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Intro to Banking Unit 2. Lesson 1.

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**Objectives Define key terms for banking**

Identify services offered by banks Calculate interest rates in savings accounts

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**Key Terms Saving Investing Deposit Withdrawal Interest Interest rate**

Account balance Compounding of interest Future value Present value Discount factor Rule of 72

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Banks What is a bank? Bank - A financial institution that provides various products and services to its customers, including checking and savings accounts, loans and currency exchange. Why do people use banks?

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**How Banks Work What do banks do with my money?**

How does a bank make money? Lend it out to other people What is interest?

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**Saving | Investing What does it mean to save money?**

Why do people save money? For future purposes or future emergencies What does it mean to invest money? What is the difference between saving and investing? Short term vs. Long term Saving – putting away money for the short-term, rather than spending it today Investing – putting away money for it to grow over the long-term

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Savings Accounts One of the simplest ways to invest your money is with a savings account in a bank. What does it mean to deposit money in a bank? What does it meant to withdraw money, or make a withdrawal?

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**Characteristics of Savings Accounts**

A time deposit is setting aside money that cannot be withdrawn for a certain time. A savings account… is a time deposit in a bank or other financial institution. is a safe way to set aside money. usually pays interest. may have some restrictions on how quickly or easily the money can be withdrawn.

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Savings Accounts What are the benefits from putting your money in a savings account? Safety and minor savings Any downsides? Bank could close Lose money from inflation

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**Interest Payments What does the term “interest rate” mean?**

What does the term “account balance” mean? Look up an online bank, such as Ally, PNC, Bank of America, etc. What is the current interest rate for a savings account? RISK/TIME VS. REWARD – rate of return increases with amount of risk

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**Calculating Interest (Easily)**

Use the Rule of 72: How many years will it take to double my money? (r is interest rate) 72 𝑟 = Years to double any amount of money At what interest rate will my money double in a set number of years? (y is number of years) 72 𝑦 = Interest Rate needed r must be in number format. examples: write 6% as 6, 0.15 (with no %) is 15

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Rule of 72 How long will it take for Bill’s savings account to double, if his account balance is $4200 and the interest rate is 8%? Approximately 9 How long will it take for Mary’s account with an account balance of $230,000 to double at an interest rate of %? Approximately 85 If Fred wants his account balance of $8.9 million to double in twenty years, what interest rate must he receive? Approximately 3.2

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**Calculating Interest (Accurately)**

Simple interest means that interest is calculated after a set period of time. I = interest r = interest rate P = principal amount t = time SIMPLE INTEREST 𝐼=𝑃 ×𝑟 ×𝑡 ex: 𝐼= $1,000 × 6% annual rate × 6 months How would we write the formula? 𝐼=$1000 ×0.06 ×0.5 How much interest was earned? r and t must be in the same unit of measurement ex: interest per year and number of years

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**Using “Prt” Remember: 𝐼=𝑃 ×𝑟 ×𝑡**

How much interest will Bill’s savings account accrue in a year, if his account balance is $4200 and the interest rate is 8% per year? In one year, how much interest will Patty’s account with an account balance of $230,000 earn at an interest rate of 0.85% per month? If George wants his account balance of $8 million to reach $10 million in 2 years, what interest rate must he receive?

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