2Objectives Define key terms for banking Identify services offered by banksCalculate interest rates in savings accounts
3Key Terms Saving Investing Deposit Withdrawal Interest Interest rate Account balanceCompounding of interestFuture valuePresent valueDiscount factorRule of 72
4BanksWhat 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?
5How Banks Work What do banks do with my money? How does a bank make money?Lend it out to other peopleWhat is interest?
6Saving | Investing What does it mean to save money? Why do people save money?For future purposes or future emergenciesWhat does it mean to invest money?What is the difference between saving and investing?Short term vs. Long termSaving – putting away money for the short-term, rather than spending it todayInvesting – putting away money for it to grow over the long-term
7Savings AccountsOne 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?
8Characteristics of Savings Accounts A time deposit is setting aside money that cannot be withdrawn for a certain time.A savings account…is a time deposit in a bank or other financial institution.is a safe way to set aside money.usually pays interest.may have some restrictions on how quickly or easily the money can be withdrawn.
9Savings AccountsWhat are the benefits from putting your money in a savings account?Safety and minor savingsAny downsides?Bank could closeLose money from inflation
10Interest 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
11Calculating 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 moneyAt what interest rate will my money double in a set number of years? (y is number of years)72 𝑦 = Interest Rate neededr must be in number format. examples: write 6% as 6, 0.15 (with no %) is 15
12Rule of 72How long will it take for Bill’s savings account to double, if his account balance is $4200 and the interest rate is 8%?Approximately 9How long will it take for Mary’s account with an account balance of $230,000 to double at an interest rate of %?Approximately 85If Fred wants his account balance of $8.9 million to double in twenty years, what interest rate must he receive?Approximately 3.2
13Calculating Interest (Accurately) Simple interest means that interest is calculated after a set period of time.I = interestr = interest rateP = principal amountt = timeSIMPLE INTEREST𝐼=𝑃 ×𝑟 ×𝑡ex: 𝐼= $1,000 × 6% annual rate × 6 monthsHow would we write the formula?𝐼=$1000 ×0.06 ×0.5How much interest was earned?r and t must be in the same unit of measurement ex: interest per year and number of years
14Using “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?