Saving is Not Just Child’s Play
Once you have saved money, what should you do
with it? Where should you save it so that it is safe,
will be there when you want it, and may even grow
a bit in value?
Most children start out saving by putting coins
into a piggy bank. Didn’t you? Saving money in
a piggy bank is a great way to learn that you
should save some of your money for things you
want. It’s easy and it’s right
there in your room. But, how
safe is your money in a piggy
bank? You won’t get more out
than what you put in.
Everyone knows that when they
see a piggy bank, there is money inside.
Anyone coming into your home or your
room may be tempted to help themselves to
the coins and bills in your piggy bank. You
won’t know that anything has been taken
until you empty your bank and count it.
How often might you do that?
Did you ever buy a popsicle or ice cream from an ice
cream truck for 50¢? Well, now that popsicle and ice
cream may now cost $1.00 or even more!
A 12 oz. bag of potato chips used to sell for $2.79. You
can still buy a bag of the same potato chips for $2.79
but now it only has 9.25 oz. of chips. Same price but
fewer chips!
Inflation means that the same
amount of money will now buy
less or the same item that you
once bought now costs more.
Whether you keep your
money in a piggy bank or in
a sock in your underwear
drawer, we all tend to lose
things at times. Have you
ever
put
something
somewhere “safe” and then
forgot where you put it?
One way to solve your piggy bank woes is to
save your money in a basic bank savings
account, an on-line savings account, a
certificate of deposit, or a money market
account. You can put your money in a bank
or in a credit union.
So, which one should you choose?
A bank is a financial institution that accepts deposits of
money from customers. Banks offer a safe place to store
money. Banks also use the money deposited to loan to
other customers. The people receiving a loan pay the
bank interest for the loan. The interest rate is the
“price” the bank charges for people to borrow money.
Even though banks loan money, they keep enough on
hand so that those with bank accounts can withdraw
money.
?
A credit union is a financial institution that is
member-owned. If you open an account in a credit
union, you are part owner. Credit unions serve
groups that share something in common, such as
where they work, live, or go to church. They are
not-for-profit institutions and exist to provide a
safe, convenient place for members to save money
and get loans at reasonable rates.
?
A basic savings account is an account used to
deposit money at a bank. The account earns
interest over time. Money can be added or
removed from the account by visiting the bank or
by making changes online. Usually you can add
or withdraw funds at any time; there is no cost to
do so. Financial institutions may limit the
number of withdrawals each month. They may
require a minimum deposit to open or
maintain the account.
-
?
An online savings account is much like a basic
savings account but without the building. All
transactions are done online through the internet.
?
A certificate of deposit (or CD) is
a document from a bank stating
that the person named has a
certain amount of money on
deposit. There is usually a
certain amount needed to open
the account and the money has
to stay in the account for a
period of time. The interest rate
does not change for a set period
of time. Withdrawing or taking
your money out early will bring
about penalties that will cause
the owner to lose money.
?
A money market account is easy to open like a
savings account. The interest rate is typically
higher than a savings account but less than a
certificate of deposit. Money market accounts
require a minimum balance of around $2500 to
earn interest. Most financial institutions limit the
number of withdrawals per month.
What if you put your
money in an account and
the bank closes. What
happens to your money?
In Texas all banks have to
have insurance through a
government agency called
FDIC. So, you will be given
your money if your bank
closes.
If you put your money in a
credit union, Texas
requires that your money
be insured, too, by the
National Credit Union
Administration (NCUA).
So, if the credit union
closes, you will get your
money.
?
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For emergencies
For short-term goals, such as a
skateboard or a new bike
For long-term goals, such as college
or a new car
To make our money grow/earn
interest
?
Interest is what the bank pays you for letting them use your money
while they are keeping it safe for you. If you deposit $100 in a
savings account, the bank may lend your money to a customer. The
customer must pay the bank for borrowing money, and the bank
pays you for letting them lend your money. The chart shows how
your money can grow after 1 year and after 10 years. The more
money you have in your savings, the more interest you will earn.
Interest
earned
After 1 year
After 10
years
1%
$101.00
$110.46
1.25%
$101.25
$113.23
2%
$102.00
$121.90
3%
$103.00
$134.39
5%
$105.00
$162.89
Safety
Convenience
Availability
Interest rate
Minimum deposit
Which option is best for you? It’s a personal choice
depending on your needs. But there’s definitely a
better way to save than in your piggy bank.