Personal Finance Banking and Saving

I. Types of Accounts Checking Accounts Benefits Easily accessible account. Reduces the amount of money you must carry. Allows for online payments. Drawbacks No interest earned on the money in the account. Reckless use can lead to overdraft fees. Bank may limit the amount of cash withdrawals each month.

I. Types of Accounts Savings Accounts Benefits Owner can gain interest with the money in the account. Safe place to store money. Relatively easy to access (may have to transfer money thought). Drawbacks May require a minimal amount in the account at all times. Bank may charge a transfer of money fee. Interest is relatively low in comparison to other accounts at banks.

Certificates of Deposit I. Types of Accounts Certificates of Deposit Benefits Safe place to spend money if you know you will not use it in a while. Pays higher rate of interest than a savings account. Creates a steady, predictable amount of interest over time. Drawbacks Cannot use money early without incurring a fee. Gains interest at such a slow rate that inflation often surpasses the interest gained and the money loses its value.

I. Types of Accounts Money Market Accounts Benefits Offers safe place to store money, gain interest, and use money. Gains more interest than a savings account. Typically does not carry fees for withdrawing money. Drawbacks Other forms of investment accounts may make more money. Higher balance requirement. Limited amount of withdrawals each month.

I. Types of Accounts Debit/Prepaid Cards Benefits Allows for smaller amounts of money. Can be used to make online purchases. Little regulation and steps to get one. Drawbacks Fees for adding or withdrawing money from the account. Monthly maintenance fees. Fewer customer protections.

II. Interest Simple Interest Simple interest is the amount of money paid on the principal of a loan. Interest = (Principal) (Interest Rate) (Time until Maturity) Compounded Interest The amount of interest paid on the principal and the initial money earned on that principal from the simple interest. Compounded Interest = [P(1 + i)^n]-P Principal The amount of money borrowed for a loan. The interest rate has no effect on this.

III. Savings To eventually purchase more expensive items. Why do we need to save money? To prepare for emergencies. To eventually purchase more expensive items. To provide money for retirement.

III. Savings Short-term Something you would like the purchase within the year. Down payment on a car, new TV, or car insurance for the year. Long-term Saving for something even larger and longer in the future. Education or a big trip.

III. Savings Know what is most important to you. Do you want to own your home, retire, educate your kids, own your own business? Which is most important? You should have savings outside of retirement for your goals or for emergencies.

III. Savings Emergency Funds: Three months living expenses: if you have other accounts like a 401(k) or family members to depend on. Six months living expenses: if you don’t have other places to get a loan or if there is instability in your employment. Up to one years’ living expenses: if your income varies year to year or a very unstable job.

III. Savings Tips: Make sure that you are actively putting money into your savings each pay period. You never know when you may need that extra cash. Always plan to save, ESPECIALLY if you have a low income. Chances are that it’ll be hard for you to come back from too much debt. Look to save money, and then purchase goods that tend to lose their value quickly. Debt is unavoidable, but you only want to have it for products that hold their value.