Chapter 10 Saving for the Future.

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Presentation transcript:

Chapter 10 Saving for the Future

Goals for Chapter 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 save.

Why You Should Save Short-Term Needs Emergencies: unemployment, sickness, accident, death in family Vacations Social Events: weddings Major Purchases: car, appliances, remodeling

Why You Should Save Long-Term Needs Financial Security Home ownership (down payment) Education Retirement Investing Financial Security Peace of mind

How Your Money Grows The amount of money deposited by a saver is called the principal. For use of the saver’s money, the financial institution pays the saver money called interest. Compound interest is interest computed on the original principal plus accumulated interest. (Figure 10-1 Pg. 239) The more often interest is compounded, the greater your earnings.

How Your Money Grows Earning on savings can be measured by the rate of return or yield. Yield is the percentage of increase in the value of your savings due to earned interest. Because financial institutions compound interest in many ways, comparing yields can be difficult. The law requires all financial institutions to publish the annual percentage yield (APR), which is the actual rate you earn including compounding.

Where Can You Save? Commercial Banks Savings Banks Savings and Loan Associations Credit Unions Brokerage Firms

Goals for Chapter 10.2 Savings Options, Features, and Plans Explain the features and purposes of savings accounts, certificates of deposit, and money market accounts. Discuss some of the factors that influence the selection of a savings plan. Explain at least two ways to save regularly.

Savings Options Regular Savings Account The major advantage of a regular savings account is liquidity. Liquidity is the ability of an asset to be converted into cash quickly without loss of value. The tradeoff for liquidity is lower return.

Savings Options Certificate of Deposit A certificate of deposit (CD) is a deposit that earns a fixed interest rate for a specified length of time. A CD has a set maturity date, which is the date on which an investment becomes due for payment.

Savings Options Money Market A money market is a combination savings-investment plan in which money deposited is used to purchase safe, liquid securities.

Selecting a Savings Plan Liquidity Safety Convenience Yield Fees and Restrictions