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# Savings accounts

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### Savings accounts

1. 1. Savings Accounts Chapter 5
2. 2. Purpose of Savings Account?• To accumulate money for future use• To plan for future needs and wants
3. 3. Examples of Savings – For. . .Those Rainy DayEmergencies Engagement ring The What are your That Special savings for? TripShopping Trips Playing Santa Hunting Trips or buying that perfect gun
4. 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 Savings Accounts• Demand deposit account• May have some restrictions – On how quickly or easily the money can be withdrawn• Pay interest at a low rate• Liquidity – Easy access to money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. 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. 6. Computing Interest• Compound Interest – Interest earned is added to the principal Beginning EndingYear Rate Qrt 1 Qrt 2 Qrt 3 Qrt 4 Balance Balance1 \$100 .015 \$1.50 \$1.52 \$1.55 \$1.57 \$106.142 \$106.14 .015 \$1.59 \$1.62 \$1.64 \$1.66 \$112.65
7. 7. Computing Interest Review• Simple Interest formula • Interest = P R T• Compound Interest • Interest = P R • Interest = (P + I) * R• FV function
8. 8. Saving Options• CD• Money Market accounts• US Savings Bonds• IRAs
9. 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. 10. Money Market Accounts• Pays the market rate of interest on money deposited• Minimum usually required (\$1000 or \$5000)
11. 11. US Savings Bonds• Discount bond issued by the federal government• You pay less than face value for bond
12. 12. IRAs Individual Retirement Arrangement• Retirement savings• Deposit money into account during working ages• Taxed when money is taken out
13. 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)
14. 14. SavingsIt will make a difference