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Savings - PowerPoint PPT Presentation

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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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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
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.
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 There is penalty if withdrawn early.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
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