2 Certificate of Deposit Savings Tools Are….Secure and liquid accounts offered by depository institutions assisting in the management of a savings fundChecking AccountsSavings AccountsMoney MarketSavings BondsCertificate of DepositFive Savings Tools
3 Savings tools are secure because they are low risk since they are backed by government insurance – FDIC: Federal Deposit Insurance Corporation.Liquidity: The ability to convert an asset to cash quickly.
4 Tools Definition Interest Accessibility Features Checking AccountAllows cash purchases using money put into accountMay or may not be – if it is – it is the lowest rateMost liquid of all toolsCan have fees and charges Eliminates the need for cashBefore opening an account - investigateSavings AccountAccount to hold money not spent on consumptionInterest earning but a low rateVery liquidAllows for frequent activity emergenciesFunds can be accessed through ATM, telephoneMoney Market Deposit AccountGovernment insured savings toolTiered interest rates – moderate rate of returnLimited number of transactions per monthMaintain a minimum balance in order to earn interestMinimum Balance RequiredCertificate of DepositTool that allows restricted access to fundsInterest will vary depending upon timePenalties for early withdrawalTime 7 days to 10 yearsMinimum balance requiredSavings BondUS Gov’t Discount bondpurchased for 50% of theface valueInterest is exempt from tax until it is redeemedLeast liquid – no access to funds until redeemedRedeemed when bond matures – usually several yearsFor conservative low risk investors
5 Savings Tools Scenario #1 Mariah has twin daughters that will be graduating from high school in two years. They both have a goal to attend college after graduation, and Mariah wants to help them reach this goal by paying for some of their schooling. She has $2,000 for each daughter that she would like to save and then be able to access in two years. Which savings tool would you recommend Mariah utilize and why?
6 Savings Tools Scenario #2 Conner and Lisa were recently married and purchased a new house. They received $1,000 as a wedding present from Lisa’s parents. They want to use this money to buy new furniture for their house in six months. Which savings tool would you recommend Conner and Lisa utilize and why?
7 Savings Tools Scenario #3 Sean is a high school student that just received his first paycheck from his new part-time job at the local grocery store. He currently has no expenses to pay, and his goal is to save every paycheck from his job to buy a new car in two years. He needs to find a savings tool that will help him reach his financial goal. Which savings tool would you recommend Sean utilize and why?
8 Savings Tools Scenario #4 Brittany recently moved into her first apartment. Before, she was living with her parents and had very few expenses to keep track of. Now that she has to pay rent and utilities for her apartment, she needs to find a savings tool that will help her manage her money and ensure she can pay her bills every month. Which savings tool would you recommend Brittany utilize and why?
9 Savings Tools Scenario #5 Bryan has a goal to become financially secure by developing an emergency fund. He has been saving twenty percent of his net income for the past year and now has $2,000. He plans to maintain this balance and only use this money for emergency expenses. Which savings tool would you recommend Bryan utilize and why?
10 Savings Tools Scenario #6 Paul and Grace want to purchase a house in two years. They want to begin saving money to use for the down payment on a home. They are able to save $300 per month and need to know which savings tool would be the best option for them to put their money in. Which savings tool would you recommend Paul and Grace utilize and why?
11 Savings Bond ACCESSIBILITY Least liquid of all the savings tools Access to funds is restricted
12 Certificate of Deposit ACCESSIBILITYLess liquid than checking, savings, and money market deposit accountsLarge fees are assessed if funds are withdrawn before the end of the designated time period
13 Money Market Deposit Account ACCESSIBILITYLess liquid than checking and savings accountsAccessibility is limited to a certain number of transactions per month (usually 3-6)
14 Savings Account ACCESSIBILITY More liquid than all savings tools except a checking accountFunds may be accessed or transferred between accounts through:Automated teller machinesTelephonesInternet
15 Checking Account ACCESSIBILITY Most liquid of all the savings tools Funds are easily accessed by:ChecksAutomated teller machines (ATMs)Debit cardsTelephoneInternet