 Savings and Savings Products Unit 3

Federal Reserve Bank  Federal Reserve Bank – is part of the central banking system in the United States  Services provided to depository institutions include:  Collecting checks  Electronically transferring funds  Distributing and receiving cash and coin

Federal Reserve (12 Regional Banks)

Chairman of the Federal Reserve

Depository Institutions  Depository Institutions – businesses which offer multiple services in banking and finance  These institutions include:  Banks  Credit Unions  Institutions are regulated by various state and federal agencies

Commercial Banks  Commercial Banks  Usually the largest depository institutions  Considered full-service depository institutions because offer a wide variety of services and products  Available to a variety of consumers  Local examples – 5/3 Bank, US Bank, Chase

Credit Unions  Credit Unions  Non-profit cooperative depository institution  Owned by members who share a common bond  Local example – GE Credit Union

Types of Insurance  Federal Deposit Insurance Corporation (FDIC)  Federal government agency which protects depository institution accounts that insures commercial banks and S&L’s  National Credit Union Administration (NCUA)  Provides insurance for credit unions  Each depositor is insured up to $100,000 for money deposited in a regular account  Note this amount was temporarily increased to $250,000 during the 2008 financial crisis.

Financial Institutions and Interest  Interest – the amount of money that is either gained or lost when accessing services offered by a depository institution  Two types of interest include:  Interest earning (Savings Products) - Money earned from an investment instrument  Interest bearing (Loan Products) - The charge for money that a consumer borrows from a depository institution

Interest Rates  Interest rate – the percentage used annually to calculate the total interest either gained or lost

Savings Basics  Savings is the portion of current income not spent on consumption. Savings must be liquid with zero risk of loss  Emergency Savings (minimum of 3-6 months of income)  Click here for a emergency savings calculator to help you determine how much to save. Click here  Future Purchases  Future Opportunities  Savings should be liquid / No or little fees!  Watch out for “minimum balance” fees  Make saving automatic with a Direct Deposit  Direct Deposits Matter Direct Deposits Matter

How to Save  Pay Yourself First  Ideally with a direct deposit  Start Small. Increase what you save as…  you realize you can afford to save more  save most, if not all, of bonuses and pay raises

Types of Savings Products  Simple savings account  Certificate of deposit  Prize linked savings  The responsible alternative to the lottery.lottery  Individual Development Account (IDA)  Matched Savings Programs

Advantages of Savings Accounts  Money is safe  FDIC or NCUA insured  Direct Deposit Services  Direct Deposits Matter Direct Deposits Matter  Earn Interest  Opportunity to receive additional banking services

Prize-Linked Savings Programs  Prize-linked savings (“PLS”) products offer savers a return in the form of the chance to earn large prizes, rather than in more traditional forms of interest or dividend income or capital appreciation. The probability of winning is typically determined by account balances, and the aggregate prize pool can be set to deliver market returns to all savers.  Save Up Save Up  Credit Union National Association Credit Union National Association  Save Your Refund Save Your Refund

Individual Development Accounts (IDA’s)  Individual Development Accounts (IDAs) are matched savings accounts that help people with modest means to save towards the purchase of a lifelong asset, such as a home.  They are sometimes referred to us “Matched Savings Programs”  Click here to learn more about how they work. Click here

Shop Around  Like any business, different companies have different services. You need to find the Financial Institution and service that best fits your specific situation. We are going to experience that today.