Savings accounts allow individuals to accumulate money for future needs and wants. They provide easy access to funds while earning interest, though usually at a low rate. Interest can be simple or compound, with compound interest adding earned interest to the principal balance over time. Other savings options include CDs, money market accounts, US savings bonds, and IRAs, each with different features regarding access, penalties, and tax treatment. Proper financial planning is needed to meet savings goals based on timeframe, interest rates, target amounts, and calculating growth.

1. Savings Accounts
Chapter 5

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withdrawn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)

14. Savings
It will make a difference