2What is a savings account? An account in which the bank pays interest for the use of money deposited.Bank then uses that money to give loans.Charges a greater interest rate on that loan allowing the bank to pay you interest and still make money.
3Types of Accounts Savings Account Money Market Account Pays interest, may be a minimum balance, unlimited access to moneyMoney Market AccountInterest rate is higher, must have minimum amount in account, unlimited access to moneyCertificate of Deposit (CD)Highest interest rate, do not have access to money until certificate matures (expires)
4Think about it…Is there a risk in putting money into a savings account?The FDIC guarantees the safety of money in a bank up to $250,000During the Great Depression, this was not the case
5Grace just received a sum of $5,000 for her middle school graduation Grace just received a sum of $5,000 for her middle school graduation. She decides that she wants to put the money away for a period of 3 years so that she can put it towards a car. However, Grace is not sure what type of account she should put it in. What do you think? Savings, Money Market, CD, Checking
6Grace is going to deposit $5,000 into a CD for a period of 2 years Grace is going to deposit $5,000 into a CD for a period of 2 years. She is comparing interest rates quoted by 3 local banks and 1 online bank. Write the interest rate in ascending order. First State Bank: 4 ¼ % E-Save Bank: 4 % Johnson Trust: 4.22% Land Bank: 4.3%4.25%4.375%4.22%4.3%Ascending Order:4.22%4 ¼ %4.3%4 %
7Write the following five interest rates in descending order (greatest to least) 5.51 % 5 ½ % 5 % 5.099% 5.6%5.5%5.625%Descending Order:5 %5.6%5.51%5 ½ %5.099%
8Minimum Balance FeeBanks can charge you a fee if you fail to keep a minimum amount of money in your accountMakes it important to keep an accurate check register
9Raoul’s savings account must have at least $500, or he is charged a $4 fee. His balance was $ when he withdrew $225. What is his new balance? Balance after withdrawal: – 225 = $ Since this is less than $500, he is charged an additional $4 = – 4 = $487.23
10Mae has $891 in her account. A $7 fee is charged each month the balance is below $750. She withdraws $315. If she makes no deposits or withdrawals for the next x months, express her balance algebraically. Balance after withdrawal: 891 – 315 = $576 Since this is less than $750, he is charged an additional $7 for every month. Total fee of 7x = 576 – 7x
16Using the simple interest formula Write the formulaSubstitute values for variablesSolve the equation for the unknown variableAnswer the question
17Converting time to years If given:Months:Weeks:Days:9 months:27 weeks:245 days:Divide by 120.75 yrsDivide by 520.519 yrsDivide by 3650.671 yrs
182) Substitute values for variables How much simple interest is earned on $4,000 in3 ½ years at an interest rate of 5.2%.1) Write the formulaI = P r t2) Substitute values for variablesI =$4,000Principal0.052ratetime3.5 years3) Solve for the unknown variableI =$7284) Answer the question$728 was earned in interest
19Mitchell deposits $1,200 in an account that pays 4. 5% simple interest Mitchell deposits $1,200 in an account that pays 4.5% simple interest. He keeps the money in the account for three years without any deposits or withdrawals. How much is in the account after three years?I = P r tI =P =r =t =
20How much simple interest does $2,000 earn in 7 months at an interest rate of 5%?
21How much simple interest would $800 earn in 300 days in a non-leap year at an interest rate of 5.71%?
23Simple Interest Formula I = P r tI =Interest earnedP =Principal (money invested)Annual interest rate (decimal)r =Time (in years)t =
24I = P r tSo far, we have been solving problems to find the interest earnedNow want to use this formula to solve for principal, rate, and/or timeCan also use magic triangle
25Magic TriangleTo solve an equation for a specific variable, simply cover the letter with your hand.IFind Principal:Find Time:Find Rate:Prt
26I P r t 1. Use the triangle to find the formula How much principal must be deposited to earn $1,000 simple interest in 2 years at a rate of 5%?1. Use the triangle to find the formulaPrincipal =I= $10,000$10,000 must be deposited to earn $1,000 in interestPrt
27I P r t Use the triangle to find the formula How much principal must be deposited in a 2-year simple interest account that pays 3 ¼ % interest to earn $300?Use the triangle to find the formulaPrincipal =I= $4,615.38$4, must be deposited to earn $300 in interestPrt
28I P r t How much do you need to earn in interest? Derek has a bank account that pays 4.1% simple interest. The balance is $910. When will the account grow to $1,000?How much do you need to earn in interest?Time =I= 2.2In 2.2 years, the balance will reach $1,000Prt
29I P r t How much do you need to earn in interest? How long will it take $10,000 to double at 11% simple interest?How much do you need to earn in interest?Time =I= 9It will take approximately 9 years to double.Prt
30I P r t What are we looking for? She will need an interest rate of 4%. Kerry invests $5,000 in a simple interest account for 5 years. What interest rate must the account pay so there is $6,000 at the end of 5 years?What are we looking for?Rate =I= 0.04She will need an interest rate of 4%.Prt
31I P r t He will need an account that pays 16%. Marcos deposited $500 into a 2.5 year simple interest account. He wants to earn $200 interest. What interest rate must the account pay?Rate =I= 0.16He will need an account that pays 16%.Prt
32How much simple interest is earned on $5,000 deposited in an account that earns 3% interest if it is left there for 5 years?
33How much money would need to be deposited to earn $350 in interest at 3% for 6 years?
34What interest rate would you need for $5,000 to grow to $5,750 in 4 years?
35How long will it take $5,000 to double in an account that pays 5 How long will it take $5,000 to double in an account that pays 5.6% simple interest?