Page 1 Financial Institutions and Investments
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Page 3 Banks v Credit Unions Commercial Banks For profit institution Owned by stockholders Earns money through charging interest FDIC insured Credit Unions Not for profit institution Owned by account holders Tend to offer better interest rates NCUA insured
Page 4 FDIC? NCUA? FDIC Federal Depositors Insurance Corporation Insures deposits for member banks in case of failure NCUA National Credit Union Administration Insures deposits for member credit unions in case of failure
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Page 7 What is an investment ? Money or property acquired for future income
Page 8 Investment Types Savings Accounts : Includes: Bank Savings: Account for saving money Certificates of Deposit (CDs): Savings account where money is locked in place until maturity date Individual Retirement Account: Retirement account that cannot be accessed until certain age Low risk investments so low returns on investment
Page 9 Investment Types Bonds: Loans to governments or corporations with a promise to pay back on certain date with interest Lower risk investments so lower returns
Page 10 Investment Types Mutual Funds: Mixed type of investment consisting of savings, bonds and stocks Multiple investors combine funds to create larger investment pool Medium risk investments so medium level returns
Page 11 Investment Types Stocks: Investment in a company that makes the investor part owner in the company No protection of investment or guarantee of return Highest risk investments so highest potential returns – can also be highest losses depending upon invested amount
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Page 13 Risk The probability that your investment will suffer losses
Page 14 Return A yield (income earned) on an investment Ex. People investing in the stock market hope that the value of the stock will increase
Page 15 Types of Returns Banks: Interest paid Bonds: Interest paid Stocks: increases in stock value or dividends (owner share of profits) Proceeds from sale of property or stock
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Page 17 Interest Simple Interest Interest is based on original loan or savings amount (principal) Formula: (PxR)T Ex: Mortgage loans where a borrower pays interest only on the amount borrowed.
Page 18 You give $100 to a bank They pay you 5% simple interest per year. After one year you will have $105. ((100*.05)*1) After two years you will have $110. Each year earns $5 in interest
Page 19 You deposit $1000 into a bank account paying 7% simple interest per year. You left the money in for 3 years. (1000 *.07)*3 = $210
Page 20 You deposit $12000 into a bank account paying 1.5% simple interest per month. You left the money in for 2 years. (12000*.015)*2 = $360
Page 21 Interest Compound Interest Interest is based on current amount owed or saved (principal and any previous interest earned) I.E. you earn interest on old interest (money grows faster this way!)
Page 22 Formula: Principal x {(Annual interest rate ÷ 100) + 1}^number of years. For example, $1,000 at an annual compound interest rate of 10 percent will, in 5 years, be: 1000 x {(10 ÷ 100) + 1}^5 = $1,