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Savings Accounts Section 3.3

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What 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.

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Types of Accounts Savings Account – Pays interest, may be a minimum balance, unlimited access to money Money Market Account – Interest rate is higher, must have minimum amount in account, unlimited access to money Certificate of Deposit (CD) – Highest interest rate, do not have access to money until certificate matures (expires)

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Think 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 $250,000 During the Great Depression, this was not the case

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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

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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 %

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Write 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: 5.099% 5 % 5.6% 5.51% 5 ½ %

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Minimum Balance Fee Banks can charge you a fee if you fail to keep a minimum amount of money in your account Makes it important to keep an accurate check register

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Raouls 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

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Mae 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

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Class Work Page 135, numbers 2-6

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SIMPLE INTEREST

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What is interest? A sum paid or charged for the use of borrowing money.

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2 Types of Interest Simple Interest – Interest is calculated only on principal Compound Interest – Interest is calculated on principal and interest – Increases the total principal

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Simple Interest Formula I = P r t I = P = r = t =

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Using the simple interest formula 1)Write the formula 2)Substitute values for variables 3)Solve the equation for the unknown variable 4)Answer the question

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Converting time to years If given: Months: Weeks: Days: 9 months: 27 weeks: 245 days: Divide by 12 Divide by 52 Divide by yrs yrs yrs

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How much simple interest is earned on $4,000 in 3 ½ years at an interest rate of 5.2%. I = P r t I =Principalratetime$4, years I =$728 $728 was earned in interest 1) Write the formula 2) Substitute values for variables 3) Solve for the unknown variable 4) Answer the question

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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 t I = P = r = t =

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How much simple interest does $2,000 earn in 7 months at an interest rate of 5%?

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How much simple interest would $800 earn in 300 days in a non-leap year at an interest rate of 5.71%?

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SIMPLE INTEREST

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Simple Interest Formula I = P r t I = P = r = t = Interest earned Principal (money invested) Annual interest rate (decimal) Time (in years)

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I = P r t So far, we have been solving problems to find the interest earned Now want to use this formula to solve for principal, rate, and/or time Can also use magic triangle

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Magic Triangle I P rt To solve an equation for a specific variable, simply cover the letter with your hand. Find Principal: Find Rate:Find Time:

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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 formula I P rt Principal = = $10,000 $10,000 must be deposited to earn $1,000 in interest

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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 formula I P rt Principal = = $4, $4, must be deposited to earn $300 in interest

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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? I P rt Time = = 2.2 In 2.2 years, the balance will reach $1,000

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How long will it take $10,000 to double at 11% simple interest? How much do you need to earn in interest? I P rt Time = = 9 It will take approximately 9 years to double.

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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? I P rt Rate = = 0.04 She will need an interest rate of 4%.

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Marcos deposited $500 into a 2.5 year simple interest account. He wants to earn $200 interest. What interest rate must the account pay? I P rt Rate = = 0.16 He will need an account that pays 16%.

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How much simple interest is earned on $5,000 deposited in an account that earns 3% interest if it is left there for 5 years?

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How much money would need to be deposited to earn $350 in interest at 3% for 6 years?

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What interest rate would you need for $5,000 to grow to $5,750 in 4 years?

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How long will it take $5,000 to double in an account that pays 5.6% simple interest?

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