2. Unit 5: Personal Finance

3. Services of the Bank  Place to store your money safely – an Account

4. Services of the Bank  Types of Accounts –Savings Account – pay a small interest rate, allow you to withdraw cash –Checking Account – pay a very small interest rate, allow you to write checks, withdraw cash, or use a debit card

5. Services of the Bank  Types of Accounts –Money Market Account – pay a higher interest rate according to the market value, works like a checking account, require high minimum balance  Not insured by the FDIC –Certificate of Deposit (CD) – pay a very high guaranteed interest rate over a certain time, but do not allow you to take money out in that time

6. Services of the Bank  Loans – banks lend out money and charge interest –Fractional Reserve – banks only keep some of the money deposited

7. Services of the Bank  Loans – banks lend out money and charge interest –Risk of default – failure of lendee to make payments to the bank

8. Services of the Bank  Loans – banks lend out money and charge interest –Mortgage – type of loan given to purchase real estate (houses, land)

9. Services of the Bank  Credit Cards – bank pays for goods you purchase, then bills you for them later, adding interest to what you owe

10. Interest Rates  Interest – the price paid for the use of borrowed money (usually a percentage rate)  Principal – the amount borrowed  Balance – the amount still owed

12. Interest Rates  The interest rate can be compounded (added on) in many different ways  Whaddya say we take a look at how it works together?

13. Interest Rates  Compounded Annually (Once a year) –$100,000 principal, 5% interest rate –What is the total new principal? –$105,000.00!

14. Interest Rates  Compounded Semiannually (Twice a year) –$100,000 x 2.5% (first compounding) –$102,500.00 –$102,500 x 2.5% (second compounding) –$105,060.00!

15. Interest Rates  Compounded Monthly (12 times a year) –Anyone want to try calculating this? –Fine then. It’s $105,116.19 –You spend an extra $116.19 just from the way the interest is compounded

16. More Services of the Bank  Automated Teller Machines (ATMs) – allow you to deposit/withdraw money and see account information without going into the bank  Debit Cards – used to withdraw money, or pay for goods from your checking account