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Savings

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Savings

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  1. Savings Chapter 8 – Consumer Education

  2. Benefits of Savings • Save for the Unexpected • Save for Opportunities • Save for Major Purchases • Save for Flexibility • Save to Achieve your Goals

  3. Savings Strategies • Pay yourself first – just like paying a bill • Save by the numbers – 10-15% of pay • Reward yourself – small that doesn’t cost much • Saving and self-control – you can decide not to buy what you want now in order to get something later that you value more • Automatic Savings • Payroll deductions • Checking Account Transfers

  4. Section 8.2

  5. Savings Institutions • Commercial Banks – serves individuals and businesses with a wide variety of accounts, loans and other financial services – largest • Savings Banks- owned by their depositors, depositors earn dividends – mainly in the northeast • Savings and Loans Associations- specialize in lending money to consumers to buy homes – relatively small • Credit Unions – offer membership to people who share a common bond – do not operate for a profit.

  6. Savings Accounts • accounts offered by any savings institution in which you can deposit money, earn interest and withdraw your money at any time.

  7. Section 8.3

  8. Other savings options • Certificates of Deposit – larger amounts and you specific amount of time. There is penalty if withdrawn early. Fixed income rate. • Money Market Accounts- interest rate changes over time. Minimum deposit – write checks

  9. Annual Percentage Yield • The Truth in Savings Act in 1993 requires banks to report the Annual Percentage Yield (APY). Banks are required to figure this rate in the same way. • APY is the actual interest rate an account pays per year.

  10. Government Bonds • Governments and businesses borrow money by selling bonds. Most bonds are issued for a specified time or term.

  11. Government Bonds • Treasury Securities – Sold in amounts of $5,000 or more, often have higher interest rates than CDs • Treasury Bills – less than a 1 year term • Treasury notes- 1 -10 year • Treasury bonds- 10 years or more

  12. Government Bonds • Savings Bonds – issued in amounts of $50 - $10,000 • Three Common Types • EE – pay half of its face value, adds interest every 6 months up to 30 years, must own for 6 months before cashing it in, pay taxes on interest when you cash it in • HH – buy with EE bonds for the full face value amount, interest sent to an account at a financial institution. • II – education bonds, tax on interest is forgiven if used for college tuition

  13. Section 8.4

  14. Simple and Compound Interest • The money you have on deposit in a savings account, CD, or other savings option is called the principal • Two types of interest • Simple – interest paid one time a year at the end of the year on the average balance in a savings account • Compound – interest paid on the principal and also on previously earned interest, assuming that the interest is left in the account. • Annually – interest added at the end of the year • Semiannually- twice a year • Daily (continuously) – interest is calculated and added to your principal each day