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Chapter 3, section 1

Chapter 3, section 1. Savings Accounts. I can…. Calculate simple interest on savings deposits. Calculate compound interest on savings deposits. Calculate interest using a compound interest table. So why open a savings account?. It keeps your money safe!

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Chapter 3, section 1

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  1. Chapter 3, section 1 Savings Accounts

  2. I can… • Calculate simple interest on savings deposits. • Calculate compound interest on savings deposits. • Calculate interest using a compound interest table.

  3. So why open a savings account? • It keeps your money safe! • You can earn more money putting it in the bank than you can putting it in your piggy bank! This money is called “interest.” • Interest is money paid to an individual or institution for the privilege of using their money.

  4. What happens when I deposit $ into a savings account? • When you deposit money or take money out (withdraw) of your savings you get a receipt. • A receipt is an official record of your “transaction.” • Banks use the money you put into your savings account to make loans to their customers.

  5. How often do banks pay me for money in my savings accounts? • It varies—some banks pay: • Semiannually (twice a year) • Quarterly (once every 4 months) • Monthly (every month) • Daily (every day)

  6. How exactly do they figure out what to pay you? • Most banks use “simple interest.” • Interest = Principal x Rate x Time or • I = PRT • Interest = how much money they are paying you. • Principal = how much money you have in the bank • Rate = the interest rate expressed as a decimal • Time = how long • Time is always expressed as YEARS! So if the time is only 3 months, 6 months, etc., you have to figure out the fraction of the year. • 3 months = 3/12 (total months in a year) or .25 years • Ex. 1, Check your understand A & B • P. 85, 7-10

  7. How else can interest be calculated other than “simple” ? • Banks can pay you “compound interest.” • Compound interest is when banks pay you interest on the money in your account (the principal) AND the money you earned from simple interestfor the next period. • This is called “compounding interest.”

  8. So what’s the total money in savings called? • The total money in your savings account at the end of the last interest period is called the “compound amount,” assuming that no deposits/withdrawals have been made. • The total interest earned, called the “compound interest” is difference between the original principal and the compound amount. Total interest earned= Original principal-compound amount

  9. Let’s practice! • P. 82, Example 2 • Check your understanding C & D

  10. How do you calculate compound interest over several pay periods? • There’s a table for that! (p.82) • The table shows the value of $1 dollar after it is compounded for various interest rates and periods. • To use the table • Find the interest rate per period and the total number of interest periods. • The number in the table that corresponds to the interest rate (column) and the number of periods (row) is the compound interest multiplier. • Use the multiplier to calculate interest. • If interest is compounded DAILY there is a separate chart for that! (p.83)

  11. Let’s Practice! • P. 83, example 3 • Check your understanding E & F • P. 84, example 4 • Check your understanding G & H • P. 85, 11-22

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