1. GOALS BUSINESS MATH© Thomson/South-WesternLesson 3.7Slide 1 3.7Money Market and CD Accounts Calculate interest earned on special savings accounts Calculate the penalty for early withdrawals from CD accounts Compare the interest earned on savings accounts Calculate the effective rate of interest

2. BUSINESS MATH© Thomson/South-WesternLesson 3.7Slide 2 Special Savings Accounts In addition to regular passbook savings accounts, many banks also offer special savings accounts for long-term savers. The interest rates paid on these special savings accounts are higher than the rates paid on regular savings accounts.

3. BUSINESS MATH© Thomson/South-WesternLesson 3.7Slide 3 CERTIFICATE OF DEPOSIT The certificate of deposit is widely referred to as a CD. The CD is also known as a time deposit or a savings certificate. Some government rules apply to certificate of deposit accounts. (continued on the next slide)

4. BUSINESS MATH© Thomson/South-WesternLesson 3.7Slide 4 CERTIFICATE OF DEPOSIT (continued) Most banks require depositors to meet certain requirements. Deposit a minimum amount. Leave the money on deposit for a minimum time. The time may be specified in number of days, months, or years. The minimum time is called the term. The date that marks the end of the term is the maturity date. Pay a penalty if money is withdrawn before the end of the term.

5. BUSINESS MATH© Thomson/South-WesternLesson 3.7Slide 5 MONEY MARKET ACCOUNTS Money market accounts offer higher interest rates than regular accounts. Special rules apply: A minimum balance must be kept in the account for the term specified. More money may be added to the account at any time. The interest rate paid is fixed for short periods of time. A small number of checks may be written against the account.

6. BUSINESS MATH© Thomson/South-WesternLesson 3.7Slide 6 Penalties on Certificates of Deposit By law, banks must charge depositors a penalty for withdrawing money early from a certificate of deposit. Each bank sets its own penalty for early withdrawals. The penalty usually varies with the term of the certificate.

7. BUSINESS MATH© Thomson/South-WesternLesson 3.7Slide 7 Compare Savings Accounts Savings accounts are often compared by the interest earned in each account. To compare, calculate the interest that would be earned by each type of account for the same time period.

8. BUSINESS MATH© Thomson/South-WesternLesson 3.7Slide 8 Effective Rate of Interest The effective rate of interest is the rate you actually earn by keeping your money on deposit for one year. The annual rate and the effective rate you earn can be different. The effective rate is sometimes referred to as the annual percentage yield. Effective Rate of Interest Amount of Interest Earned for One Year Amount of Money on Deposit =