SavingsChapter 13

Financial GoalsShort Range: can be reached in less than a

year.Ex- may want to buy a new swimsuit, or concert

tickets.

Mid Range: These goals require more money and take one to five years to achieve.

Ex- Buying a big screen TV, down payment on a car, college education.

Long Range: financial goals involving large sums of money and requiring more than 5 years to complete.

Ex- down payment on a house.

Savings AccountsIdeal tool for reaching short-range goals.

Used to accumulate a large sum of money to invest for mid and long-range goals.

Money earns interest: money the bank pays you for leaving your deposit in a savings account.

Types of Savings Accounts

Regular Savings Account

Money Market Savings Accounts

Certificates of Deposit

U.S. Savings Bonds

Regular Savings AccountSavings account with fixed interest rate and

unrestricted deposits and withdrawals

• Passbook Accounts: saver records all account activity.

• Statement Accounts: bank sends monthly report detailing the activity.

Money Market Savings Accounts

Withdrawals

Limited to 3 withdrawals a month.

Penalty involves the loss of all interest for that month

Interest

Complex interest rate structure

Varies according to balance

Require minimum balance in order to pay any interest at all.

Savings account w/ a variable interest rate, restricted withdrawals, and a required minimum balance

Certificates of DepositIssued to the saver when the account is opened.

Must deposit a minimum amount (approx. $2,500)

Earn a higher rate of interest than regular savings accounts.

Interest is paid on a CD only if it is held to maturity (The end of the period you agree to invest your money).

Flexible CD- allows one or more withdrawals during the term without penalty.

U.S. Savings BondsAn investment vehicle that can be purchased at a

discount and held until maturity.

Very useful for saving to reach mid-range financial goals.

Backed by the U.S. Treasury

Excellent security for savings dollars.

Sold at 50% discount off face valueMeaning, buy a $50 savings bond for $25.

Shopping for a Savings Account

• Safety

• Earnings

• Liquidity

SafetySelect a financial institution that has

government insurance. This way your money will be protected.

Usually, insurance info is posted by the financial institution – but you can ask if you are unsure.

EarningsTo get highest return on your savings, look for:

Interest rateMinimum balance requirements for opening

account or for earning interestAny fees you will have to pay

Truth-in-Savings Law make sit easier to comparison-shop for a savings account

Requires financial institutions to tell you the Annual Percentage Yield (APY) which indicates the actual return on a $100 deposit left for one year.

LiquidityRefers to the accessibility of your money, how quickly and easily you can get cash from your

account.

The higher the liquidity, the lower the interest rate paid on the account.

Regular savings accounts are best for this.

Certificates of Deposit are the least liquid of all savings accounts.

The Psychology of Saving

Why some people don’t save

Finding the money to save

Getting started: a step-by-step

savings strategy

Why Some People Don’t SaveThey make excuses such as:

“I don’t make enough money to save any”

“It’s better to buy now rater than save, since prices are going up”

“I can buy what I want, so why save?”

“I will start when I get a steady job”

I will start when I’m on my own”

Finding the Money to Save

Automatic transfer from your paycheck to your savings account.

When your pay goes up, save 50% of the increase.

Make your own lunch.

Give up a bad habitEx – smoking, eating candy bars, buying a soft drink.

Use the library instead of buying books.

Getting Started: A Step-By-Step Savings Strategy

Step 1: Specify a goal and exactly how much money you will need

Step 2: Decide on the time frame for reaching goal.

Step 3: Figure how much you will need to save per week.

Step 4: Identify the best type of savings account for your goal.

Step 5: Begin saving. Pay yourself first

Practice

You want to buy a TV for $800.

You make $200 a week.

Create a step-by-step savings strategy to

buy the TV

Interacting With Technology

Read “High-Tech Banking” on page 136 in textbook.

Discuss how technology has advanced even further from when this book was written.

Watch these videos that show a couple of examples of mobile banking.

http://www.youtube.com/watch?v=whB0dWOuYFg

http://www.youtube.com/watch?v=DQc0CyGFyXU