Chapter 6 Why Save?

 Saving benefits the economy as a whole. You save bank lends person can now invest or spend. You earn interest bank earns interest.  Saving benefits the economy as a whole. You save bank lends person can now invest or spend. You earn interest bank earns interest.

Steps to Saving:  Reason why to save  Amount of money to save  What type of account (where to put money)  Frequency of deposits/withdrawls  When to invest v. save  Reason why to save  Amount of money to save  What type of account (where to put money)  Frequency of deposits/withdrawls  When to invest v. save

Where to Save? TypeMinimum Deposit? Rate of Interest Availability of funds SavingsLOW Money Market $1,000- 2,500 IMMEDIATE Time Deposit (CD) HIGH Depends on maturity; penalty for early withdrawal

Security  Your funds are insured by the FDIC = Federal Deposit Insurance Corporation  Up to $250,000  What happens to your money if bank goes under and you have over $250,000 in that bank?  Your funds are insured by the FDIC = Federal Deposit Insurance Corporation  Up to $250,000  What happens to your money if bank goes under and you have over $250,000 in that bank?

Investing  Stocks and bonds offer investors greater returns, but with more risks.  Corporations are formed by selling shares of stocks (obtain funds for use in expanding business).  The person buying the stock (stockholder) becomes part owner of the corporation.  Stocks and bonds offer investors greater returns, but with more risks.  Corporations are formed by selling shares of stocks (obtain funds for use in expanding business).  The person buying the stock (stockholder) becomes part owner of the corporation.

Why Invest?  Stockholders benefit in two ways: 1.) Dividends- the return a holder receives on the amount invested. Paid anytime during year, only when company makes a profit. 2.) Selling stock for more than they paid for it. Buy $20 share, sell $30 share=capital gain Buy $20 share, sell $10 share=capital loss  Stockholders benefit in two ways: 1.) Dividends- the return a holder receives on the amount invested. Paid anytime during year, only when company makes a profit. 2.) Selling stock for more than they paid for it. Buy $20 share, sell $30 share=capital gain Buy $20 share, sell $10 share=capital loss

Bonds  Certificate issued by a company in exchange for borrowed funds.  Company pays back amount borrowed + stated interest after bond matures.  Bond buyer/investor is not part owner and has no voice in the company  Certificate issued by a company in exchange for borrowed funds.  Company pays back amount borrowed + stated interest after bond matures.  Bond buyer/investor is not part owner and has no voice in the company

Stock Markets  Stock Exchanges: NYSE= largest, stocks must be in good financial condition, normally largest, most profitable corporations. Over the counter (NASDAQ)= no specific place traded, often smaller companies  Stock Exchanges: NYSE= largest, stocks must be in good financial condition, normally largest, most profitable corporations. Over the counter (NASDAQ)= no specific place traded, often smaller companies

Stock Markets Continued  Indexes: Dow Jones Industrial Average (DOW)- 30 major industrial companies in the U.S. Standard and Poor’s 500- Average of 500 stocks - Securities Exchange Commission (SEC)- government agency in charge of regulating stocks and corporations,  Indexes: Dow Jones Industrial Average (DOW)- 30 major industrial companies in the U.S. Standard and Poor’s 500- Average of 500 stocks - Securities Exchange Commission (SEC)- government agency in charge of regulating stocks and corporations,