1. Financial Institutions and Investments
Personal Finance
Financial Institutions and Investments

2. Financial Institutions

3. Banks v Credit Unions Credit Unions Commercial Banks
Not for profit institution
Owned by account holders
Tend to offer better interest rates
NCUA insured
Commercial Banks
For profit institution
Owned by stockholders
Earns money through charging interest
FDIC insured

4. $250,000 FDIC? NCUA? NCUA National Credit Union Administration FDIC
Insures deposits for member credit unions in case of failure
FDIC
Federal Depositors Insurance Corporation
Insures deposits for member banks in case of failure
$250,000

5. Credit Cards Loans Investments Services Offered CDs IRAs
Checking Accounts
Savings Accounts
Loans
Credit Cards
Investments
CDs
IRAs

6. Investing

7. What is an investment?
Money or property acquired for future income

8. Investment Types Savings Accounts: Includes: Bank Savings:
Account for saving money
Certificates of Deposit (CDs):
Savings account where money is locked in place until maturity date
Individual Retirement Account:
Retirement account that cannot be accessed until certain age
Low risk investments so low returns on investment

9. Investment Types Bonds:
Loans to governments or corporations with a promise to pay back on certain date with interest
Lower risk investments so lower returns

10. Investment Types Mutual Funds:
Mixed type of investment consisting of savings, bonds and stocks
Multiple investors combine funds to create larger investment pool
Medium risk investments so medium level returns

11. Investment Types Stocks:
Investment in a company that makes the investor part owner in the company
No protection of investment or guarantee of return
Highest risk investments so highest potential returns – can also be highest losses depending upon invested amount

12. Risk?
Return?

13. Risk?
Risk
The probability that your investment will suffer losses

14. Return? Return A yield (income earned) on an investment
Ex. People investing in the stock market hope that the value of the stock will increase

15. Types of Returns Banks: Interest paid Bonds: Interest paid
Stocks: increases in stock value or dividends (owner share of profits)
Proceeds from sale of property or stock

17. Interest Simple Interest
Interest is based on original loan or savings amount (principal)
Formula: (PxR)T
Ex: Mortgage loans where a borrower pays interest only on the amount borrowed.

18. You give $100 to a bank
They pay you 5% simple interest per year.
After one year you will have $105. ((100*.05)*1)
After two years you will have $110.
Each year earns $5 in interest

19. You deposit $1000 into a bank account paying 7% simple interest per year. You left the money in for 3 years.
(1000 *.07)*3 = $210

20. You deposit $12000 into a bank account paying 1
You deposit $12000 into a bank account paying 1.5% simple interest per month. You left the money in for 2 years.
(12000*.015)*2 = $360

21. Interest Compound Interest
Interest is based on current amount owed or saved (principal and any previous interest earned)
I.E. you earn interest on old interest (money grows faster this way!)

22. Formula: Principal x {(Annual interest rate ÷ 100) + 1}^number of years.
For example, $1,000 at an annual compound interest rate of 10 percent will, in 5 years, be: 1000 x {(10 ÷ 100) + 1}^5 = $1,