Savings Accounts Chapter 30

Today’s Schedule Yesterday’s Quiz Review Homework Collection No Homework – Enjoy your break Chapter 30 Quiz

Yesterday’s Quiz Putting off spending money now to get something later is known as Opportunity Cost What are the three major reasons to save that were discussed in the chapter? Major Purchases Emergencies Retirement There are two types of interest. Name one. Simple Compound Extra Credit – In what town is La Salle Manor located? Plano

Pass Up Homework Group Project

Types of Savings Accounts Traditional CD Certificate of Deposit Money Market Fund Money Market Deposit Account

Traditional Savings Account Offered by banks, savings & loans, savings banks, & credit unions Usually associated with a minimum deposit to open Interest rates vary – Usually low Two types: Passbook savings account – all deposits & withdrawals recorded in a book kept by depositor Statement savings account – all activity is sent to the person who has the account

Certificate of Deposit (CD) Requires a minimum deposit for a minimum amount of time Minimum is usually $500 Length of time could be 30 days, 6 months, 1 year, 5 years Maturity Date – Date when money becomes available Interest Rate higher than regular savings Cannot cash in before maturity – lose interest and pay a penalty

Money Market Fund Mutual Fund (pool of money) Put into a variety of short-term debt (less than 1 year) by businesses and government Loaning money to a business or government to invest Interest Rates are variable Can get money any time Usually need at least $1,000 Can only write a certain amount of checks

Money Market Deposit Account Banks, Savings & Loans, Credit Unions Very similar to a Money Market Fund Major difference – Government guarantees money in Market Deposit Account

Advantages & Disadvantages Main advantage – Earning interest Others Insurance against loss Liquidity Inflation risk Costs of savings accounts

Insurance Against Loss Banks, Savings & Loans, Credit Unions have insurance Federal Deposit Insurance Corporation (FDIC) Government Agency that insures bank accounts If a bank fails, the FDIC will replace up to $100,000 Money Market Firms – not insured Some Have insurance Reward is generally greater Like gambling

Liquidity Ability to quickly turn an investment into cash Cars & Business Liquid or not? Savings Account Liquid or not? CD Liquid or not?

Inflation Risk Inflation – general increase in the cost of goods & services Inflation Risk – Risk that the rate of inflation will increase more than the rate of interest on savings Traditional savings usually reflect accordingly Main risk is with CDs of a year or more Time Value of Money

Cost of Savings Accounts Some charge a penalty fee for early withdrawal or account balance below minimum Some charge for each deposit or withdrawal Money earned in interest is income Income is Taxable

Quiz Name two of the four types of savings account discussed in this chapter (4 points) What does FDIC stand for? (3 points) _____ is the risk that the rate of inflation will increase more than the rate of interest on savings (3 points) Extra Credit – How much does the handbook cost? (1 point)

Group Work Next Assignment Event Management (5 points) Project how many will be registered at particular points leading up to the event date Offer contingency (back-up) plans for all areas where something can go wrong Recruit and manage event volunteers Due 12/1/06