Saving and Investing Part 1 Personal Finance Mrs. Brewer.

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Presentation transcript:

Saving and Investing Part 1 Personal Finance Mrs. Brewer

Happy Birthday!!

What Can You Do With $100.00? How else can you earn money?? Anyone have a savings account? Savings Bonds? Why should you save money?

Savings Accounts Checking Accounts Certificate of Deposits Put your money to work for you! Lower Rate of Return Low Risk Investment High Liquidity

Savings Accounts Account where you can deposit and withdrawal money easily Accounts earn interest Money is accessible through an ATM machine or debit card

Checking Accounts Combines benefits of checking and savings, money can be easily withdrawn Some checking accounts earn interest Money can be accessed through an ATM machine or debit card

Money Market Deposit Account Checking/Saving Account Average interest rate higher than regular checking account Usually requires a minimum (more than $1,000) balance Limited number of checks can be written each month

Certificate of Deposit Bank pays a fixed rate of interest for a fixed amount of time on a fixed amount of money. Example: 60 month CD, $1,000, 0.75% Restricted access to money, less liquid

Let’s Shop for a Bank!

Results Where would you invest your $100.00? How would you invest it? Why?

PRINCIPAL & INTEREST Amount of money deposited is called principal. Amount of money bank pays on the principal is called interest.

Simple Interest is interest paid only on the principal Simple Interest Calculation: Dollar Amount X Interest Rate X Length of Time $ x 2% x 1 year = $2.00 At the end of one year you have made $2.00 on your $ initial deposit.

You Do the Math! SIMPLE INTEREST3% Interest Rate YearBeginning BalanceInterest PaidYear End Balance 1$1,000.00$30$1, $

You Do the Math! SIMPLE INTEREST3% Interest Rate YearBeginning BalanceInterest PaidYear End Balance 1$1,000.00$30$1, $30$1,

You Do the Math! SIMPLE INTEREST3% Interest Rate YearBeginning BalanceInterest PaidYear End Balance 1$1,000.00$30$1, $30$1, $30$1, $30$1, $30$1, $30$1, $30$1, $30$1, $30$1, $1,270.00$30$1,300.00

Compound Interest Compound interest, interest is earned on the original amount of deposit AND on the interest that has already been earned on the deposit.

Annual Compound Interest Calculation (Original Deposit + Interest Earned) x Interest Rate x Length of Time Year One: $ x 2% x 1 = $2 $ $2.00 = $ Year Two: $ x 2% x 1 = $2.04 $ = $104.04

You Do the Math! COMPOUND INTEREST3% Interest Rate YearBeginning BalanceInterest PaidYear End Balance 1$1,000.00$30.00$1,

You Do the Math! COMPOUND INTEREST3% Interest Rate YearBeginning BalanceInterest PaidYear End Balance 1$1,000.00$30.00$1, $30.90$1,

You Do the Math! COMPOUND INTEREST3% Interest Rate YearBeginning BalanceInterest PaidYear End Balance 1$1,000.00$30.00$1, $30.90$1, $31.83$1, $32.78$1, $33.77$1, $34.78$1, $35.82$1, $36.90$1, $38.00$1, $1,304.78$39.14$1,343.92

Computing Interest Compounded Quarterly Compound interest means earning interest on your original amount of deposit AND on the interest that has already been earned on your deposit.

Computing Interest Compounded Quarterly To compute interest compounded quarterly, divide the annual interest rate by 4 to get the quarterly rate: 3% or.03 / 4 =.0075

You Do the Math! COMPOUND INTEREST 3% Interest Rate Compounded Quarterly YearYear Beginning Balance 1 st Quarter Interest Subtotal2 nd Quarter Interest Subtotal3 rd Quarter Interest Subtotal4 th Quarter Interest Total Savings 1 $1, ,

You Do the Math! COMPOUND INTEREST 3% Interest Rate Compounded Quarterly YearYear Beginning Balance 1 st Quarter Interest Subtotal2 nd Quarter Interest Subtotal3 rd Quarter Interest Subtotal4 th Quarter Interest Total Savings 1 $1, , , , ,

You Do the Math! COMPOUND INTEREST 3% Interest Rate Compounded Quarterly YearYear Beginning Balance 1 st Quarter Interest Subtotal2 nd Quarter Interest Subtotal3 rd Quarter Interest Subtotal4 th Quarter Interest End of Year Balance 1 $1, , , , , , , , , , , , , , , , , , , , ,161.18

Compounded Interest Interest can be compounded every six months: divide interest rate by 2 Interest can be compounded monthly: divide the interest rate by 12

The Rule of 72 The rule of 72 is a shortcut that can be used to find out how many years it will take a deposit to double in value using compounding interest. 72 / Annual Rate of Return = Number of Years to Double

Rule of 72 If you invest $1,000.00, how many years will it take for it to grow to $2, At 3%? 24 years At 6%? 12 years

Who Wants to be a Millionaire? Start Saving Early! Save as Much as you Can! Earn Compound Interest! Try to Earn the Highest Interest Rate!