© South-Western Educational Publishing Chapter 10 Saving for the Future  Savings Goals and Institutions  Savings Options, Features, and Plans

GOALS © South-Western Educational Publishing Lesson 10.1 Savings Goals and Institutions  Describe different purposes of saving.  Explain how money grows through compounding interest.  List and describe the financial institutions where you can save.

© South-Western Educational Publishing Why You Should Save  Short-term needs  Long-term needs  Home ownership  Education  Retirement  Investing  Financial security

© South-Western Educational Publishing What determines how much we save?  Discretionary income: what you have left after paying bills  Importance you attach to savings  Anticipated needs and wants  Will power

© South-Western Educational Publishing How Your Money Grows  Principal: amount of money deposited  Interest: money paid for using saver’s money  Compound interest: computed on original principal plus accumulated interest  Yield: earnings on savings  Annual percentage yield (APY): the actual interest paid per year

© South-Western Educational Publishing Compounding Interest Annually Beginning InterestEnding YearBalanceEarned (5%)Balance 1 $100.00$5.00 $

© South-Western Educational Publishing Compounding Interest Quarterly Quarterly Compounding Annual Interest Rate = 6% BeginningQuarterlyQuarterly Interest Ending YearBalanceInterestQ1Q2Q3Q4Balance 1$ $1.50$1.52$1.55 $1.57 $

© South-Western Educational Publishing Where You Can Save  Commercial banks (240)  Savings banks (242)  Savings and loan associations (242)  Credit unions (242)  Brokerage firms (242)

© South-Western Educational Publishing Where You Can Save  Share account: savings account at a credit union  Securities: stocks and bonds issued by corporations or by the government  Stockbroker: sells investment securities

GOALS © South-Western Educational Publishing Lesson 10.2 Savings Options, Features, and Plans  Explain the features and purposes of different savings options.  Discuss some factors that influence the selection of a savings plan.  Explain at least two ways to save regularly.

© South-Western Educational Publishing Important Questions  Why might people choose to save their money in a commercial bank when another type of financial institution offers a higher interest rate?  Provide the widest variety of banking services

© South-Western Educational Publishing Important Questions  How is a credit union different from a savings & loan association?  S&L: exists primarily to lend money for home mortgages  CU: for people of a particular group or organization  How much is an account insured for by the FDIC?  $100,000

© South-Western Educational Publishing Savings Options  Regular savings account  Higher liquidity  Lower interest rate  Certificate of deposit (CD): earns a fixed interest for a specified time length  Maturity date- when the investment becomes due  Penalty for early withdrawal  Money market account: combination savings/investment account, check writing privileges  Minimum balance  Variable interest rate

© South-Western Educational Publishing Important Questions  Why does a regular savings account pay less interest than a certificate of deposit?  More liquid- ability to change an investment into cash  What types of penalties might you face for early withdrawal?  (a) None; (b) more than any interest earned; (c) depends on amount of withdrawals

© South-Western Educational Publishing Selecting a Savings Plan  Liquidity  Safety  Convenience  Interest-earning potential (yield)  Fees and restrictions

© South-Western Educational Publishing Saving Regularly  Direct deposit  Automatic payroll deductions

© South-Western Educational Publishing Compounding Interest and Making Additional Deposits Beginning InterestEnding YearBalance DepositsEarned (5%)Balance 1$ 0.00 $100.00$ 5.00 $