Savings
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Savings. Chapter 8 – Consumer Education. Benefits of Savings. Save for the Unexpected Save for Opportunities Save for Major Purchases Save for Flexibility Save to Achieve your Goals. Savings Strategies. Pay yourself first – just like paying a bill Save by the numbers – 10-15% of pay

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Savings

Savings

Chapter 8 – Consumer Education


Benefits of savings

Benefits of Savings

  • Save for the Unexpected

  • Save for Opportunities

  • Save for Major Purchases

  • Save for Flexibility

  • Save to Achieve your Goals


Savings strategies

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


Section 8 2

Section 8.2


Savings institutions

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.


Savings accounts

Savings Accounts

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


Section 8 3

Section 8.3


Other savings options

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 There is penalty if withdrawn early.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


Annual percentage yield

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.


Government bonds

Government Bonds

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


Government bonds1

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


Government bonds2

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


Section 8 4

Section 8.4


Simple and compound interest

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


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