Savings

How can you save? Live within your budget/spending plan. Pay yourself first. Latte factor: cut back on a few wants for the month, like the bag of M&M’s after lunch, the drink from Maverik, the coffee in the morning.

Savings cont. The Step-down principle: stepping down in spending. Example: You have to eat, here are your choices: You have to eat, here are your choices: Sit down restaurant: $20 Fast food: $5 Prepare food at home $2.50 Entertainment choices Entertainment choices Concert - $20 Movie - $7.50 or $1.00 Borrow a movie or play games or go on a walk – FREE! Clothing Choices Clothing Choices Banana Republic or Old Navy???

Savings cont. Save your spare change Biggest reason people don’t save: I cannot afford to save money I cannot afford to save money Can you really afford not to? Can you really afford not to? Even if you only save $15 dollars a month, when you retire you will have $180,

Needs vs. Wants Before purchasing anything, ask yourself: Did I want it yesterday? Did I want it yesterday? Do I really need it? Do I really need it? Will I use it? Will I use it? Can I really afford it? Can I really afford it? Can I be happy without it? Can I be happy without it?

Types of Savings Statement Account Depositor receives a monthly statement in which deposits, withdrawals, and interest are recorded. Depositor receives a monthly statement in which deposits, withdrawals, and interest are recorded. Average interest rate is lower at banks than at credit unions. Average interest rate is lower at banks than at credit unions. Interests rates are generally low. Interests rates are generally low. Accounts are usually accessible through 24- hour automated teller machines (ATMs). Accounts are usually accessible through 24- hour automated teller machines (ATMs). Funds are easily accessible Funds are easily accessible

Types of Savings cont. Interest-earning checking account Combines benefits of checking and savings Combines benefits of checking and savings Depositor earns interest on any unused money in account. Depositor earns interest on any unused money in account.

Certificate of Deposit (CDs) Bank pays a fixed amount of interest on a fixed amount of money for a fixed amount of time. Benefits: No risk No risk Simple Simple No fees No fees Offers higher interest rates than savings account Offers higher interest rates than savings account Also known as Time Accounts

CDs cont. Negatives: Restricted access to your money Restricted access to your money Withdrawal penalty if cashed before expiration date (penalty might be higher than the interest earned). Withdrawal penalty if cashed before expiration date (penalty might be higher than the interest earned).

Money Market Accounts Checking/Savings Account Interest is variable based on the balance and the current market. Can access your money through an ATM, a teller, or by writing up to three checks per month.

Money Market cont. Benefits: Immediate access to your money Immediate access to your money Rate of return is higher than regular savings accounts Rate of return is higher than regular savings accountsNegatives: Usually requires a minimum balance of $1,000 to $2,500. Usually requires a minimum balance of $1,000 to $2,500. Limited number of checks can be written each month. Limited number of checks can be written each month.

Choosing a Savings Account Consider the following items: Interest rate (also called rate of return or annual yield) Interest rate (also called rate of return or annual yield) Fees, charges, penalties. Fees, charges, penalties. Usually based on minimum balance requirements, or transaction fees Balance requirements Balance requirements Balance calculation method Balance calculation method Most calculate daily. Some use average of daily balances.

Truth in Savings Law The Truth in Savings Act (Federal Reserve Regulation) Requires financial institutions to disclose the following information on savings accounts they plan to offer: Requires financial institutions to disclose the following information on savings accounts they plan to offer: Fees on deposit accounts Interest Rate Other terms and conditions APY (Truth in Savings Act defines year as 365 days rather than 360, 366 or some other number, which eliminates confusion caused by the more than 8 million variations of interest calculation methods previously used by financial institutions.)