Money and Banking

Money Uses A medium of exchange – Money is exchanged for goods… rather than a barter economy A store of value – You can hold it and it doesn’t lose its value Characteristics Durability Portability Divisibility Uniformity Limited supply Acceptability

Why is money valued? Because people believe the money has value Because our government declares the money is acceptable to pay debts.

Uses of Banks They serve several purposes: – Store money: provide convenience of storing – Saving money: able to save your money Checking accounts Saving accounts Money Market accounts Certificate of deposits Loans: provide loans for new business and future homeowners – They lend money out based on the money customers save at their banks – Keeps only a fraction of funds lends out the rest Mortgages: a home loan Credit Cards: consumer makes a promise to pay the amount back Banks and Profit: – Most banks make their money from YOUR loans, the interest you pay.

Interest SimpleCompound 1$100$51 $ $ $105$52 $ $ $110$53 $ $ $115$54 $ $ $120$55 $ $ $125$56 $ $ $130$57 $ $ $135$58 $ $ $140$59 $ $ $145$510 $ $ $150$511 $ $ $155$512 $ $ $160$513 $ $ $165$514 $ $ $170$515 $ $ 9.90

Compound Interest Explained The formula for annual compound interest is A = P (1 + r/n) ^ nt: A = the future value of the investment/loan, including interest P = the principal investment amount (the initial deposit or loan amount) r = the annual interest rate (decimal) n = the number of times that interest is compounded per year t = the number of years the money is invested or borrowed for If an amount of $5,000 is deposited into a savings account at an annual interest rate of 5%, compounded monthly, the value of the investment after 10 years can be calculated as follows... P = r = 5/100 = 0.05 (decimal). n = 12. t = 10. after 10 years… $8, You can find compound interest calculators on the internet pretty easily too

Amortization (How a mortgage typically gets paid) PeriodInterestPrincipalBalance 1$583.33$191.97$99, $582.21$193.09$99, $581.09$194.21$99, $579.95$195.34$99, $578.81$196.48$99, $577.67$197.63$98, $576.52$198.78$98, $575.36$199.94$98, $574.19$201.11$98, $573.02$202.28$98, $571.84$203.46$97, $570.65$204.65$97, $569.46$205.84$97, $568.26$207.04$97, $567.05$208.25$96, $565.83$209.47$96,790.45

Types of Financial Institution:

BANK Fees for services Deposits from Customers Interest from borrowers Interest and withdrawals to customers Loans to borrowers: Business Loans Mortgages Personal Loans Bank’s costs of doing business: Salaries Taxes Other costs Money Enters Bank Money leaves Bank Banks are businesses!!

Bank retains 20% of the deposit to cover withdrawals Loan of $80.00 is given out in the form of a car loan Bank retains 20% of the deposit Bank retains 20% of the deposit Loans out for College tuition Deposit of $80.00 seller of the car deposits the money into their bankf Deposit of $ is made into an account Deposit of the $64.00 into the sellers bank Loans out $ for a personal loan Banks stimulate economic growth!!

Ten Year Plan Assignment Determine: – How much money you will earn each month (assume you will get to save it all…and you won’t be taxed on it either) – Research and provide data from two+ financial institutions for where you will save it and why Please identify a specific bank and program For each program identify specific costs and advantages of their programs (interest, fees, etc.) – Identify which choice(s) you will go with and why