1. Savings and Interest
Skill 11

2. Savings Accounts
4.4a

3. Savings accounts are very similar to checking accounts
Savings accounts are very similar to checking accounts. The main difference being most savings accounts make some amount of interest.

4. The deposit slip that needs to be filled out for a savings account is the same as the slip to be filled out for a checking account. It just needs to have the correct account number on the deposit slip.

5. The account statement of a savings account will also look very similar to checking account statement.

6. To find Current Balance…
Start with Previous Balance
Add… Deposits and Interest
Subtract… Withdraws

7. Simple Interest
4.4b

8. The bank pays interest, or a rental fee for letting them use your money.
The principle is the original amount of money that is earning the interest.

9. Simple Interest is based on three factors…
Principle
Interest rate
Time

10. 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡=𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙∗𝑅𝑎𝑡𝑒∗𝑇𝑖𝑚𝑒
*Rate is expressed as a decimal
*Time is expressed in years or part of a year

11. Suppose Jose deposits $1550 into a savings account that pays an annual interest rate of 5.5%. After three months the interest is calculated. Find the interest earned on the principle.

12. Find the interest Johnny’s account earns.
Johnny’s bank figures his simple interest daily at 3%. He has $1500 in his account for 15 days. Then he deposited $750 in his account for 10 days. Next he withdraws $500, and that balance earns interest for the next 6 days.
Find the interest Johnny’s account earns.
Find the amount in Johnny’s account at the end of the month.

13. Compound Interest
Section 5.5

14. Compound interest differs simple interest.
Compound interest is earned on the original principal and on the interest earned during previous interest periods.

15. 𝐶𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑒𝑑 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙=𝑃+𝐼
First find interest per compounding period.
𝐼=𝑃∗𝑅∗𝑇
Then add your interest to your previous principal.
𝐶𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑒𝑑 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙=𝑃+𝐼

16. Compounding Periods… Annually 1 Semiannually 2 Quarterly 4 Monthly 12
Daily
365

17. 𝑨=𝑷 𝟏+ 𝒓 𝒏 𝒏𝒕 The Formula: A = future value including interest
𝑨=𝑷 𝟏+ 𝒓 𝒏 𝒏𝒕
A = future value including interest
P = principal investment amount
r = annual interest rate (decimal)
n = the number of compoundings per year
t = time in years

18. Suppose Kris deposited $1750 in a savings account which earns 3% interest and is compounded quarterly. What is the amount after the second quarter.

19. If $3525 was deposited in a savings account and was compounded semiannually at 5%. How much is in the account after 1 year.

20. If $1,500 was deposited in a savings account and was compounded monthly at 6%. How much is in the account after 2 years.

21. If $2,750 was deposited in a savings account and was compounded quarterly at 6.5%. How much is in the account after 3 years.

22. If $5,000 was deposited in a savings account and was compounded daily at 4%. How much is in the account after 15 years.

23. Skill 11: Savings and Interest
Questions?
Summarize your notes
Homework
Worksheet