Unit 1: Saving and Investing
Annual Percentage Yield
(APY); the amount of interest you will earn in one year from a savings account
Credit Union Savings Accounts
As you learned earlier, credit unions are like banks, but they are created by a larger company or organization. They tend to offer higher interest on savings accounts.
Basic Savings Accounts
Basic savings accounts at banks offer the lowest interest rates, usually about 2 percent. They have few restrictions on access to your money, and usually they don't require minimum balances.
Compound interest is the interest that is divided into different accounts.
False
High-Yield Savings Accounts
High-yield savings accounts are like basic accounts, but they have more restrictions on how often withdrawals can be made and typically require a minimum balance. These accounts may offer 3 or 4 percent interest.
Money Market Accounts
Money market accounts are like high-yield accounts. They offer a higher rate of interest, but you must start with a large deposit and there are restrictions on how often you can withdraw money.
If you received a $100 savings bond yesterday, can you use the money from the savings bond to buy an item that costs $85 today?
No
Online Savings Accounts
Online savings accounts are much like basic bank accounts, but they offer higher interest rates because they operate online and don't have the overhead that standard banks have.
Treasury bills
T-bills; a savings product sold by the US Treasury department at a discount from their face value and range in terms from a few days to six months
Treasury notes
T-notes; a savings product that pays interest every six months and is issued in terms of two, three, five, and ten years
Treasury Inflation-Protected Securities
TIPS; a savings product that pays interest twice per year and provides protection against inflation
stock
a certificate representing a share of ownership in a company
mutual funds
a collection of money from a group of investors that is used to buy different investments, like stocks, bonds, and real estate, managed by professionals
rate of return
a percentage that shows how much gain or loss an investment makes
shareholder
a person who owns shares of a company's stock
retirement account
a plan for setting aside money to be spent after retirement
stock broker
a professional who buys and sells stocks and other investments for customers
IRA
a retirement account that lets you save and invest money tax-free until you withdraw it when you retire
529 plan
a saving plan for education designed to help set aside funds to pay for future college costs
Money market account
a savings account that offers a higher rate of interest when you make large deposits
Term
a set period of time
Club account
an account used to save money for a special reason, such as a holiday, a vacation, or college
U.S. Department of Treasury
an executive department of the United States government whose purpose is to manage the government's money
IDA
an individual development account or a matched savings accounts into which an organization, such as a foundation, corporation, or government, agrees to add money which matches the money you deposit
stock market
an organized way for people to buy and sell stocks and for corporations to raise money. The New York Stock Exchange and NASDAQ are the biggest in the United States.
net asset value
assets minus liabilities
CD
certificate of deposit; an account where you leave your money for a set period of time and are unable to make deposits or withdrawals during this time unless you pay penalties.
loading rate
determines sales and transactions fees
Variable interest rates
different interest rates paid for different size balances, with higher balances earning higher rates
load
fee that the fund charges when shares are purchased
Compound Interest
interst the bank gives on the interest that has been already earned
Mutual Fund
investment instrument in which you purchase a part of a collection of investments
portfolio
the collection of investments in the mutual fund
stock quote
the prices of a stock at a particular point during the day
trade
to buy or sell stock
investing
using money in order to try to make more money
The formula for the Rule of 72 is _______.
years to double equals 72 divided by the interest rate (Years to double = 72 / interest rate)
There are several steps to opening a savings account. Select all of these steps.
• Collect all the required information. • Go to the bank and sign the necessary bank forms. • Choose a director for the account. • Fill out a deposit slip and deposit at least the minimum amount of money.
Identify tips that help you save.
• If you receive cash as a gift, save at least part of it. • Pay your bills on time to avoid late fees and finance charges. • Use direct deposit or set up your account to automatically transfer money directly into savings. • Save any extra money you get as a raise or bonus from your employer. • When you get a tax refund, save it. • If your employer offers a retirement plan, join it. • Avoid debt.
Select all of the reasons an individual would save his money in a CD.
• high interest rates • safe • no fees
Select each of the tools and services available with a savings account.
• online statement • ATMs • online savings plan • transfer money to other accounts • direct deposit • automatic transfer
Rule of 72
a formula that helps you calculate how long it will take for your savings to double in value
403(b)
a retirement plan available to employees of nonprofit organizations, such as schools and hospitals
401(k)
a retirement plan that some private corporations offer their employees
Savings bond
a savings product or certificate issued by the U.S. government with values ranging from $50 to $10,000
share
a single unit or equal part
share
a single unit or equal part of stock
stock symbol
a unique set of letters assigned to a company for the stock market
no load
fund that does not have a fee
diversification
investing in a variety of investments in order to limit losses in the event of a sharp decline in a particular type of investment
share
percentage ownership in the mutual fund
P/E
price to earnings ratio; the latest closing price divided by the earnings per share
Use the Rule of 72 to solve. Manny has his money in a savings account earning 4.5% interest. How long will it take his money to double?
sixteen years
opportunity costs
the difference between a chosen investment and one that is passed up
liquidity
the ease with which an investment can be turned into cash without losing its value
Interest thresholds
the minimum balances before the bank begins paying interest
Principal
the original amount of money invested or deposited into a savings account
fund manager
the professional who decides where to invest money in a mutual fund
Return
the profit or gain from saving or investing money
Series EE savings bond
these are safe savings products that you can use toward your education or for gifts. EE bonds are purchased at half their face value, so the $100 bond costs only $50. EE Bonds must be held for at least one year before they can be cashed. However, it takes between ten to thirty years for the bond to reach its full value. For example, you pay $50 for a $100 bond, but you may wait twenty years for it to be worth $100.
Series I Savings Bonds
these bonds may be purchased at face value. In other words, a $50 bond will cost $50. These bonds earn two types of interest: normal interest, like interest you earn on a savings account, and interest based on inflation. The interest based on inflation accounts for the general increase in the prices people pay for goods and services. So, if the government calculates inflation to be 1 percent, the the Series I savings bond will also earn 1 percent. Series I bonds must be held for one year before they can be cashed.
Series HH Savings Bond
this is a U.S. Treasury savings product issued in multiples of $500 that pays interest every six months. So, to purchase an HH savings bond, you would need to pay at least $500. You can purchase HH bonds for $1,000, $1,500, $2,000, and so on. The security needs to be held for ten years to reach its full value.