Introduction to Savings & Investments

Objectives Discuss the need & reason for saving & investing. Evaluate methods of savings. List the types of financial institutions. Describe other aspects of saving & investing.

1. Need & Reason for Saving & Investing Why Save? Taking control of your financial situation helps reduce the anxiety of not knowing whether you have the money to pay your bills when they are due. It is important to have a sense of control over money, rather than letting money have control over you.

1. Need & Reason for Saving & Investing Seven Reasons For Saving: 1. to purchase planned goods or services in the future. 2. to buy goods or services that people suddenly see and want. 3. to deal with emergencies and unexpected events. 4. for retirement. 5. a down payment (home, car/truck…). 6. a business startup. 7. education.

2. Methods of Saving Bank Savings Accounts: When you are beginning to save, you should place your money in investments that are as safe as possible.  In addition, you will likely always have at least some of your money in short-term investments.  Bank savings accounts are such an investment.  The federal government backs these accounts with what is known as Federal Deposit insurance Corporation (FDIC) Insurance.

2. Methods of Saving Money Market Account: These are accounts offered by banks.  However, in these accounts the bank typically pays you a higher rate of interest than a savings account. CD or Certificate of Deposit: The bank holds your money for a set period of time.  Usually one to six months, or one to five years.  Unlike a normal savings account, you may not withdraw your money at any time.  If you do, you will be subject to withdrawal fees.

2. Methods of Saving Money Market Funds: Similar to bank savings accounts are money market funds.  Money market accounts are available from mutual fund companies.  They are similar, but you usually get a better return with money market funds.  Also, since these funds are not held with a bank, they are not FDIC insured.  However, they are invested in very short-term bonds, which tend to be less risky than longer-term bonds and invest in safe government investments, corporate commercial paper, and other related investments. 

2. Methods of Saving Money Market Funds (cont.) In addition, they are regulated by the U.S. Securities and Exchange commission.  Those money market mutual funds that invests exclusively in U.S. government securities have very little risk, while giving you better rates of return then typical bank savings accounts.

3. Types of Financial Institutions There are several different types of financial institutions: - banks - credit unions - savings & loans (S&Ls) - brokerage firms

4. Other Aspects of Saving & Investing Retirement Accounts (i.e. IRAs) – the ability to save money on a tax-deferred basis toward retirement. Stocks, Bonds & Mutual Funds – the ability to invest in corporations & governments to meet your financial needs for the future.