SAVING CHAPTER 8 SAVING Plan for Financial Security WHAT’S AHEAD 8.1 Why Save? 8.2 Savings...
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CHAPTER 8 SAVING SAVING Plan for Financial Security WHAT’S AHEAD 8.1 Why Save? 8.2 Savings Institutions and Accounts 8.3 Save with Safety 8.4 Simple and Compound Interest
Transcript of SAVING CHAPTER 8 SAVING Plan for Financial Security WHAT’S AHEAD 8.1 Why Save? 8.2 Savings...
CHAPTER 8
SAVINGSAVINGPlan for Financial SecurityWHAT’S AHEAD8.1 Why Save?8.2 Savings Institutions and Accounts8.3 Save with Safety8.4 Simple and Compound Interest
Slide 2
Chapter 8
LESSON 8.1
Why Save?GOALSGOALSExplain how you can benefit from saving
regularlyDescribe strategies you can use to meet
your saving goals
Slide 3
Chapter 8
Benefits of Saving Save for the unexpected
Car repairs, accidents, job lossCar repairs, accidents, job loss… Save for opportunities
Unexpected good dealsUnexpected good deals Save for major purchases
Car, house, college, home theater…Car, house, college, home theater… Save for flexibility
Change jobs, different life choices…Change jobs, different life choices… Save to achieve your goals
Slide 4
Chapter 8
Saving Strategies Pay yourself first
Treat saving as a required expenseTreat saving as a required expense Save by the numbers
Save a certain percentage of net incomeSave a certain percentage of net income Reward yourself
Non-monetary rewards for savingNon-monetary rewards for saving Saving and values
Understand opportunity costs in decisionsUnderstand opportunity costs in decisions Automatic saving
Payroll deductions, Checking account transfersPayroll deductions, Checking account transfers
Slide 5
Chapter 8LESSON 8.2Savings Institutions and Accounts
GOALSGOALSDescribe differences among types of savings
institutionsExplain how to select the savings account
that is right for you
Slide 6
Chapter 8
Savings Institutions Commercial banks
Variety of services; savings, checking loans, investments and Variety of services; savings, checking loans, investments and many other…many other…
Savings and loan associations Specialize in loans to consumers; very similar to commercial Specialize in loans to consumers; very similar to commercial
banksbanks Credit unions
Memberships for people who share a common bond; do not Memberships for people who share a common bond; do not operate for a profit; earn higher interest; lower interest on operate for a profit; earn higher interest; lower interest on loansloans
Slide 7
Chapter 8
Deposit Insurance Federal Deposit Insurance Corporation (FDIC)
Govt. insured accounts up to $250,000Govt. insured accounts up to $250,000 Saving Association Insurance Fund (SAIF)
Same for Savings/LoansSame for Savings/Loans National Credit Union Share Insurance Fund
(NCUSIF) Insurance for Credit UnionsInsurance for Credit Unions
Slide 8
Chapter 8
Savings Accounts
Interest rates Shop around for the best rate or APY (annual Shop around for the best rate or APY (annual
percentage yield)percentage yield)
Fees and restrictions ATM fees?, minimum amt., No. of withdraws, teller ATM fees?, minimum amt., No. of withdraws, teller
fees….fees….
Slide 9
Chapter 8
LESSON 8.3
Save with SafetyGOALSGOALSDescribe the benefits and trade-offs of
different saving optionsDiscuss government bonds and some
reasons for investing in them
Slide 10
Chapter 8
Savings Options Certificate of deposit (CDs)
Minimum depositMinimum deposit Higher interest rate earnedHigher interest rate earned Must leave in for a specified time periodMust leave in for a specified time period Penalty for early withdrawalPenalty for early withdrawal
Money market account Interest rate changes over timeInterest rate changes over time Usually higher interest than savings accts.Usually higher interest than savings accts. Minimum deposit Minimum deposit Flexibility: may withdraw without penaltyFlexibility: may withdraw without penalty Some offer check writingSome offer check writing
Slide 11
Chapter 8
Annual Percentage Yield (APY)
Truth in Savings Act 1993All banks must report APY to consumersActual interest rate an account pays per yearMakes comparison shopping of banks easier
Slide 12
Chapter 8
Government BondsA written promise to pay a debt
corporate, govt., municipal Treasury securities
Treasury billsTreasury bills (1 yr. or less term) Treasury notesTreasury notes (1-10 yr. term)
Savings bonds Series EE savings bonds
Interest rate varies; paid every 6 months; must own for at least 1 yr.; held up to 30 yrs; cash in at bank
Series HH savings bonds (no longer issued)Series HH savings bonds (no longer issued) I savings bonds (pay interest adjusted for inflation)I savings bonds (pay interest adjusted for inflation)
Govt. set rate every 6 months=inflation+fixed amnt.Govt. set rate every 6 months=inflation+fixed amnt.
Slide 13
Chapter 8
Why Buy Government BondsTax advantages
No state or local on govt. bond interestNo state or local on govt. bond interest
Federal tax when bond is cashed; no tax if bond is Federal tax when bond is cashed; no tax if bond is
used for higher educationused for higher education
Safe investment Federal govt. guarantees paymentFederal govt. guarantees payment
Slide 14
Chapter 8LESSON 8.4
Simple and Compound InterestGOALSGOALSDescribe how to calculate simple and
compound interestDiscuss the importance of compounding to a
successful savings plan
Slide 15
Chapter 8
Simple Interest
Simple interest is interest paid one time a is interest paid one time a
year at the end of the year on the year at the end of the year on the averageaverage
balancebalance in a savings account. in a savings account.
Slide 16
Chapter 8
Compound Interest Compound interest is interest paid on the
principal and on previously earned interest, assuming that the interest is left in the account.
Interest can be compounded in several ways. Annually – every year Semiannually – every six months Quarterly – every three months Monthly Daily
***The more often interest is compounded the The more often interest is compounded the more money you earnmore money you earn
Slide 17
Chapter 8
Compound Interest Table
Year 3% 6% 10%1 1.030 1.062 1.1052 1.062 1.127 1.2213 1.094 1.197 1.3504 1.127 1.271 1.4925 1.162 1.350 1.6496 1.197 1.433 1.8227 1.234 1.522 2.0148 1.271 1.616 2.2259 1.310 1.716 2.45910 1.350 1.822 2.718
Year 3% 6% 10%1 1.030 1.062 1.1052 1.062 1.127 1.2213 1.094 1.197 1.3504 1.127 1.271 1.4925 1.162 1.350 1.6496 1.197 1.433 1.8227 1.234 1.522 2.0148 1.271 1.616 2.2259 1.310 1.716 2.45910 1.350 1.822 2.718
Look at page 280
In class activity
Slide 18
Chapter 8
The Rule of 72 To find out how long it takes an investment to double,
divide 72 by the annual rate of return. Examples
10 percent annual rate of return72 ÷ 10 = 7.2 years
6 percent annual rate of return72 ÷ 6 = 12 years
3 percent annual rate of return72 ÷ 3 = 24 years
