual fund that uses investors' funds to make short-term loans to businesses and banks
Annual Percentage Yield (APY)
Yearly percent amount a person will earn on savings
Discretionary Income
money income left after necessities have been bought and paid for (clothing, shelter, food)
