OBJECTIVES. Key Terms. Section 3.3: SAVINGS ACCOUNTS

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1 Section 3.3: SAVINGS ACCOUNTS OBJECTIVES Learn the basic vocabulary of savings accounts. Compute simple interest using the simple interest formula. Key Terms savings account interest interest rate principal simple interest simple interest formula statement savings minimum balance money market account certificate of deposit (CD) maturity Section 3.3 1

2 Savings Accounts Money Market Accounts Certificates of Deposit Loans Safe Deposit Boxes Credit and Debit Cards Why Americans Don t Save Money? The Today ShowSegment Air Date 10/8/2005 What major event happened in 2007? Section 3.3 2

The money that the account holder deposits with a bank is used by the

3 1. A savings accountis an account in which the bank pays interestfor the use of the money deposited in the account. The money that the account holder deposits with a bank is used by the bank to give loans. The people who borrow the money from a bank must pay it back with interest. Section 3.3 3

4 2. The interest earned is based on the interest rate and principal, or balance in the account. Two types of interest: (a) Simple Interest (b) Compound Interest Simple Interestis calculated on the principal only. 3. Statement Savingsaccount is the most common type of savings account. Account holders receive a monthly statement show all activity, including deposits, withdrawals, interest earned and any fees. Some statement savings accounts have a required minimum balancewhere a fee would apply if the monthly balance falls below the minimum. 4. Passbook Savingsaccount holders choose to conduct all of their transactions in a bank and have a physical book that record all of the transactions. Passbook savings typically do not require a minimum balance and are not available via online banking. Section 3.3 4

Money market accounts usually limit the number of transactions per month.

5 4. A money market accounthas a higher interest rate and usually requires a greater initial deposit. Money market accounts usually limit the number of transactions per month. Money market accounts typically have a higher minimum balance requirement than traditional checking and savings accounts. *Statistics from 2013* Section 3.3 5

5. A certificate of deposit (CD)is a certificate that states you have a specific sum of money on deposit and guarantees the payment of a fixed interest rate until maturity, which is a

Is there RISK in putting money into a savings account? 6.

6 5. A certificate of deposit (CD)is a certificate that states you have a specific sum of money on deposit and guarantees the payment of a fixed interest rate until maturity, which is a specified date in the future. Maturity can be from seven days to ten years. Longer the term, the higher the interest rate. Cannot make deposits or withdrawals without a penalty. Is there RISK in putting money into a savings account? 6. The Federal Deposit Insurance Corporation (FDIC)guarantees the safety of money in a bank by insuring each depositor for up to a specified amount. Since the FDIC was established in 1933, no depositor has lost a penny of FDIC-insured funds. Standard insurance amount is $, per depositor, per insured bank, for each account. FDIC Video Section 3.3 6

7 Calculating Simple Interest 7. Simple Interest Formula = = interest = principal = annual interest rate (expressed as a decimal) = numbers of years Example 1 Jack s savings account must have at least $500, or he is charged a $4 fee. His balance was $716.23, when he withdrew $225. What was his balance? Example 2 Mae has $891 in her account. A $7 fee is charged each month the balance is below $750. She withdraws $315. If she makes no deposits or withdrawals for the next x months, express her balance algebraically. Section 3.3 7

8 Example 3 Tom deposits $1,200 in an account that pays 4.5% simple interest. He keeps the money in the account for three years without any deposits or withdrawals. How much is in the account after three years? Example 4 How much simple interest is earned on $4,000 in 3½ years at an interest rate of 5.2%? Example 5 How much simple interest does $2,000 earn in 7 months at an interest rate of 5%? Example 6 How much principal must be deposited in a two-year simple interest account that pays 3¼% interest to earn $300 in interest? Section 3.3 8

9 Example 7 How long will it take $10,000 to double at 100% simple interest? Example 8 Kerry invests $5,000 in a simple interest account for 5 years. What interest rate must the account pay so in 5 years there is $6,000? Section 3.3 9

Savings Accounts. Chapter 30 12/4/2017 1

Savings Accounts. Chapter 30 12/4/2017 1 Savings Accounts Chapter 30 12/4/2017 1 Why save money? 12/4/2017 2 What is savings? Savings is money put aside for future use. Save for: Major purchases Save to buy with cash rather than credit Emergencies