1. SAVING FOR THE FUTURE  Growing Money: Why, Where, and How  Savings Options, Features, and Plans

2. SLIDE 2Chapter 10 GROWING MONEY: WHY, WHERE, AND HOW GOALS  Describe different purposes of saving.  Explain how money grows through compounding.  List and describe the financial institutions where you can save.

3. SLIDE 3Chapter 10 WHY YOU SHOULD SAVE  The best reason to save money is to provide for future needs, both expected and unexpected.  Saving regularly will help you meet your short-term and long-term needs.

4. SLIDE 4Chapter 10 SHORT-TERM NEEDS  Short-term needs are expenses beyond your regular monthly items.  Usually you will have to pay for these things out of savings.  Examples of short-term needs include the following:  Emergencies  Vacations  Social events  Repairs  Major purchases

5. SLIDE 5Chapter 10 LONG-TERM NEEDS  Long-term needs are expenses that are costly and require years of planning and saving.  Examples:  Home ownership  Education  Retirement  Investing

6. SLIDE 6Chapter 10 FINANCIAL SECURITY  Peace of mind comes from knowing that when needs arise, you will have adequate money to pay for them.  The amount of money you save depends on:  The amount of your discretionary or disposable income  The importance you attach to savings  Your anticipated needs and wants  Your willpower

7. SLIDE 7Chapter 10 HOW MONEY GROWS  The amount of money you deposit into a savings account is called the principal.  For the use of your money, the financial institution pays you money called interest.  Interest represents earnings on principal.  As principal and interest grow, more interest accumulates.  This is known as compound interest, or interest paid on the original principal plus accumulated interest.

8. SLIDE 8Chapter 10 ANNUAL PERCENTAGE YIELD (APY)  Annual percentage yield (APY) is the actual interest rate an account pays, stated on a yearly basis with the compounding included.  Because all financial institutions must calculate APY the same way, you can use APY to easily compare the yields on different accounts.

9. SLIDE 9 Chapter 10 YearBeginning Balance Interest Earned (6%) Ending Balance 1$100.00$6.00$106.00 2 $6.36$112.36 3 $6.74$119.10 COMPOUNDING INTEREST ANNUALLY  The Year 1 ending balance is the Year 2 beginning balance.  The Year 2 ending balance is the Year 3 beginning balance.  The 6% interest rate stays the same, but the interest earned increases each year.

10. SLIDE 10Chapter 10 WHERE TO SAVE  Commercial banks  Savings banks  Savings and loan associations  Credit unions  Brokerage firms  Online accounts

11. SLIDE 11Chapter 10 SAVINGS OPTIONS, FEATURES, AND PLANS GOALS  Explain the features and purposes of different savings options.  Discuss factors that influence selection of a savings plan.  Describe ways to save regularly.

12. SLIDE 12Chapter 10 SAVINGS OPTIONS  Once you have decided to establish a savings program, you need to know about the different savings options available to you.  You may want to deposit money in several types of accounts, because each can contribute to your overall plan in different ways.

13. SLIDE 13Chapter 10 REGULAR SAVINGS ACCOUNT  A regular savings account has a major advantage—high liquidity.  Liquidity is a measure of how quickly you can get your cash without loss of value.  A regular savings account is said to be very liquid because you can withdraw your money at any time without penalty.  The tradeoff for high liquidity, however, is a lower interest rate.

14. SLIDE 14Chapter 10 CERTIFICATE OF DEPOSIT  A certificate of deposit (CD), or time deposit, is a deposit that earns a fixed interest rate for a specified length of time.  A CD requires a minimum deposit.  You must leave the money in the CD for the full time period.  If you take out any part of your money early, you will pay an early withdrawal penalty.  A CD has a set maturity date, which is the date on which an investment becomes due for payment.

15. SLIDE 15Chapter 10 MONEY MARKET ACCOUNT  A money market account is a type of savings account that offers a more competitive interest rate than a regular savings account.  There are two different kinds of money market accounts:  Money market deposit account  Money market fund  On average, money market funds will pay a higher interest rate than money market deposit accounts.

16. SLIDE 16Chapter 10 SELECTING A SAVINGS PLAN  Liquidity  Safety  Convenience  Interest-earning potential (yield)  Fees and restrictions

17. SLIDE 17Chapter 10 LIQUIDITY  Liquidity is how quickly you can turn savings into cash when you want it.  The need for liquidity will vary, based on your age, health, family situation, and overall wealth.

18. SLIDE 18Chapter 10 SAFETY  Safety of principal means that you are guaranteed not to lose your savings deposit, even if the bank or other financial institution fails and goes out of business.  Most financial institutions are insured by a government agency, the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA).  Deposits in banks, no matter what type, are almost always safer than investments in the stock market.

19. SLIDE 19Chapter 10 CONVENIENCE  Locations  Services offered

20. SLIDE 20Chapter 10 INTEREST-EARNING POTENTIAL (YIELD)  You want to earn as much interest as you can on your deposit, while maintaining the degree of liquidity, safety, and convenience you want.  Shop around for the best APY in your area for the type of account you want.

21. SLIDE 21Chapter 10 FEES AND RESTRICTIONS  Different accounts and institutions have different rules.  Before you open an account, be sure to understand the withdrawal restrictions, minimum balances, service charges, fees, and any other requirements.

22. SLIDE 22Chapter 10 SAVING REGULARLY  Saving regularly will help you meet all of your financial goals.  It is important not just to save but to save regularly.  Over time, and with compounding interest, your savings can grow into a substantial sum.  There are ways to make regular saving easier, including direct deposits and payroll deductions.

23. SLIDE 23Chapter 10 DIRECT DEPOSIT  With direct deposit, your net pay is deposited electronically into your bank account.  You receive a nonnegotiable copy of your check and stub, notifying you of the amount deposited directly into your account  You can have your automatic deposit split between accounts, with some going into savings and some going into checking to cover your bills.

24. SLIDE 24Chapter 10 AUTOMATIC DEDUCTIONS  Automatic deductions represent money you have authorized your bank or other organization to move from one account to another at regular intervals.  With a payroll savings plan, you authorize your employer to make automatic deductions from your paycheck each pay period.

25. SLIDE 25Chapter 10 OTHER WAYS TO SAVE  Some people find it convenient to set aside their spare change and money left over each day or week.  Setting aside small amounts of change each day will lead to large sums over time.  It’s surprising how pennies can add up to make dollars!

26. SLIDE 26 Chapter 10 $205.00 + 10.25 = $215.25 $205.00 × 0.05 = $10.25 $105.00 + $100.00 = $205.00 COMPOUNDING WITH ADDITIONAL DEPOSITS Year Beginning BalanceDeposit Interest Earned (5%) Ending Balance 1$0.00$100.00$5.00$105.00 2 $100.00$10.25$215.25 3 $100.00$15.76$331.01 4 $100.00$21.55$452.56