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Chapter 5 The Banking System. Slide 2 What Is the Purpose of Savings? A savings account is a demand deposit account for the accumulation of money. It.

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Presentation on theme: "Chapter 5 The Banking System. Slide 2 What Is the Purpose of Savings? A savings account is a demand deposit account for the accumulation of money. It."— Presentation transcript:

1 Chapter 5 The Banking System

2 Slide 2 What Is the Purpose of Savings? A savings account is a demand deposit account for the accumulation of money. It is a safe place to hold money to meet future needs and wants. It pays interest at a low rate. 5-2 Savings Accounts

3 Slide 3 How Can You Grow Your Savings? 5-2 Savings Accounts Principal is the money set aside on which interest is paid. Simple interest is computed once during a time period. Compound interest is earned on both principal and interest earned previously.

4 Slide 4 Computing Simple Interest 5-2 Savings Accounts P = amount of money set aside R = interest rate T = time that money will be set aside Simple Interest Interest (I) = Principal (P) × Rate (R) × Time (T) = $1,000 × 6% annual rate × 6 months = $1,000 × 0.06 × 6/12 = $30

5 Slide 5 Computing Compound Interest 5-2 Savings Accounts Quarterly Compounding Annual Interest Rate 6% Beginning Rate Ending YearBalance 6% QuarterBalance 1 2 3 4 1$100.000.015$1.50$1.52$1.55$1.57$106.14 2$106.140.015$1.59$1.62$1.64$1.66$112.65 3$112.650.015$1.69$1.72$1.74$1.77$119.57

6 Slide 6 What Are Your Savings Options? 5-2 Savings Accounts Money market accounts earn the market rate of interest. Certificates of deposit (CDs) pay a fixed interest rate for a time period. U.S. savings bonds pay a guaranteed minimum interest rate. Individual retirement accounts (IRAs) help you save for retirement.

7 Slide 7 Focus On... The FDIC Protects depositors of insured U.S. banks against loss if the bank fails Covers all types of deposits Covers principal and accrued interest Does not insure some items o Examples: stocks, bonds, valuables Insures deposits in different banks separately 5-2 Savings Accounts


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