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Chapter 30
Savings
Accounts
Section 30.2
Types of
Savings Accounts
Read to Learn
Differentiate a regular savings account from a
CD, a money market fund, and a money market
deposit account.
Explain two advantages and two disadvantages
of savings accounts.
The Main Idea
There are several types of savings accounts—
common ones being the traditional savings
account, the certificate of deposit (CD), money
market fund, and money market deposit account.
Each type of savings account has advantages and
disadvantages.
Key Concepts
Choosing a Savings Account
Advantages and Disadvantages of Savings
Accounts
Key Terms
regular
savings
accounts
accounts that allow consumers to
deposit or withdraw money at any
time and to earn interest on the funds
Key Terms
an account that requires you to
certificate of deposit a specified amount of
deposit (CD) money in an account for a set
period of time
Key Terms
maturity
date
when the money in an account
becomes available to you
money
market
fund
a kind of mutual fund, or pool of money,
put into a variety of short-term debt
(loans of less than one year) by
business and government
Key Terms
money market
deposit accounts
money market funds run by
banks, savings and loans,
and credit unions
liquidity
the ability to quickly turn
an investment into cash
Key Terms
inflation
risk
the risk that the rate of inflation will
increase more than the rate of interest
on savings
Choosing a Savings Account
There are three basic types of savings
accounts.
Regular Savings
Accounts
Certificates
of Deposit
Money Market
Funds
Regular Savings Accounts
The interest rate of
regular savings
accounts is usually
low.
regular savings
accounts
an account that allows
consumers to deposit or
withdraw money at any
time and to earn interest
on the funds
Regular Savings Accounts
Many banks charge a service fee if the
savings account falls below a minimum
balance.
Certificates of Deposit
The interest rate on a
certificate of deposit
(CD) is higher than a
regular savings
account.
certificate of
deposit (CD)
an account that requires
you to deposit a specified
amount of money in an
account for a set period of
time
Certificates of Deposit
A CD has a maturity
date.
maturity date
when the money becomes
available to you
Certificates of Deposit
The interest rate on a CD does not change
over the duration of the CD term.
You may have to pay a penalty if you cash in
a CD before the maturity date.
Money Market Funds
Money market
funds are offered by
brokerage firms,
which buy and sell
stocks and bonds.
money market fund
a kind of mutual fund, or
pool of money, put into a
variety of short-term debt
(loans of less than one
year) by business and
government
Money Market Funds
The interest rate on a money market fund
varies from month to month.
Money Market Funds
Two disadvantages of a money market fund
are:
High balances are required.
Account holders can write only a limited
number of checks.
Money Market Funds
Money market
deposit accounts
are generally insured
by the federal
government.
money market deposit
accounts
money market funds run
by banks, savings and
loans, and credit unions
Tracking the Money
You Save
No matter how or where you save your money,
you must find the money you want to save.
Write down your savings every time you decide
not to buy something. Putting every penny you
find or dollar you have saved into the bank will
add up.
Advantages and Disadvantages of
Savings Accounts
Besides earning interest, savings accounts
offer other advantages.
They also have disadvantages.
Insurance Against Loss
The Federal Deposit Insurance Corporation
(FDIC) will replace depositor’s accounts for up
to $100,000.
Insurance Against Loss
Money market funds offered by brokerage
firms are not federally insured.
Most brokerage firms have insurance on their
accounts.
Liquidity
Savings accounts
have a high degree
of liquidity.
liquidity
the ability to quickly turn
an investment into cash
Low Rates of Return
Since there is very little risk with a savings
account, there is usually a low return.
Inflation Risk
Most savings
accounts have a low
inflation risk.
The interest rate on
savings accounts
usually fluctuates.
inflation risk
the risk that the rate of
inflation will increase more
than the rate of interest on
savings
Inflation Risk
The main risk with CDs is that their interest
rates are locked in for a specific period of
time.
CDs carry more inflation risk.
The Cost of Savings Accounts
Some of the costs of savings accounts are:
Penalty for early withdrawal
Penalty for falling below a minimum balance
Some accounts charge fees for deposits and
withdrawals
Interest can be taxed
1. What is the difference between a regular
savings account, a certificate of deposit, and
a money market fund?
regular savings accounts: allow consumer to
deposit small amounts that earn interest; CDs:
require a specified amount for a set period;
money market fund: pool of money put into
short-term debt instruments
2. Discuss some advantages and
disadvantages of savings accounts.
advantages: interest, insurance against loss,
and liquidity; disadvantage: low rates of return
3. What is the Federal Deposit Insurance
Corporation, and what does it do?
a government agency that insures bank
accounts for up to $100,000
End of
Chapter 30
Savings
Accounts
Section 30.2
Types of
Savings Accounts