savings tools
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Savings Tools. Take Charge. Types of Savings Tools. Ideal for Storing Emergency Savings. Insured depository i nstitutions offer accounts which are:. How will a consumer know if their depository institution offers secure accounts?. Savings Tools Characteristics. - PowerPoint PPT PresentationTRANSCRIPT
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Savings ToolsTake Charge
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© Take Charge Today –August 2013 – Savings Tools– Slide 2Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Types of Savings Tools
Savings tools - secure and liquid accounts offered by depository institutions assisting
in the management of a savings fund
Checking Account Savings Account Money Market
Deposit AccountCertificate of
Deposit
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© Take Charge Today –August 2013 – Savings Tools– Slide 3Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Ideal for Storing Emergency Savings
SecureAccounts must
stay within coverage limits
Liquid Generally quick
and easy to withdraw
money
Insured depository institutions offer accounts which are:
How will a consumer know if their depository institution offers secure accounts?
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© Take Charge Today –August 2013 – Savings Tools– Slide 4Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Savings Tools Characteristics
Interest
Liquidity
Features
Each savings tool has different characteristics
Goal: Determine the savings tool most
appropriate for reaching a financial goal
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© Take Charge Today –August 2013 – Savings Tools– Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Checking Account
Definition
• Account that provides an easy method for withdrawing and depositing money
Interest
• Most do not • If offered,
rates are low
Liquidity (accessibility)
• Most liquid
What are common ways to access funds in a checking account?
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© Take Charge Today –August 2013 – Savings Tools– Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Checking Account Features
Reduce the need to carry large
amounts of cash
Different types of accounts are
available (some have fees)
Also known as a share draft account
at a credit union
Not recommended as the only account
used to save money
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© Take Charge Today –August 2013 – Savings Tools– Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Savings Account
Definition
• Account designed to hold money not spent on current consumption
Interest
• Earns interest• Rates are
often low
Liquidity (accessibility)
• More liquid than other savings tools (except checking accounts)
What are common ways to access funds in a savings account?
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© Take Charge Today –August 2013 – Savings Tools– Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Savings Account Features
Effective for storing emergency funds
May require a minimum balance or
have a limited number of withdrawals each
month
Also known as a share account at a credit
union
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Wells Fargo
Vs.
Bank of America
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© Take Charge Today –August 2013 – Savings Tools– Slide 10Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Money Market Account
Definition
• Account that usually has minimum balance requirements and tiered interest rates
Interest
• Often tiered interest rates – the amount of interest earned depends on the account balance
Liquidity (accessibility)
• Less liquid than checking and savings accounts because of minimum balance requirements and transaction limits
Which would typically earn a higher interest rate? An account with a $10,000 balance or a $2,500 balance?
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© Take Charge Today –August 2013 – Savings Tools– Slide 11Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Money Market Account Features
Usually have to deposit a minimum amount to open
the account (typically $1,000)
Similar to a savings account but earns higher interest and has higher
minimum balance/deposit requirements
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Wells Fargo
Vs.
Bank of America
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© Take Charge Today –August 2013 – Savings Tools– Slide 13Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Certificate of Deposit (CD)
Definition
• Account that is used for a fixed period of time and allows restricted access to the funds
Interest
• Varies (depending on time and amount of money deposited)
Liquidity (accessibility)
• Least liquid savings tool
Why would a depository institution typically offer higher interest rates for CD’s with a longer time period or more money invested?
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© Take Charge Today –August 2013 – Savings Tools– Slide 14Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Certificate of Deposit Features
Deposits must be held for a certain length of time (usually 7 days to
10 years)
Deposits can range from $100 to $250,000
If funds are held for the designated time period, then there is
limited risk and no fees
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Wells Fargo
Vs.
Bank of America
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© Take Charge Today –August 2013 – Savings Tools– Slide 16Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Matching Savings Tools to Goals
Amount of funds available
Purpose of
money saved
When money
is needed
Liquidity Interest
Savings tool
requirements
Fees
Consider these factors when determining the most appropriate savings tool for your financial goal
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© Take Charge Today –August 2013 – Savings Tools– Slide 17Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
You Decide: Which Tool is Best?
Avery’s goal is to create an emergency savings fund
Savings account
Funds are easily accessible
Javier’s goal is to purchase a new car within the year
Money market account
Higher interest rates available
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© Take Charge Today –August 2013 – Savings Tools– Slide 18Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Liquidity
Higher interest rates are a trade-off for lower liquidity
Checking Accounts
Savings Accounts
Money Market Deposit
Accounts
Certificates of Deposit
Most Liquid/Lowest
Interest
Least Liquid/Highest Interest
Checking Account
Savings Account
Money Market Deposit Account
Certificate of Deposit
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© Take Charge Today –August 2013 – Savings Tools– Slide 19Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Analyze the features of a savings tool among depository institutionsTerms and conditions such as interest rates, fees, and minimum balance requirements may vary.
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© Take Charge Today –August 2013 – Savings Tools– Slide 20Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Understand the features of savings tools to select the most appropriate tool for each financial goal
Summary
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© Take Charge Today –August 2013 – Savings Tools– Slide 22Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Retirement Plan Options
• Pension Plans [401(k)]• Keogh-Self employed pension plan• IRA / Roth IRA
• IRA-Taxed at the end, money taken out• Roth IRA- Taxed at the beginning
• Real Estate is often seen as an INVESTMENT
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© Take Charge Today –August 2013 – Savings Tools– Slide 23Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Investing for Retirement• Pension plans (401K): company
plans that provide retirement income for their workers.– A portion is withheld from your
paycheck– Company matches contribution– No Federal tax until you withdraw
funds (tax deferred)– Maximum Contribution limit
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© Take Charge Today –August 2013 – Savings Tools– Slide 24Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Individual Pension Plans• Keogh plan-retirement plan for self-
employed individuals.– Can save up to 15%– Can deduct that amount from taxable
income– Maximum contribution limit
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© Take Charge Today –August 2013 – Savings Tools– Slide 25Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
IRA / Roth IRA• Retirement Plan for individuals or
married couples• Savings grow tax free• Invested in mutual funds, stocks or other
securities
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© Take Charge Today –August 2013 – Savings Tools– Slide 26Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Real Estate• Land & Buildings• Homes/Developed land (safer)• Undeveloped property (usually
riskier)• Not very liquid – what does that
mean?
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© Take Charge Today –August 2013 – Savings Tools– Slide 27Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
How much to save and invest?
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© Take Charge Today –August 2013 – Savings Tools– Slide 28Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
How much to save and invest?• Tradeoff!
– Risk Tolerance– Rate of Return– Liquidity– Income
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© Take Charge Today –August 2013 – Savings Tools– Slide 29Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Diversification, Risk, & Values
• Diversification– Spreading of investments among several
different types to lower overall risk• Risk
– Every person has a different Risk tolerance• Values
– Your values may determine where/what you invest your money in
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© Take Charge Today –August 2013 – Savings Tools– Slide 30Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Stocks & Bonds• Stock
– A Share of a company’s assets
• Stockholders – People who invest in a corporation &
own some of it’s stock
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© Take Charge Today –August 2013 – Savings Tools– Slide 31Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Bonds
• Tax-Exempt Bonds– Sold by local & state governments. Interest paid
on the bond is not taxed by the Federal Gov.• Savings Bonds
– Issued by the Federal Gov. as a way of borrowing money.
– Purchased at ½ the face value (EE bonds)
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Stocks vs. Bonds
STOCKS• All corp. issue stock• Represent ownership• Stocks do not have fixed
rate• Dividends only paid
when there is a profit• No maturity date• Board of directors in
control• Stockholders have claim
against property of corp.
BONDS• Corp. not required to
issue• Represent debt• Interest must be paid
regardless of profit• Have maturity date• Bondholders have no
control of the corp.• Bondholders claim
against property comes before stockholders
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© Take Charge Today –August 2013 – Savings Tools– Slide 33Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Stocks• Broker
– A person who acts as a go-between for buyers & sellers of stocks & bonds.
– Internet brokerage firms are popular now.• Stock Exchanges
– Place where stocks are bought/sold on a daily basis.• NYSE –Largest stock exchange
– Chicago Exchange –example of regional– Tokyo & London –examples of foreign