Guided Notes-SAVING

Saving =

• Anticipate and plan for some future expenses

• College, A new car, cell phone

Why save?

• Accidents, lost/stolen items, car repairs • Lost job/laid-off

• Car, furniture, house

• College education, house

Saving strategies

• Save by the numbers • Percentage of Net Pay

• Payroll deductions • Checking account transfers

Difference between checking and saving

• Checking Accounts:

• Savings Account:

What is interest?

•

• They are “thanking you” for keeping your money in their financial institution.

•

Liquidity =

Certificate of Deposit =

• Typically require a or more for a specific period of time.

• The larger the deposit and the longer the term of the certificate, the higher the interest rate paid. Example: if you deposit $1,000 for 1 year, you will be paid a lower rate of interest than you would if you deposited $1,000 for 2 or 3 years.

• There are for early withdrawal.

Money Market Account =

• Require a much than statement savings accounts ($1,000 and up).

• rate of interest.

• May also require larger withdrawal amounts ($500 and up) and per month.

APY stands for .

•

• All banks must calculate and report this rate in the same way.

Simple Interest is .

• Suppose you deposit $100 in an account that pays 6% simple interest per year. At the end of the year, the bank will pay you $6

• Principal x Rate x Time = Interest

$100 x 0.06 x 1 =$6.00

You new balance would be $106 ($100 deposit + $6 interest = $106)

Compound Interest is assuming that the interest is left in the account.

Interest can be compounded in several ways:

• Annually: every year

• Semiannually: every six months

• Quarterly: every three months

• Monthly

• Daily

• Most banks compound , sometimes stated as .

• Your interest rate is calculated and added to your principal each day.

• Then, the next day your interest rate is calculated on the new principal.

• Therefore, you get interest on the previous day’s interest.

Make sure you understand how compound interest works by studying this example.

Year 1:

P x R x T= Interest

$120 x .03 x 1 = $3.60

$120 + $3.60= $123.60

Year 2:

P x R x T = Interest

$123.60 x .03 x 1 = $3.71

$123.60 + $3.71 = $127.31

Year 3:

P x R x T = Interest

$127.31 x .03 x 1 = $3.82

$127.31 + $ 3.82 = $131.13