Savings Accounts Section 3.3

What is a savings account? An account in which the bank pays interest for the use of money deposited. Bank then uses that money to give loans. Charges a greater interest rate on that loan allowing the bank to pay you interest and still make money.

Types of Accounts Savings Account Money Market Account Pays interest, may be a minimum balance, unlimited access to money Money Market Account Interest rate is higher, must have minimum amount in account, unlimited access to money Certificate of Deposit (CD) Highest interest rate, do not have access to money until certificate matures (expires)

Think about it… Is there a risk in putting money into a savings account? The FDIC guarantees the safety of money in a bank up to $250,000 During the Great Depression, this was not the case

Grace just received a sum of $5,000 for her middle school graduation Grace just received a sum of $5,000 for her middle school graduation. She decides that she wants to put the money away for a period of 3 years so that she can put it towards a car. However, Grace is not sure what type of account she should put it in. What do you think? Savings, Money Market, CD, Checking

Grace is going to deposit $5,000 into a CD for a period of 2 years Grace is going to deposit $5,000 into a CD for a period of 2 years. She is comparing interest rates quoted by 3 local banks and 1 online bank. Write the interest rate in ascending order. First State Bank: 4 ¼ % E-Save Bank: 4 % Johnson Trust: 4.22% Land Bank: 4.3% 4.25% 4.375% 4.22% 4.3% Ascending Order: 4.22% 4 ¼ % 4.3% 4 %

Write the following five interest rates in descending order (greatest to least) 5.51 % 5 ½ % 5 % 5.099% 5.6% 5.5% 5.625% Descending Order: 5 % 5.6% 5.51% 5 ½ % 5.099%

Minimum Balance Fee Banks can charge you a fee if you fail to keep a minimum amount of money in your account Makes it important to keep an accurate check register

Raoul’s savings account must have at least $500, or he is charged a $4 fee. His balance was $716.23 when he withdrew $225. What is his new balance? Balance after withdrawal: 716.23 – 225 = $491.23 Since this is less than $500, he is charged an additional $4 = 491.23 – 4 = $487.23

Mae has $891 in her account. A $7 fee is charged each month the balance is below $750. She withdraws $315. If she makes no deposits or withdrawals for the next x months, express her balance algebraically. Balance after withdrawal: 891 – 315 = $576 Since this is less than $750, he is charged an additional $7 for every month. Total fee of 7x = 576 – 7x

Class Work Page 135, numbers 2-6

Simple Interest

What is interest? A sum paid or charged for the use of borrowing money.

2 Types of Interest Simple Interest Compound Interest Interest is calculated only on principal Compound Interest Interest is calculated on principal and interest Increases the total principal

Simple Interest Formula I = P r t I = P = r = t =

Using the simple interest formula Write the formula Substitute values for variables Solve the equation for the unknown variable Answer the question

Converting time to years If given: Months: Weeks: Days: 9 months: 27 weeks: 245 days: Divide by 12 0.75 yrs Divide by 52 0.519 yrs Divide by 365 0.671 yrs

2) Substitute values for variables How much simple interest is earned on $4,000 in 3 ½ years at an interest rate of 5.2%. 1) Write the formula I = P r t 2) Substitute values for variables I = $4,000 Principal 0.052 rate time 3.5 years 3) Solve for the unknown variable I = $728 4) Answer the question $728 was earned in interest

Mitchell deposits $1,200 in an account that pays 4. 5% simple interest Mitchell deposits $1,200 in an account that pays 4.5% simple interest. He keeps the money in the account for three years without any deposits or withdrawals. How much is in the account after three years? I = P r t I = P = r = t =

How much simple interest does $2,000 earn in 7 months at an interest rate of 5%?

How much simple interest would $800 earn in 300 days in a non-leap year at an interest rate of 5.71%?

Simple Interest

Simple Interest Formula I = P r t I = Interest earned P = Principal (money invested) Annual interest rate (decimal) r = Time (in years) t =

I = P r t So far, we have been solving problems to find the interest earned Now want to use this formula to solve for principal, rate, and/or time Can also use magic triangle

Magic Triangle To solve an equation for a specific variable, simply cover the letter with your hand. I Find Principal: Find Time: Find Rate: P r t

I P r t 1. Use the triangle to find the formula How much principal must be deposited to earn $1,000 simple interest in 2 years at a rate of 5%? 1. Use the triangle to find the formula Principal = I = $10,000 $10,000 must be deposited to earn $1,000 in interest P r t

I P r t Use the triangle to find the formula How much principal must be deposited in a 2-year simple interest account that pays 3 ¼ % interest to earn $300? Use the triangle to find the formula Principal = I = $4,615.38 $4,615.38 must be deposited to earn $300 in interest P r t

I P r t How much do you need to earn in interest? Derek has a bank account that pays 4.1% simple interest. The balance is $910. When will the account grow to $1,000? How much do you need to earn in interest? Time = I = 2.2 In 2.2 years, the balance will reach $1,000 P r t

I P r t How much do you need to earn in interest? How long will it take $10,000 to double at 11% simple interest? How much do you need to earn in interest? Time = I = 9 It will take approximately 9 years to double. P r t

I P r t What are we looking for? She will need an interest rate of 4%. Kerry invests $5,000 in a simple interest account for 5 years. What interest rate must the account pay so there is $6,000 at the end of 5 years? What are we looking for? Rate = I = 0.04 She will need an interest rate of 4%. P r t

I P r t He will need an account that pays 16%. Marcos deposited $500 into a 2.5 year simple interest account. He wants to earn $200 interest. What interest rate must the account pay? Rate = I = 0.16 He will need an account that pays 16%. P r t

How much simple interest is earned on $5,000 deposited in an account that earns 3% interest if it is left there for 5 years?

How much money would need to be deposited to earn $350 in interest at 3% for 6 years?

What interest rate would you need for $5,000 to grow to $5,750 in 4 years?

How long will it take $5,000 to double in an account that pays 5 How long will it take $5,000 to double in an account that pays 5.6% simple interest?