Unit 5: Personal Finance

Services of the Bank  Place to store your money safely – an Account

Services of the Bank  Types of Accounts –Savings Account – pay a small interest rate, allow you to withdraw cash –Checking Account – pay a very small interest rate, allow you to write checks, withdraw cash, or use a debit card

Services of the Bank  Types of Accounts –Money Market Account – pay a higher interest rate according to the market value, works like a checking account, require high minimum balance  Not insured by the FDIC –Certificate of Deposit (CD) – pay a very high guaranteed interest rate over a certain time, but do not allow you to take money out in that time

Services of the Bank  Loans – banks lend out money and charge interest –Fractional Reserve – banks only keep some of the money deposited

Services of the Bank  Loans – banks lend out money and charge interest –Risk of default – failure of lendee to make payments to the bank

Services of the Bank  Loans – banks lend out money and charge interest –Mortgage – type of loan given to purchase real estate (houses, land)

Services of the Bank  Credit Cards – bank pays for goods you purchase, then bills you for them later, adding interest to what you owe

Interest Rates  Interest – the price paid for the use of borrowed money (usually a percentage rate)  Principal – the amount borrowed  Balance – the amount still owed

Interest Rates  The interest rate can be compounded (added on) in many different ways  Whaddya say we take a look at how it works together?

Interest Rates  Compounded Annually (Once a year) –$100,000 principal, 5% interest rate –What is the total new principal? –$105,000.00!

Interest Rates  Compounded Semiannually (Twice a year) –$100,000 x 2.5% (first compounding) –$102, –$102,500 x 2.5% (second compounding) –$105,060.00!

Interest Rates  Compounded Monthly (12 times a year) –Anyone want to try calculating this? –Fine then. It’s $105, –You spend an extra $ just from the way the interest is compounded

More Services of the Bank  Automated Teller Machines (ATMs) – allow you to deposit/withdraw money and see account information without going into the bank  Debit Cards – used to withdraw money, or pay for goods from your checking account