1. Chapter 8 Plan for Financial Security

2. Why Save 8.1 Benefits of Saving Saving Strategies Automatic Saving

3. 65%

4. Savings Institutions and Accounts 8.2 Savings Institutions Savings Accounts

5. Save with Safety 8.3 Savings Options Government Bonds

6. Simple and Compound Interest 8.4

7. How is the interest calculated? Simple Interest—interest paid only on initial amount of deposit. Compound Interest—interest paid at set intervals and added back to principal.

8. If simple interest is used, there is no compounding: Interest = Principal x Rate x Time (Years) $30 = $1000 x.03 x 1 New Principal after 1 year $1030

9. If compound interest is used, occurs semiannually First 6 months' interest: $1000 x.05 x 6/12= $25.00 Second 6 months' interest: + $1025 x.05 x 6/12= $25.63 Total annual interest= $50.63

10. If compound interest is used, occurs quarterly $100 at 5% (3/12) 1 st - $100 x.0125 =$1.25 2 nd - $101.25 x.0125=$1.27 3 rd - $102.52 x.0125=$1.28 4 th - $103.80 x.0125=$1.30 Total annual interest=$5.10

11. If compound interest is used, occurs monthly $400 at 5% (1/12) 400 x.0042 = 1.68 401.68 x.0042 = 1.69 403.37 x.0042 = 1.69 405.06 x.0042 = 1.70 406.76 x.0042 = 1.71 408.47 x.0042 = 1.72 410.19 x.0042 = 1.72 411.91 x.0042 = 1.73 413.64 x.0042 = 1.74 415.38 x.0042 = 1.74 417.12 x.0042 = 1.75 418.87 x.0042 = 1.76 $420.63 $20.63 Total Interest

12. If compound interest is used, occurs daily $100 at a rate of 3% 1 year $ Amount x Factor = Interest $100 x 1.03 = $103.00 2 years $100 x 1.062 = $106.20 COMPOUND INTEREST TABLE Yea r 3%6%10% 11.0301.0621.105 21.0621.1271.221 31.0941.1971.350 41.1271.2711.492 51.1621.3501.649 61.1971.4331.822 71.2341.5222.014 81.2711.6162.225 91.3101.7162.459 101.3501.8222.718 151.5682.4594.481 201.8223.3207.387