2. Purpose of Savings Account?
• To accumulate money for future use
• To plan for future needs and wants
3. Examples of Savings – For. . .
Those Rainy Day
Emergencies Engagement ring
The
What are your That Special
savings for?
Trip
Shopping Trips
Playing Santa Hunting Trips
or buying that
perfect gun
4. Savings Accounts
• Demand deposit account
• May have some restrictions
– On how quickly or easily the money can be
withdrawn
• Pay interest at a low rate
• Liquidity
– Easy access to money
5. Computing Interest
• Principal
– Sum of money set aside on which interest is paid
• Simple interest
– Interest is computed on the principal once in a
certain period
– Interest is not added to principal
– Simple interest = P R T
6. Computing Interest
• Compound Interest
– Interest earned is added to the principal
Beginning Ending
Year Rate Qrt 1 Qrt 2 Qrt 3 Qrt 4
Balance Balance
1 $100 .015 $1.50 $1.52 $1.55 $1.57 $106.14
2 $106.14 .015 $1.59 $1.62 $1.64 $1.66 $112.65
7. Computing Interest Review
• Simple Interest formula
• Interest = P R T
• Compound Interest
• Interest = P R
• Interest = (P + I) * R
• FV function
8. Saving Options
• CD
• Money Market accounts
• US Savings Bonds
• IRAs
9. CD
Certificate of Deposit
• Has nothing to do with music
• Time deposit rather than a demand deposit
• Money set aside for a fixed time
• Take out early – penalties
10. Money Market Accounts
• Pays the market rate of interest on money
deposited
• Minimum usually required ($1000 or $5000)
11. US Savings Bonds
• Discount bond issued by the federal
government
• You pay less than face value for bond
12. IRAs
Individual Retirement Arrangement
• Retirement savings
• Deposit money into account during working
ages
• Taxed when money is taken out
13. Meeting Financial Goals
• How long do you have to save?
• What interest rate can you earn?
• How much money do you want to save?
• Rule of 72
– Divide annual interest rate by 72
– Answer equals # of years to double investment
– Example: $50 invested at 6%
• $100 in 12 years (72/6 = 12)
