3.9 Where to Save

Which statement about saving is true?

1. Savings accounts have had about the same interest rates throughout history

2. Every savings account is the same except for the interest rate they offer

3. Savings accounts differ wildly and it is worth hours of research to choose the best one

4. Savings accounts are largely similar and your choice is mostly personal preference

This type of account features a low to modest interest rate, requires that you not withdraw your funds for a set period of time, and can be set up at most major banks and credit unions.

1 Checking Account

2 Savings Account

3 Certificate of Deposit

4 Money Market Account

Which statement about savings accounts is true?

1. Savings accounts typically pay lower interest than checking accounts

2. Savings accounts are insured by the FDIC but checking accounts are not

3. Savings accounts are for building wealth while checking accounts are for spending

4. Savings accounts often have transaction limits but checking accounts are unlimited

Part II: Research A Bank or Credit Union

Now that you know the basics of how these four types of savings accounts work, let’s take a closer look at how these accounts compare against each other at your favorite bank or credit union. Select one bank or credit union (it can be one that you or your parents / guardians currently use, or one that you are interested in learning more about). Then, research the bank or credit union’s options for savings accounts. NOTE: If the bank offers multiple products in the same category (ex: two tiers of MMA or CDs at 10 different time intervals) just record answers for ONE of the options.

Robert wants to get serious about saving for a new car. Which account would you recommend? Why?

Cindy has been working for 8 years, and she’s built up a huge emergency fund -- $45,000, which would be 6 months of her salary. She’s hoping to earn a bit more interest than she currently is with that $45,000 just sitting in her traditional bank’s savings account. Which account would you recommend? Why?

Janelle likes to keep all her savings goals separate, so she has an account for each one, including an account to save for her college textbooks every semester. She buys books about every 6 months, with roughly $550 due each time. She likes to save the money up in installments, with auto-deposits from each of her twice monthly paychecks. She’s wondering if her online savings account, earning 0.75%, is still her best option for monthly deposits toward her textbooks. Which account would you recommend? Why?

The video references a high yield account. What does "high yield" mean?

1. Giving a low return

2. Giving a high return

3. Free to open with any deposit amount

4. Requiring a high initial deposit amount

What happens to the money that you deposit at a bank?

1. The bank lends out the money at a higher interest rate than what they are paying you.

2. The bank lends out the money at a lower interest rate than what they are paying you.

3. The money sits at the bank until you are ready to withdraw or use it.

4. The money is sent to the Federal Reserve, where it sits until you’re ready to withdraw or use it

If inflation is at 2% and you are earning 1% return on your savings account, what is your "real return?"

1. +3%

2. -3%

3. +1%

4. -1%

Chris wants to put money aside so he can buy his mom a birthday present.

Savings=True

Not Savings=False

Sam wants to buy school supplies for a project she is working on.

Savings=True

Not Savings=False

Aisha wants to withdraw $20 from an ATM so she can buy a movie ticket and go watch the movie with her friends.

Savings=True

Not Savings=False

Neil rides his bike every day to school and back and is responsible for maintaining his bike. He wants to make sure he has money to fix or replace anything that might break in the future.

Savings=True

Not Savings=False

Rosa is going on a vacation with her parents in a few months and wants to put the money she just got from the holidays aside to buy souvenirs.

Savings=True

Not Savings=False

Jamil wants to take his birthday money and put it away where it can grow for 15 years and help with a down payment on a future house he wants.

Savings=True

Not Savings=False

Harry has an account at his bank. It has a linked debit card and no limits on monthly withdrawals. He earns no interest on this account.

Savings=True

Not Savings=False

What are some things the “Savings” scenarios have in common?

For each of the “NOT” scenarios, discuss with a partner what might be a good alternative to savings

What seems to be more important in the long-term, starting balance or monthly savings rate?

Compound interest leads to an exponential growth equation while simple interest results in linear growth. If you go further out to 25 years or 50 years, what do you think will happen to the difference between the compounding function and the simple interest function?