Banks, the Fed & Popular Types of Investments. What is a BANK? What is a NATIONAL BANK ?  A BANK is an institution for receiving, keeping, and lending.

Slides:



Advertisements
Similar presentations
Checking Savings Investments. Checking Account 90% of transactions involving money are made with checks.
Advertisements

Introduction to Savings & Investments
Chapter 14: The Federal Reserve System McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 13e.
Savings and Investing.
CHAPTER 10.1 MONEY Three uses of $ 6 Characteristics of $ Source of $’s value MONEY Three uses of $ 6 Characteristics of $ Source of $’s value.
Macroeconomics: Understanding the Difference between Fiscal Policy and Monetary Policy SSEMA2 Students will explain the role and function of the Federal.
Investing 101. Types of Savings tools Savings Account: An interest-bearing account (passbook or statement) at a financial institution. Certificates of.
Cash Or Liquid Asset Management. Financial Institutions Deposit-Type Financial Institutions – Commercial Banks – Savings and Loan Associations – Savings.
 How to Manage Your Cash › Daily Cash Needs  Lunch, movies, gas, or paying for other activities  Carry cash  Go to an ATM  Credit Card  Know pros.
Saving For the Future.  Why should we save? To provide for future needs. Both expected and unexpected. What might happen if you do not set something.
 This chapter addresses the following: ◦ How does government control the amount of money in the economy? ◦ Which government agency is responsible for.
Unit 14 The Federal Reserve The Top Five Concepts
Saving For Your Future Chapter 10 Notes Money Management Financial Security –Financial Security begins when you start ___________________________________.
Spending, Saving, & Investment UNIT 8: PERSONAL FINANCE (1)
Introduction to Stock Market. Common Vocabulary Common Vocabulary Stock Exchange – Place where publicly held companies are bought and sold Nasdaq – an.
Unit 4. Money Three Uses: Medium of Exchange Barter Economy vs. Monetary Economy Unit of Account Store of Value Six Characteristics of Currency Durability.
Lesson 5-2 Savings Accounts
Chapter 30 Savings Accounts pp
Chapter 10 Notes Money Management
“Don’t put all your eggs in one basket.” Diversify!
+ Investments. + Learning Objectives Students will know investment options. Students will be able to identify relative risk, return and liquidity of the.
5.1 Savings and Investing 5.2 The Rule of 72 Getting Started.
Why It’s Important Savings accounts allow you to put money aside and help make your money grow.
Bonds and other financial assets
The Financial System Chapter 16.
Chapter 15 The Federal Reserve System & Monetary Policy
Banking Chapter 5. Section 5.1 Objectives Identify types of financial services Identify types of financial services Describe the various types of financial.
Building: Knowledge, Security, Confidence Pay Yourself First FDIC Money Smart for Young Adults.
Vocabulary Currency- Coins and paper bills used to purchase goods/services. Certificate of Deposit- Earns a higher interest rate than a savings/checking.
Saving and Investing Chapter 6. Deciding to Save Benefits of Saving: (6 months of housing) – Make large purchases without paying interest – Funds for.
© 2008 Thomson South-Western CHAPTER 4 MANAGING YOUR CASH AND SAVINGS.
Objective 8.08 and 8.09 Evaluate the investment decisions made by individuals, businesses, and the government. Describe the role of money in trading, borrowing,
Pay Yourself First.
I. Types of Investments Buying stock
Starter What is a union? Name three kinds of businesses. What is a stockholder? Why would someone choose to go on strike against their employer?
Financial Markets Investing: Chapter 11.
Chapter 21 10/11/ Banking & Credit. Saving Money 10/11/ Ways to save Credit union non-profit financial institution similar to a bank Passbook.
You can BANK on it!. Objectives STUDENTS WILL BE ABLE TO: Understand the different types of financial institutions Calculate how long it will take to.
Banking Chapter 5 – Selecting Financial Services & Institutions.
Personal Finance Key Terms. Capital Formation Movement of money from households to businesses and government through investments and loans.
Stocks, Bonds, and other Financial Instruments CHAPTER 11.3, 11.4.
Chapter Ways to Save  Open a savings account  Bank  Credit union  Savings accounts earn interest  Interest is the money that banks pay depositors.
CHAPTER 24 Money and Banking. Functions of Money Medium of Exchange Store of Value Measure of Value.
Managing Your Money Chapter 23.
CHAPTER 11 FINANCIAL MARKETS. SAVING AND INVESTING SECTION ONE.
1 Slide 1 - Electronic Bank Service But unlike some businesses, banks don’t manufacture products or extract natural resources from the earth. Banks sell.
SAVINGS – Plan for Financial Security. Why Save?Savings is a trade off. You agree to save now in order to spend in the future.  Save for the Unexpected.
Chapter 1 Introduction to Savings Personal Finance Mr. Brown.
Slide 14-1 THE FEDERAL RESERVE. Slide 14-2 The Federal Reserve System –Established in 1913 by the Federal Reserve Act –The central bank of the United.
Page 1 Financial Institutions and Investments. Page 2.
The Federal Reserve System. Prior to 1913, hundreds of national banks in the U.S. could print as much paper money as they wanted They could lend a lot.
How Does Money Grow Over Time? The Stock Market.
Chapter 13 METHODS OF SAVING. Learning Objectives  Explore the ways in which savings can earn interest  Examine the different types of bank accounts.
Chapter 6 Saving & Investing. Deciding to Save There are many reasons to save:  for purchases that require more funds than you usually have at one time.
CHAPTER 6 NOTES. Statement savings account: savings account where the depositor receives a monthly statement showing all transactions. Money market deposit.
Savings Accounts. What is Savings? It is the money put aside for use in the future. Most experts recommend that you put back 10% of your income in savings.
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. The Federal Reserve System Chapter 14.
Investment Your money making money. Social Security Def. Comprehensive federal program providing workers and their dependents with retirement, disability.
McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved The Federal Reserve System Chapter 14.
MAKING GOOD FINANCIAL DECISIONS Credit Cards vs. Saving and Investing.
Investments First rule: Pay yourself first through saving. What is compound vs. simple interest? Second rule: As you acquire wealth and income learn to.
Investments First rule: Pay yourself first through saving.
Module 5: Saving & Investing
MANAGING THE ECONOMY AND THE FED
The Federal Reserve System
MONEY AND FINANCIAL INSTITUTIONS
Savings Plans and Payment Methods
Financial Institutions and Investments
Banking and the Federal Reserve
Chapter 5 The Banking System
Presentation transcript:

Banks, the Fed & Popular Types of Investments

What is a BANK? What is a NATIONAL BANK ?  A BANK is an institution for receiving, keeping, and lending money  A NATIONAL BANK is a bank that is chartered or licensed by the national government

Why is it important you save your money in a bank?  Your money stays safe  You are less likely to waste it  Your money is documented  Your money grows with interest  Your money provides loans to people in your community and around the country

What is INTEREST and why do you earn or get charged it?  Interest is money paid to borrow money  Interest is money earned for saving money  Banks pay interest to entice you to save  Banks charge interest to earn their own money by lending

Simple vs. Compound Interest  Principal = Amount of money borrowed  Simple Interest = interest paid only on principal  Compound Interest = interest paiid on both principal and accumulated interested ***See Next Slide

Let’s say the interest rate is 5%

Interest Rate Loanable Funds ($billions) Demand Supply 5% 60 LOANABLE FUNDS GRAPH When interest rates are HIGH, people save more and borrow less When interest rates are LOW, people save less and borrow more

Fractional Reserve System  A banking system that keeps only a fraction of funds on hand and lends out the remainder  The Reserve Ratio (R) is 10% today  This means if you deposit $10 into the bank, $1 is put in the vault and the other $9 is lent out

The Federal Reserve System (Central Banking System)  The Federal Reserve (FED) is the biggest bank in the USA ran by the Federal Government  The FED watches over all smaller banks  The FED keeps banks supplied with money if in need  The FED controls (prints/coins $) the money supply therefore they regulate $ value  The FED designs and regulates loan structures and rules  The FED clears checks (oks written checks)  The FED decides INTEREST RATES  The Federal Deposit Insurance Company (FDIC) insures your deposits up to $250,000 today  Created in 1913 by the Federal Reserve Act  TIP: You should join a FDIC insured bank…watch it…some are not insured by the Federal Govt!!!!

The Structure of the Fed The Federal Reserve System consists of: Board of Governors (7 members), located in Washington, DC 12 regional Fed banks, located around the U.S. Federal Open Market Committee (FOMC), includes the Bd of Govs and presidents of some of the regional Fed banks The FOMC decides monetary policy. Alan Greenspan Chair of FOMC, Aug – Jan 2006 BEN BERNANKE (Current)

THE FED DISTRICTS You are in DISTRICT 7 and your main bank is located in CHICAGO And there is a branch bank in DETROIT

Top 10 Common Investments

1. Savings & Checking  Two most common ways of saving  Pays the smallest interest out of most common investments  Checking pays lower interest because money is moving…not sitting  When you write checks or use your debit card, money comes out of your CHECKING account

2. Stocks  You know what stocks are  Private Stock = Only family members or selected people can buy  Public Stock = Anybody can buy  Common Stock = You don’t get your money back if company goes bankrupt, but you can vote on company happenings  Preferred Stock = You may get your money back if company goes bankrupt, however, you have no voting rights in company happenings  IPO’s (Initial Public Offering..when a company first issues stock) IPO’s  Stock Splits

3. Bonds  Debt security…Its like a loan  1. PAR VALUE = Face Value  2. COUPON RATE = Interest rate  3. MATURITY = How long you have to wait until it reaches full value  BOND RATINGS (Standard & Poors, Moodys, Fitch) BOND RATINGS  There are several types on bonds: Corporate, Savings, Government, Municipal, School…  RULE OF THUMB: Longer the term, the higher the interest…riskier the bond, higher the interest

4. Mutual Funds  A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short- term money market instruments, and/or other securities.stocksbondsmoney market securities  The mutual fund will have a fund manager that trades the pooled money on a regular basis. The net proceeds or losses are then typically distributed to the investors annually.fund managertrades  RULE OF THUMB – the more you put in and the longer you invest…the more you make…a LONG TERM investment

5. Money Market Accounts  A money market account is a type of savings account offered by banks and credit unions just like regular savings accounts. The difference is that they usually pay higher interest, have higher minimum balance requirements (sometimes $1000-$­2500), and only allow three to six withdrawals per month.bankscredit unionsinterest  Another difference is that, similar to a checking account, many money market accounts will let you write up to three checks each month.

6. Certificate Of Deposit (CDs)  Like a savings account and a bond  You must agree to keep your money in an account for a certain period of time  Can’t withdraw early  RULE OF THUMB: Longer you keep it in, higher interest you get

7. IRA accounts  Individual Retirement Account  Info, Info, Info Info, Info, Info  401k = Retirement savings for private employees  403b = Retirement savings for government employees

8. ANNUITIES  You pay fixed payments to a life insurance company over many years  Tax deferred – you are not taxed until it is withdrawn  When you retire or die, you or the people you choose receive fixed monthly payments

9. Pensions  An arrangement to provide people with an income when they are no longer earning a regular income from employment.  You pay in each paycheck over your career  You receive a monthly paycheck when you retire

accounts  A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs  Higher interest because money is put in for 18 years or more