1. How to Do your Banking
Chapter 5

2. Savings Accounts Saving Investing Deposit Withdrawal Interest
Interest rate
Account balance
Compounding of interest
Future value
Present value
Discount factor
Rule of 72

3. By saving even small amounts of money, you can build wealth slowly but steadily over time.

4. savings Money not intended for everyday expenses
Purpose is to provide a safe place to save money that can be uses at a later date
Large purchases
Financial security
Emergency fund

5. Savings account basics
Goal of saving is to provide funds for emergencies, short-term goals, and eventually investment
Save first, then begin investing it
Keep in mind the difference between saving and investing

6. Savings
The process of setting aside money for a future date instead of spending it today

7. investing
The process of setting aside money to increase wealth over time and accumulate funds for long- term financial goals such as retirement

8. Deposits and withdrawals
Have you ever tried to save up for something, but are unsuccessful because you are constantly taking out small amounts of cash that you were “saving”?
Most of us have good intentions, but not the willpower when the money is accessible

9. Pail of water Think of a savings account like a pail of water
Amount of water in the pail is your money
When you add water, it is a deposit
The hole at the bottom of the pail is a withdrawal
How do you keep your pail full?

10. deposit
Money you put into a savings account

11. withdrawal
Money taken out of a savings account

12. Interest payments Little something extra you earn by saving money
You are basically a lender to the bank and the bank is a borrower when you put money into a savings account
The bank has use of your money until you choose to withdrawal it
Make loans for other people
Bank pays you money for giving up use of your money--interest

13. Money paid to you by the bank for being able to use your money
interest
Money paid to you by the bank for being able to use your money

14. Percentage you are paid for your money
Interest rate
Percentage you are paid for your money

15. Total amount of money that is in the account at a given point in time
Account balance
Total amount of money that is in the account at a given point in time

16. Pail of water
Even if no additional water enters your bucket and water goes out the hole in the bottom you still have added water
WhY?

17. You open a savings account with $1000
You don’t make any additional deposits or withdrawals
Money stays in your account for one year
Your interest rate is 3% per year paid monthly
What is your monthly interest rate?

18. Month
Interest Rate
Beginning Balance
Interest Payment
Ending Balance 1
0.0025
1000
2.5
1002.5 2 3 4 5 6 7 8 9 10 11 12

19. Interest rates Vary significantly Late 1970’s it was 16%

20. Interest payment=interest rate x beginning account balance
Ending account balance=beginning account balance + interest payment
beginning account balance = ending account balance from the previous month

21. Compounding of interest
Why do interest payments increase over time?
The bank credits interest to your account each month, and that interest is earned on the entire account balance, not just the original deposit.
As the account balance grows over time, your interest earnings grow as well thanks to the compounding of interest

22. Future Value
How much a set amount of money will be worth in the future

23. Future Value for 1 year
100=x * (1+rate)

24. The value of the money right now, today
Present value
The value of the money right now, today

25. Discount factor
The amount that $1 at some point in the future is worth today
In our example the discount factor is .9705
1000/
That means cents is worth $1 in the future

26. Rule of 72
A formula designed to help people estimate how long it will take to double their money at a certain expected interest rate

27. Rule of 72 In our example we had $1000 with 3% interest
How long will it take to double our money?
24 years
72/3
This is an estimate, not an exact calculation

28. practice
How long will it take to double your money ($1000) at the interest rates? 2% 4% 8%

29. practice 1 .25% 0.00 1000.00 2.50 1002.50 Month Interest Rate
Withdrawals
Beginning Balance
Interest Payments
Deposits
Ending Balance 1
.25%
0.00
2.50

30. practice
You deposit $320, half the money you earn from your part-time job, monthly
In Month 4 you withdraw $45 to purchase a video game
In Month 7 you deposit $50 you received for your Birthday
In month 10 you withdraw $200 to pay a registration fee for an upcoming activity

31. Checking accounts Check Deposit/Credit Debit Balance/Reconcile
Statement Balance
Debit Card
Pin
Interest Bearing Account
EFT
Online and smartphone Banking
Automated Teller Machines
Overdrawn
Overdraft Penalty
Identity Theft
Overdraft Protection
Minimum Account Balance

32. Checking accounts have changed
Today’s checking accounts are designed to make it easy for people to
Pay bills
Purchase things
Withdraw cash

33. Check
Handwritten or computer generated order specifying the amount of money to be paid and the name of the person or company who should receive the funds

34. Checking accounts services
Debit cards
Electronic funds transfers
Online banking

35. Checking v savings
Money in a checking account is meant to be used

36. Checking account balances
Keep track of deposits or credit and debits from your account

37. Deposit
Or Credit
Money you put into your account

38. Debit
Withdrawal from your account

39. Parts of a check

40. Check register
Records the date and amount of deposits, date, check number, payee, and amount check is written for

41. Check Register

42. Balance/Reconcile
At the end of each month you should balance or reconcile your checkbook
Compare the amount of money in an account, equal to the net of credits and debits at that point in time for that account

43. Reconcile check book
Account balance = start of the month account balance + total amount of deposits – total amount of checks written or debits

44. Statement balance
How much money you have in your checking account as of the statement date

45. practice The end of the month balance for august is $143.68
During September you make two deposits for $ and $ and your write nine checks totally $289.44
What is your account balance?

46. Now you practice
Complete #12

47. Now you practice Beginning Balance $35 Total debits $53.20
Total credits $46.50
Ending Balance $28.30

48. Electronic, online, and smartphone banking
Instead of writing checks—use debit card to pay for day-to-day transactions

49. Checks v debit cards
Debits are easily completed by swiping a card that looks like a credit card
Debit card funds are accessed immediate by the merchant and funds are automatically deducted from the cardholder’s account
Debit cards can be used at ATMs to get cash immediately

50. Debit card
A card that allows the user to withdraw money from a bank account to obtain cash or make a purchase

51. Personal Identification Number (PIN)
Four digit code connected to the debit card; verifies your identity

52. Electronic Funds transfer
The movement of funds using computer systems, telephones, or electronic terminals or smartphones

53. Online and smartphone banking
Allows account holders to access their account information, view transaction history and perform banking transactions via the Internet or their mobile phone

54. Automatic Teller Machines (ATMS)
Automated machine that tallows you to perform basic banking functions without the help of a teller

55. practice You have a beginning balance of $143.68
You make two deposits of $ and $108.78
You wrote 9 checks totaling $289.44
You forgot to record a debit from a trip to the mall of $22.94 until you checked your account online
In the meantime you sent a check for $62.97 to pay your cell phone bill
what is your current balance?
What do you think will happen when the cell phone company cashes your check?
What will happen as a result of your failure to record the debit?

56. Overdrafts and overdraft protection
It is important to remember to record transactions in your checkbook register when using a debit card to pay a merchants, use an ATM, and use EFT for paying bills
Failure to record transactions can result in being overdrawn

57. Having a negative balance in your account
overdrawn
Having a negative balance in your account

58. A fee to cover the cost of processing your bad check
Overdraft penalty
A fee to cover the cost of processing your bad check

59. Overdraft protection
Agreement with the bank to cover checks so they will not bounce
Automatic transferring money from another account to the same bank to cover the amount
Allowing you to overdraft your account up to a specified limit before assessing any penalties and bouncing your checks
Lending you the amount of money by which you have overdrawn your account and charging you interest on the loan

60. practice Using the example:
Your account balance is and the cell phone company will receive a check for $62.97, which could overdraw the account to - $17.65
You don’t get paid for another week
Not only will you be charged a late fee with your cell phone company and risk losing service
You will be charged and overdraft penalty by the bank

61. Choosing a checking account
When selecting a back, be sure to choose an account that meets your needs in terms of service that match your spending habits
Read the fine print
Pay attention to fees and requirements
Minimum balance
Interest bearing?
Free checks
Online bill pay
Mobile phone apps
statements
Overdraft protection
Limits debit transactions