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Where Your Money Is Protected From Loss. Backyard, Mattress, & Other Safe Money Places Safe Money Places Certificates of Deposit Fixed Annuities Money.

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Presentation on theme: "Where Your Money Is Protected From Loss. Backyard, Mattress, & Other Safe Money Places Safe Money Places Certificates of Deposit Fixed Annuities Money."— Presentation transcript:

1 Where Your Money Is Protected From Loss

2 Backyard, Mattress, & Other Safe Money Places Safe Money Places Certificates of Deposit Fixed Annuities Money Market Account Savings Account Savings Bond Important Information Definition: A safe money place as one where your principal is protected from loss as long as you follow the initial guidelines If you do decide to take your money and leave, you know pretty much what leaving early will cost.

3 How Safe Is Safe? Get The Facts Each Category Includes: Yield Section Tax Advantage Section Liquidity and Penalties Section Safety of Principal Section Important Information: We say a safe money place is a place where it is highly unlikely to lose principal. Please Note: In this presentation, liquidity means under normal circumstances.

4 Red, White, & Blue … Savings Bonds Each Category Includes: Series I Bonds Series EE Bonds Series HH Bonds Important Information: Savings Bonds are issued by the U.S. Treasury. The bonds earn interest monthly. The interest is compounded twice a year. Savings Bond interest is exempt from all state and local income taxes

5 Red, White, & Blue … Savings Bonds Yield New rates each May and November for Savings Bonds Series EE bonds issued on or after 1 May, 2005 lock-in and earn a fixed rate of interest Series I Bonds combine a minimum rate with an index-linked component Series EE Savings Bonds offer a minimum guaranteed return, ensuring principal will at least double after 20 years. Tax Advantages Tax Deferred until it is redeemed or until final maturity is reached in 30 years Liquidity and Penalties The money placed in savings bonds cannot be withdrawn for 1 year from all state and local income taxes If redeemed within 5 years after purchase, the penalty for early withdrawal is equal to the last three months of earned interest. Safety of Principal Do you have to ask?

6 Savings Accounts Savings account is a bank instrument where money is extremely liquid and FDIC insured. Money Market Accounts Protects principal, is very liquid, and earns interest. Yield – Yields are typically higher than those paid on bank savings accounts. – Lower than rates realized on certificates of deposit. Tax Advantages – None Liquidity and Penalties – Extremely liquid – You can write a certain number of checks a month Safety of Principal – Bank money market accounts are FDIC insured

7 Mom, Apple Pie, & CDs A Certificate of Deposit (CD) is a bank savings account with a specified maturity. Yield – Average Earned Interests 1% - 7% – Rates can swing violently up and down Tax Advantages – Interests are fully taxable Liquidity and Penalties – ECD penalties for early withdraw can vary from one month to one years worth of interest Safety of Principal – Certificate of Deposits are FDIC insured

8 Fixed Annuities … Fixed Rate or Linked Rate An annuity is a periodic income for a specified length of time, for life, or a combination of the two. Provide a means of accumulating interest with a tax advantage Provides an instrument that preserves and protects assets. Two Types: – Variable Annuities – Fixed Annuities

9 Fixed Annuities … Fixed Rate or Linked Rate Yield Fixed Annuities guarantee minimum value Guarantees potential interest Often higher rates than other Safe Money Places Stated Rated Many fixed rate annuities declare new interest rates each year Others lock-in a rate from 2-10 years Index Annuity Index-Link Interest Minimum Value

10 Fixed Annuities … Fixed Rate or Linked Rate Linked Rate The interest within the annuity grows tax-deferred. Interest received is linked to the performance of an external index. Principal and credited interest are protected from stock market risk Tax Advantage Money remaining inside an annuity grows without being taxed until withdrawn. Liquidity and Penalties Fixed annuities offer a wide variety of term choices Most Permit the withdrawal of at least the interest earned each year without penalty. Safety of Principal A fixed annuity is as safe as the insurance company issuing the annuity. – Insurance companies have an exceptional record of safety. Index Annuity Participates in Index Gains But Never Loses

11 Comparisons of Safe Money Places

12 Yield Passbook Savings Accounts will usually offer the worst yield. Money Market Accounts often have low yields because they are so liquid. Series EE Savings Bonds returns have a floor. Interest Rate is locked for the life of the bond. Series I Bonds have a fixed rate for the life of the bond. – It also combines an inflation-linked rate which is updated every 6- months Certificates of Deposit offer a variety of terms and ease of use. Fixed Annuities have different yields because they have different ways of crediting interest. – There is a guaranteed minimum interest rate. Tax Advantages Savings Bonds and Fixed Annuities offer tax deferral. – Doesnt mean tax free Liquidity and Penalties Money Market Accounts clearly win the liquidity Savings Bonds are typically liquid after the first year. Certificates of Deposit usually have a penalty of 6 months to a years worth of interest if cashed before maturity. Fixed Annuities have penalties for early surrender that vary. Cost of Liquidity Insurance companies are rated by their financial strength. Banks are backed by the FDIC or the Treasury.

13 Summary of Safe Money Places Quick Recap Savings Bonds and Fixed annuities offer tax deferral Money market accounts and savings accounts offer the highest liquidity. Fixed annuities and Series EE Savings Bonds offer minimum return. Think about your Financial Needs: When do you need your money back? Do you want to make more money with higher interest? Are you concerned with liquidity? Are you trying to save money for retirement or leave a legacy?


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