1. FINANCIAL AWARENESS Checking & Savings Accounts Lesson 4: Managing a Savings Account – Part 1 Instructor PowerPoint Copyright © 2009, Thinking Media, a division of SAI Interactive, Inc. All rights reserved. The Career Ready 101 logo is a registered trademark and Career Ready 101 is a trademark of SAI Interactive, Inc.

2. 2 What is a Savings Account? A savings account is a bank account where you deposit and save money that you do not need immediately to pay bills and expenses. A savings account will usually earn interest at a higher rate than a normal checking account with no risk of loss. Therefore, you can earn more money just by having a savings account!

3. 3 You can setup a savings account through the bank where your checking account is held. This enables you to quickly and easily transfer money between the two accounts. What is a Savings Account?

4. 4 Most savings accounts are used as an emergency fund. If you have an unexpected expense or are out of work for a period of time, having an emergency savings account enables you to continue paying your bills. What is a Savings Account?

5. 5 Establishing an emergency fund will keep you from relying on high interest credit cards or loans to cover expenses. Using a credit card or loan for emergencies will only increase your debt. In this lesson, we will discuss the different types of savings accounts and how to properly setup and manage a typical bank savings account. What is a Savings Account?

6. 6 Distribute Exercise #1: Managing a Savings Account. You will use this handout throughout Managing a Savings Account – Part 1 to mark your responses to questions. Exercise #1: Managing a Savings Account

7. 7 Directions: Read this situation, then select the best answer to this question. Problem: Xavier has been saving a small amount each pay check in a low interest savings account. He has been having problems with his car and it has been unreliable and made him late for work on a few occasions. To repair the car will cost him $1,250. Xavier has $1,500 saved up in his savings account and also has a credit card with a $1,000 credit limit. Exercise #1: Managing a Savings Account Question 1

8. 8 Question 1 How should Xavier pay for the repairs to his car? Exercise #1: Managing a Savings Account Question 1 A.Use the credit card to pay the full amount of the repairs B.Use his savings to pay the full amount of the repairs C.Use the $1,000 credit limit on the credit card and $250 from his savings account D.Apply for a loan at his bank to pay for the repairs

9. 9 Types of Savings Accounts There are numerous savings accounts available that offer a variety of services and interest. Here are some of the most common types of savings accounts: Bank Savings Account Money Market Account Certificates of Deposit Treasury Securities & Bonds

10. 10 A bank savings account is the most common type of savings account. Most savings accounts are established when opening a checking account. A savings account is usually linked to your checking account making it easier to transfer money from one account to the other. Bank Savings Accounts

11. 11 Most bank savings accounts do not require a minimum deposit and you can access the funds at any time. A bank savings account will usually earn interest but not as much as some of the other savings account types. Bank Savings Accounts

12. 12 Money Market Account A money market account is typically offered by your bank but usually has more restrictions on the account. A money market account may require a higher minimum balance and may also limit the number of withdrawals you can make. However, a money market account usually earns a higher interest rate which means you can make more money than a typical bank savings account.

13. 13 Certificates of Deposit A certificate of deposit, also referred to as a CD, is another type of savings account offered by most financial institutions. A CD usually requires a preset deposit amount that must remain in the account for a specific period of time before you can make a withdrawal.

14. 14 Certificates of Deposit The larger the amount of money and time invested, the more interest you will earn. You can access your money in the CD before the specified time period, but you will be charge a penalty that could wipe out any interest earned.

15. 15 Treasury Securities & Bonds There are also a variety of treasury securities and bonds that can offer a modest return for short-term investing. Treasury securities are government bonds that are issued by the U.S. Treasury Department. They are the debt financing instrument for the U.S. Government.

16. 16 Types of Bank Savings Accounts In this lesson, we will focus on a basic bank savings account. There are two basic types of bank savings accounts: Passbook Account High Yield Savings Account

17. 17 Passbook Account The bank will give you a Transaction Register, similar to the checking account Transaction Register, which you use to record deposits, withdrawals, transfers and interest. A Passbook Account usually has few fees, a low or no minimum balance requirements and a low interest rate.

18. 18 High Yield Savings Account On this type of account, the interest rate is determined by the minimum balance you maintain in the account. The higher the balance, the higher the interest rate will usually be. This type of account usually has more restrictions such as limited access and service fees for transactions.

19. 19 Both types of savings accounts are FDIC insured which means the funds are insured by the Federal Deposit Insurance Corporation. This basically states that if your bank goes out of business, you would not lose your money up to a set amount. Types of Bank Savings Accounts

20. 20 Directions: Let’s see if you can match the savings account type to its description. Question 2 Match the correct savings account type to its description. Exercise #1: Managing a Savings Account Question 2 A.Bank Savings Account B.Money Market Account C.Certificates of Deposit D.Treasury Securities & Bonds _____May require a higher minimum balance and limit withdrawals _____Government bonds that are issued by the U.S. Treasury Department _____The most common type of savings account _____Requires a preset deposit amount that must remain in the account for a specific period of time

21. 21 Selecting a Bank Savings Account When selecting a savings account you need to do some research. You want to make sure that you choose a savings account that has minimal fees with a maximum return on your investment. All money earned in a savings account comes from the interest rate on the account. This is also referred to as a rate of return or annual yield.

22. 22 Selecting a Bank Savings Account When selecting a savings account, it is important to look at the interest rate. Depending on where you bank and what type of account you have, you could earn anywhere from less than 1% up to 4% or more. You also need to clearly understand the terms and conditions on the savings account. You need to know if there are any fees or restrictions on the account.

23. 23 Selecting a Bank Savings Account When selecting bank checking and savings accounts, research several financial institutions to find the best accounts for your financial needs. Here are some factors to consider when selecting a savings account: Is there a minimum opening balance? If so, how much? Is there a minimum maintained balance requirement? If so, how much?

24. 24 Selecting a Bank Savings Account What is the interest rate on the savings account? How is it earned and posted to the account? Is there a limit on the number of withdrawals? How easily can you access the money if you need it? Are there any service fees for withdrawals or transfers? If so, how much? Are there any restrictions on closing a savings account? If so, what are they? Are there other account restrictions and fees?

25. 25 Question 3 When selecting a savings account, which of the following should you ask? Exercise #1: Managing a Savings Account Question 3 A.Is there a minimum opening balance? B.What is the interest rate earned on the account? C.Are there any fees and restrictions on the account? D.All of the above

26. 26 Starting a Savings Account Most standard bank savings accounts do not provide a large return on your investment; therefore, it is also important to have other short- term and long-term investments. Most consumers establish a bank savings account to use for emergencies because it is simple to use, generally does not cost anything and is easy to access in case of an emergency.

27. 27 Starting a Savings Account These types of accounts are used as an emergency fund in case of an unexpected expense such as auto or home repairs, illness or loss of job or income. The standard for establishing an emergency savings account is to maintain a three to six month balance to cover your normal living expenses.

28. 28 Starting a Savings Account With more people living paycheck to paycheck, it is difficult to save money. After paying the bills, most people do not have a lot of money left over. This is why it is important to create a monthly budget and set aside a specific amount to deposit into your savings regularly.

29. 29 Starting a Savings Account At most banks, you can set-up an automatic savings plan where a specific amount of money is automatically transferred from your checking account to your savings account on a monthly basis. If you have direct deposit, you can have part of your paycheck directly deposited into your savings account every time you are paid.

30. 30 Starting a Savings Account It does not matter how much you deposit as long as you regularly add to the account. A general rule to follow is to try to save at least 10 percent of your income in a savings account. As you receive pay increases, remember to also increase the amount you have transferred to your savings account.

31. 31 Starting a Savings Account While it may be overwhelming to try to save 3 to 6 months balance to cover your normal living expenses, the key is to start small. If you set your goal to be small and manageable, you will have a better chance of achieving it.

32. 32 Starting a Savings Account The best way to get started is to create a schedule and make regular deposits or have a preset amount automatically deducted from your paycheck. Start small and continue to increase the deposit amount. Once you establish a budget, you will not miss this money because it will not be included in your monthly budget.

33. 33 Starting a Savings Account Remember, the money in your savings account will still be available to you to use as needed; however, you want to save this money for emergencies only.

34. 34 Steps for Creating a Savings Account Here are some steps for creating a savings account or emergency fund: Calculate Monthly Expenses To determine your monthly living expenses, make a list of all your monthly expenses and add them together.

35. 35 Steps for Creating a Savings Account Calculate Monthly Expenses Cont. This amount is your total monthly living expenses. Now subtract your monthly living expenses from your monthly income. The remainder will be your disposable income or the amount of money you can deposit in a savings account.

36. 36 Steps for Creating a Savings Account Decide How Much to Save Next, you need to determine how much you want to save. While 3 to 6 months living expenses is a suggested standard, only you can determine how much you can save based on your expenses and budget. Remember, no matter how small, every cent counts!

37. 37 Steps for Creating a Savings Account Open a Savings Account It is important to open a savings account to save your money and earn interest. Keeping the money in your checking account will make it too easy to spend and usually will not earn as much interest. Shop around and find a savings account that will give you the greatest return on your money.

38. 38 Steps for Creating a Savings Account Setup an Automatic Deposit Plan Most banks have an automatic deposit plan where you can designate a specific amount be deducted from your checking account and deposited in your savings account. You can also have money deducted and deposited directly into your savings account from your payroll direct deposits.

39. 39 Question 4 When starting a savings account, which of the following should you do? Exercise #1: Managing a Savings Account Question 4 A.Calculate your monthly expenses B.Decide how much to save C.Setup an automatic savings plan D.All of the above

40. Lesson 4: Managing a Savings Account – Part 1 END OF LESSON NEXT SECTION LESSON 4: MANAGING A SAVINGS ACCOUNT– PART 2