Banking, Saving and Investing Using Money to Make Money

Banking Bank Accounts: Checking Accounts Savings Account Money Market Account Certificate of Deposit Checking accounts hold money that you will need to spend soon (on bills, at stores, etc). The others hold money that you expect to keep for a while.

Savings Savings accounts pay interest. Most checking accounts do not (or they pay very little). Savings accounts are used for emergency funds, and to save for specific goals (like a new car, a down payment on a house, etc.)

Savings Savings and checking accounts at banks and other financial institutions are usually insured by the federal government (the Federal Deposit Insurance Corporation).

Investing Investments involve buying something with an expectation of a gain, usually over a long period of time. There are many, many kinds of investments. They include “real” things like land, buildings, and precious metals. They also include financial investments like stocks and bonds.

Investments

Investing Stock represents a share of ownership in a company, like Apple or Costco. Some stocks pay dividends, which are cash payments made to stockholders (usually 4 times per year.) Stocks can go up or down in value. Investments in stocks are not guaranteed.

Investing Bonds are used by companies to borrow money. Usually, a bond pays interest on a regular schedule. Bonds do not represent an ownership stake in the company that issues them. Bonds are not guaranteed.

Investing Many people invest by buying shares of a mutual fund. A mutual fund uses money from many investors to make large investments in stocks and bonds. Each share of the mutual fund represents a tiny share in each of the stocks and bonds that the mutual fund holds. Mutual fund investments are not guaranteed.

Investing Risk is the chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Mutual funds are less risky than individual stocks, because they offer diversification.

Stocks vs. Mutual Funds Single Stock Mutual Fund One company   No diversification means higher risk Each investor is on his/her own Publicly traded companies   Earn dividends when companies make profit Traded in shares Many companies   Diversification can lower risk Investors pool their money Can include bonds

Investing The stocks of the biggest companies in America have gone up about 8% per year on average. Some years they have gone up more, and some years they have gone down. But the overall average is about 8%. An investment that returns 8% per year will double in value every 9 years.

Investing Compare: Jack and Jill are both 22 years old, and they start work at the same company on the same day. Jill invests $100 per month in a mutual fund, but Jack decides to wait.

Investing After 10 years, Jill has put $12,000 of her money into her account. She decides to stop investing money each month, but keeps the money invested so it will continue to grow.

Investing Jack decides to start investing the same day Jill decides to stop. He invests $100 per month, every month, until he and Jill both retire at age 65.

Investing- Jack and Jill by year

Who has more money on the day that Jack and Jill both retire? Investing Who has more money on the day that Jack and Jill both retire?

Investing Jill $228,000 Jack $182,000

Investing The Lesson: There Is No Substitute for Time. Jill invested $12,000 from her salary, and Jack invested $39,600 from his. Jill ended up with more money, because her investment had more years to grow. The Lesson: There Is No Substitute for Time.

Investing How much to invest each month to become a millionaire in: 40 years - $286.45 30 years - $670.98 20 years - $1697.73 10 years - $5466.09