1. Chapter 5
Section 5.2

2. Types of Accounts in a Bank
Certificate of Deposit
Money Market Accounts
U.S. Savings Bonds

3. Certificate of Deposit
Is often referred as a CD (not the music kind).
Some info about CD’s
Term – length a CD
Principal – the original amount you put in.
Maturity Date – when you can take the money out without penalty.

4. Three limitations for CD’s
Must leave money in bank for at least 3 months, but can be for 3 to 5 years.
Large penalty for taking money out early.
There is always a minimum amount that you must put in depending on the length of the CD.

5. Money Market Accounts
Requires a minimum balance and earns interest that varies from month to month.
Usually requires a larger initial investment than a regular checking or savings account.
Penalty if the your balance goes below the minimum required balance.
Can write a certain amount of checks.

6. U.S. Savings Bonds Also know as…. Patriot Bonds
Were bought during the war to help support the government support the troops when we were at war.
Downside – Usually takes a long time to generate any interest from the bond. Also bonds purchased after 1997 incur a three month penalty if cashed before maturity date.

7. Savings Plans and Payment Methods
Type of Account
Benefits
Drawback
Regular Savings
Low Minimum balance
Ease of withdrawal
Insured
Low rate of return
Certificate of Deposit (CD)
Guaranteed rate of return for time of CD
Possible penalty for early withdrawal
Money Market Accounts
Good Rate of Return
Some Check writing
Minimum balance
No interest and possible service charge if below a certain balance
U.S. Savings Bonds
Low minimum deposit
Guaranteed by the government
Free from state and local taxes
Lower rate of return when cashed in before bond reaches maturity date

8. Rate of Return Rate of Return
Is the percentage increase in the savings from earned interest.
Here is an example:
Sally put her $75 in a savings account that earned $3 at the end of the year. How much was her rate of return.
($3.00/$75.00 = .04 or 4%)
She had a 4% return on her investment.
Look at worksheet

9. Compounding Interest
Compounding means that we calculate interest for the account add that amount to the account and then recalculate it again with the new amount the next month.

10. The loooooong way to do compound interest
Month
Principal x Interest Rate
Number of Months
Interest 1
(100 x 4%) 12
4.00 2
(104 x 4%)
4.16 3
( x 4%)
4.33 4
( x 4%)
4.50 5
( x 4%)
4.68
Mr. Prosser put $100 in his savings account that accumulated 4% interest that was compounded yearly. At the end of 5 years he compounded a total of

11. Now you do one…. Principal $250 Interest 2.5% 4 Years Beginning Amount
Ending Amount
250.00
250*.025 =
6.25
256.25
256.25
6.41
262.66
262.66
6.57
269.23
269.23
6.73
275.96

12. M=P(1+i)n Lets do another….
Sally puts 200 in the bank and it will be compounded monthly at 3%. How much do you have in your account after 5 years?
M=P(1+i)n

13. Annual Percentage Yield (APY)
Is the amount of interest that a $100 deposit would earn, after compounding, for one year.
Easier definition – It is the amount of interest that you would accumulate on the account if you did not deposit or withdrawal anything from this account.
So if you deposited 100 dollars and got 105 dollars at the end of the first year the APY would be 5%

14. The Rule of 72 The most important and simple rule to financial success.

15. Rule of 72
The answers can be easily discovered by knowing the Rule of 72
The time it will take an investment (or debt) to double in value at a given interest rate using compounding interest. 72 =
Years to
Interest Rate
double investment (or debt)

16. “It is the greatest mathematical discovery of all time.”
Albert Einstein
Credited for discovering the mathematical equation for compounding interest, thus the “Rule of 72”
T=P(I+I/N)YN
P = original principal amount
I = annual interest rate (in decimal form)
N = number of compounding periods per year
Y = number of years
T = total of principal and interest to date (after n compounding periods)
“It is the greatest mathematical discovery of all time.”

17. What the “Rule of 72” can determine
How many years it will take an investment to double at a given interest rate using compounding interest.
How long it will take debt to double if no payments are made.
The interest rate an investment must earn to double within a specific time period.
How many times money (or debt) will double in a specific time period.

18. Things to Know about the “Rule of 72”
Is only an approximation
The interest rate must remain constant
The equation does not allow for additional payments to be made to the original amount
Interest earned is reinvested
Tax deductions are not included within the equation

19. Doug’s Certificate of Deposit
Doug invested $2,500 into a Certificate of Deposit earning a 6.5% interest rate. How long will it take Doug’s investment to double?
Invested $2,500
Interest Rate is 6.5% 72 =
11 years to double investment
6.5%

20. The average stock market return
Another Example
The average stock market return
since 1926 has been 11%
Therefore, every 6.5 years an individual’s investment in the stock market has doubled 72 =
6.5 years to double investment
11%

21. Jessica’s Credit Card Debt
Jessica has a $2,200 balance on her credit card with an 18% interest rate. If Jessica chooses to not make any payments and does not receive late charges, how long will it take for her balance to double?
$2,200 balance on credit card
18% interest rate
This equation assumes that no additional payments or late fees were charged
Generally minimum payments on credit cards are 2% of the account balance each month 72 =
4 years to double debt
18%

22. Another Example $6,000 balance on credit card 22% interest rate 72 =
3.3 years to double debt
22%

23. Jacob’s Car $5,000 to invest Wants investment to double in 4 years
Jacob currently has $5,000 to invest in a car after graduation in 4 years. What interest rate is required for him to double his investment?
$5,000 to invest
Wants investment to double in 4 years 72 =
18% interest rate
4 years

24. Another Example $3,000 to invest
Wants investment to double in 10 years 72 =
7.2% interest rate
10 years

25. Rhonda’s Treasury Note
Rhonda is 22 years old and would like to invest $2,500 into a U.S. Treasury Note earning 7.5% interest. How many times will Rhonda’s investment double before she withdraws it at age 70?
Age
Investment 22
$2,500
31.6
$5,000
41.2
$10,000
50.8
$20,000
60.4
$40,000 70
$80,000 72 =
9.6 years
7.5%
to double investment

26. Another Example $500 invested at age 18 7% interest
How many times will investment double before age 65?
Age
Investment 18
$500
28.2
$1,000
38.4
$2,000
48.6
$4,000
58.8
$8,000 69
$16,000 72 =
10.2 years 7%
to double investment

27. Conclusion continued
Things individuals must remember about the Rule of 72 include:
Is only an approximation
The interest rate must remain constant
The equation does not allow for additional payments to be made to the original amount
Interest earned is reinvested
Tax deductions are not included within the equation

28. Types of Checking Accounts
Three main categories:
Regular
Active
Interest-Earning (Bearing)

29. Checking accounts Regular Checking Accounts Activity Accounts
Non- Interest bearing
No minimum required balance
Usually no extra fees
Activity Accounts
Used if you write very few checks from this account and unable to stay above the minimum balance.
Fee for each check you write and sometimes a fee for each deposit you put into the bank.
Also a monthly service fee for this account.

30. Interest-Earning (Bearing) Accounts
A combination between checking and savings accounts.
These accounts pay interest if you maintain a minimum balance.
If you drop below minimum – fees are charged.

31. Evaluating Checking Accounts
What should I look for when getting a checking account?
Restrictions
Minimum balance
Number of checks or deposits
Fees and Charges
Service charge for
Check printing
Overdrafts
Stop-payments

32. Interest Special Services Interest Rates Frequency of compounding
The way interest is calculated all affect interest bearing checking accounts
Special Services
Overdraft protection

33. Comparing checking accounts worksheet

34. Using a Checking Account
Opening a checking account
Signature Card
Individual or Joint Accounts
Individual
Your name is the only name on the account
Only one that can write checks and make deposits
Joint Accounts
Also called a “or” account
Two names on an account, either name can make deposits or withdrawals on the account

35. Go to other powerpoint

36. Writing a checks Printed name and Address of depositor Check No.
Date of the Check
Your Name
109
1313 Mocking Bird Lane
St. Louis, MO 63146
2007
PAY TO THE ORDER OF $
DOLLARS
St. Louis Bank company
Memo:
2: :
Name of the Person you are writing the check to.
Amount for the Check
Amount in Words
Name of Bank checks were issued from.
Why the check was written
Signature Line
Routing Number
Account Number

37. Check Register
The check register is the where we keep track of all of the checks we have written.
No days there are carbon copies, and electronic displays of checks.

38. Example of a Check Register
Check Number
Date
Description of Transaction
Payment/Debit (-)
Fee (If Any)
Deposit/Credit (+)
Balance
5000 
 101
7/15
Utilities – Gas 75
 00
4925
 102
7/18
 Car Payment
1111
3814
 Birthday Present 50 00
3864

39. Writing the number
When you write a number it has to be written out fully….
For example: $125.56
One hundred twenty-five and 56/100
Practice these
$ One thousand two hundred thirty-four and 56/100
$ Thirty-four and 76/100

40. Lets write a few checks
Mr. Prosser decides to pay his bills on Saturday.
Here are the bills he needs to pay
Gas Bill $79.25 (Laclede Gas)
Car Payment $1, (GMAC)
Computer Repair –Circuit City $325.00
Birthday gift from Grandpa $50

41. Your Name 101 1313 Mocking Bird Lane St. Louis, MO 63146 2007
101
1313 Mocking Bird Lane
St. Louis, MO 63146
2007
PAY TO THE ORDER OF $
DOLLARS
St. Louis Bank company
Memo:
2: :

42. 8655.25 101 3/3 Laclede Gas Company 79 25 8576 102 3/3/10 GMAC 1111
Check Register
Check Number
Date
Description of Transaction
Payment/Debit (-)
Fee (If Any)
Deposit/Credit (+)
Balance
 101
3/3
Laclede Gas Company 79
 25
8576
 102
3/3/10
 GMAC
1111
7465
 3/3/10
 Circuit City
325
7140
Birthday Gift 50 00
 7190

43. Your Name 102 1313 Mocking Bird Lane St. Louis, MO 63146 2007
102
1313 Mocking Bird Lane
St. Louis, MO 63146
2007
PAY TO THE ORDER OF $
DOLLARS
St. Louis Bank company
Memo:
2: :

44. 8655.25 101 3/3 Laclede Gas Company 79 25 8576 102 3/3/10 GMAC 1111
Check Register
Check Number
Date
Description of Transaction
Payment/Debit (-)
Fee (If Any)
Deposit/Credit (+)
Balance
 101
3/3
Laclede Gas Company 79
 25
8576
 102
3/3/10
 GMAC
1111
7465
 3/3/10
 Circuit City
325
7140
Birthday Gift 50 00
 7190

45. Your Name 103 1313 Mocking Bird Lane St. Louis, MO 63146 2007
103
1313 Mocking Bird Lane
St. Louis, MO 63146
2007
PAY TO THE ORDER OF $
DOLLARS
St. Louis Bank company
Memo:
2: :

46. 8655.25 101 3/3 Laclede Gas Company 79 25 8576 102 3/3/10 GMAC 1111
Check Register
Check Number
Date
Description of Transaction
Payment/Debit (-)
Fee (If Any)
Deposit/Credit (+)
Balance
 101
3/3
Laclede Gas Company 79
 25
8576
 102
3/3/10
 GMAC
1111
7465
 3/3/10
 Circuit City
325
7140
Birthday Gift 50 00
 7190

47. Making Deposits Deposit Slip –
A formal bank document declaring that you wish to put money into a bank.

48. 8655.25 101 3/3 Laclede Gas Company 79 25 8576 102 3/3/10 GMAC 1111
Check Register
Check Number
Date
Description of Transaction
Payment/Debit (-)
Fee (If Any)
Deposit/Credit (+)
Balance
 101
3/3
Laclede Gas Company 79
 25
8576
 102
3/3/10
 GMAC
1111
7465
 3/3/10
 Circuit City
325
7140
Birthday Gift 50 00
 7190

49. Making Deposits Deposit Slip –
A formal bank document declaring that you wish to put money into a bank.
Comprises of lines that have checks and cash.
When depositing checks 3 ways to sign a check
Blank Endorsement
Restrictive Endorsement
Special Endorsement

50. Restrictive Endorsement
Blank endorsement
Easiest of endorsement – just sign the back of the check.
Easiest to steal, loose the check someone else can sign underneath and cash your check.
Restrictive Endorsement
Check holders signature and how the check should be used. “For Deposit ONLY”
For Deposit Only

51. Special Endorsement
Allows you to transfer a check to an organization or another person.
Pay to the order of ……..
Pay to the order of

52. More about check writing
If you make a mistake it is better to VOID the Check than to erase it.
If you lose a check or get a check stolen. You may do what is called a STOP-PAYMENT ORDER.
Usually a fee is attached to this from 10 to 20 dollars

53. VOID Voided Check Back Your Name 109 1313 Mocking Bird Lane
109
1313 Mocking Bird Lane
St. Louis, MO 63146
2007
PAY TO THE ORDER OF $
DOLLARS
St. Louis Bank company
Memo:
2: :
VOID
Back

54. Clearing a Check What does it mean for a check to clear?
A bank usually holds on to your check until they find out that the bank where the check was written from has enough money.

55. Keeping Track of a Checking Account
Bank Statement

56. Bank Reconciliation
Is a report that accounts for the differences between the bank statement and a checkbook balance.
Used to help “BALANCE YOUR CHECKBOOK”

57. Bank Reconciliation
PLEASE EXAMINE YOUR STATEMENT AT ONCE
ANY DISCREPANCY SHOULD BE REPORTED TO
THE BANK IMMEDIATELY.
Checks Outstanding
Number
Amount
1. In your checkbook, record any transactions appearing
on this statement but not yet listed.
2. list any checks still outstanding in the space provided
to the right.
3. Enter the balance shown on this
statement here.
4. Enter deposits recorded in your
checkbook but not shown on this
statement.
5. Total lines 3 and 4 enter here.
6. Enter total checks outstanding here.
7. Subtract line 6 from line 5. This
adjusted bank balance should
agree with your checkbook balance.
Total
200.00
200.00

58. Savings Plans and Payment Methods
Type of Account
Benefits
Drawback
Regular Savings
Certificate of Deposit (CD)
Money Market Accounts
U.S. Savings Bonds