1. CHAPTER 8 SAVING Plan for Financial Security
Economic Educatin for Consumers
10/24/11
CHAPTER 8 SAVING Plan for Financial Security
WHAT’S AHEAD
8.1 Why Save?
8.2 Savings Institutions and Accounts
8.3 Save with Safety
8.4 Simple and Compound Interest
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2. Economic Educatin for Consumers
Chapter 8
10/24/11
LESSON Why Save?
GOALS
Explain how you can benefit from saving regularly
Describe strategies you can use to meet your saving goals
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3. Economic Educatin for Consumers
Chapter 8
10/24/11
Benefits of Saving
Save for the unexpected
Car repairs, accidents, job loss…
Save for opportunities
Unexpected good deals
Save for major purchases
Car, house, college, home theater…
Save for flexibility
Change jobs, different life choices…
Save to achieve your goals
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4. Economic Educatin for Consumers
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10/24/11
Saving Strategies
Pay yourself first
Treat saving as a required expense
Save by the numbers
Save a certain percentage of net income
Reward yourself
Non-monetary rewards for saving
Saving and values
Understand opportunity costs in decisions
Automatic saving
Payroll deductions, Checking account transfers
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5. LESSON 8.2 Savings Institutions and Accounts
Economic Educatin for Consumers
Chapter 8
10/24/11
LESSON Savings Institutions and Accounts
GOALS
Describe differences among types of savings institutions
Explain how to select the savings account that is right for you
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6. Economic Educatin for Consumers
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10/24/11
Savings Institutions
Commercial banks
Variety of services; savings, checking loans, investments and many other…
Savings and loan associations
Specialize in loans to consumers; very similar to commercial banks
Credit unions
Memberships for people who share a common bond; do not operate for a profit; earn higher interest; lower interest on loans
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7. Economic Educatin for Consumers
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10/24/11
Deposit Insurance
Federal Deposit Insurance Corporation (FDIC)
Govt. insured accounts up to $250,000
Saving Association Insurance Fund (SAIF)
Same for Savings/Loans
National Credit Union Share Insurance Fund (NCUSIF)
Insurance for Credit Unions
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8. Economic Educatin for Consumers
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10/24/11
Savings Accounts
Interest rates
Shop around for the best rate or APY (annual percentage yield)
Fees and restrictions
ATM fees?, minimum amt., No. of withdraws, teller fees….
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9. LESSON 8.3 Save with Safety
Economic Educatin for Consumers
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10/24/11
LESSON Save with Safety
GOALS
Describe the benefits and trade-offs of different saving options
Discuss government bonds and some reasons for investing in them
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10. Economic Educatin for Consumers
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10/24/11
Savings Options
Certificate of deposit (CDs)
Minimum deposit
Higher interest rate earned
Must leave in for a specified time period
Penalty for early withdrawal
Money market account
Interest rate changes over time
Usually higher interest than savings accts.
Flexibility: may withdraw without penalty
Some offer check writing
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11. Annual Percentage Yield (APY)
Economic Educatin for Consumers
Chapter 8
10/24/11
Annual Percentage Yield (APY)
Truth in Savings Act 1993
All banks must report APY to consumers
Actual interest rate an account pays per year
Makes comparison shopping of banks easier
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12. Economic Educatin for Consumers
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10/24/11
Government Bonds A written promise to pay a debt corporate, govt., municipal
Treasury securities
Treasury bills (1 yr. or less term)
Treasury notes (1-10 yr. term)
Savings bonds
Series EE savings bonds
Interest rate varies; paid every 6 months; must own for at least 1 yr.; held up to 30 yrs; cash in at bank
Series HH savings bonds (no longer issued)
I savings bonds (pay interest adjusted for inflation)
Govt. set rate every 6 months=inflation+fixed amnt.
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13. Why Buy Government Bonds
Economic Educatin for Consumers
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10/24/11
Why Buy Government Bonds
Tax advantages
No state or local on govt. bond interest
Federal tax when bond is cashed; no tax if bond is used for higher education
Safe investment
Federal govt. guarantees payment
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14. LESSON 8.4 Simple and Compound Interest
Economic Educatin for Consumers
Chapter 8
10/24/11
LESSON Simple and Compound Interest
GOALS
Describe how to calculate simple and compound interest
Discuss the importance of compounding to a successful savings plan
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15. Economic Educatin for Consumers
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10/24/11
Simple Interest
Simple interest is interest paid one time a year at the end of the year on the average balance in a savings account.
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16. Economic Educatin for Consumers
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Compound Interest
10/24/11
Compound interest is interest paid on the principal and on previously earned interest, assuming that the interest is left in the account.
Interest can be compounded in several ways.
Annually – every year
Semiannually – every six months
Quarterly – every three months
Monthly
Daily
***The more often interest is compounded the more money you earn
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17. Compound Interest Table
Economic Educatin for Consumers
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10/24/11
Compound Interest Table
Year 3% 6% 10%
Look at page 280
In class activity
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18. Economic Educatin for Consumers
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10/24/11
The Rule of 72
To find out how long it takes an investment to double, divide 72 by the annual rate of return.
Examples
10 percent annual rate of return
72 ÷ 10 = 7.2 years
6 percent annual rate of return
72 ÷ 6 = 12 years
3 percent annual rate of return
72 ÷ 3 = 24 years
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