Saving for the Future

Saving for the Future
Personal Finance
Chapter 10
Saving for the Future
Lesson 10.1 P. 243 #1
Why do you need to start saving now to cover
long-term needs?
• Long-term needs require a lot of money
• Homeownership – thousands of dollars for a
down payment
• Parents save to fund the education of their
• Successful retirement means having money in
addition to social security and pensions
Saving for the Future
Lesson 10.1 P. 243 #2
Explain how compounding interest makes your
savings grow.
• Compound interest is interest computed on the
original principal plus accumulated interest at
specific time intervals
• The more often interest is compounded, the
more money you earn
• An account that is compounded monthly will earn
more money than one compounded annually
Saving for the Future
Lesson 10.1 P. 243 #3
How can you compare interest rates on accounts
that compound differently?
• Federal law requires financial institutions to
tell consumers the annual percentage yield
(APY) on their accounts
• Compare APYs on different accounts to decide
which account will yield the most earnings
Saving for the Future
Lesson 10.2 P. 248 #1
Explain how a savings account is more liquid
that a certificate of deposit.
• A savings account allows you to withdraw
money quickly without loss of value
• A certificate of deposit earns interest for a
fixed period of time, there is a penalty if you
withdraw money from the account prior to
predetermined time
Saving for the Future
Lesson 10.2 P. 248 #2
To earn a higher interest rate, what tradeoff will
you likely have to make?
• The tradeoff for a higher interest rate is that
access to your money is more restrictive, less
Saving for the Future
Lesson 10.2 P. 248 #3
In what way is the interest paid on a money
market account different from interest paid on
a regular savings account?
• Saving accounts earn interest at a fixed rate
• Money market accounts earn interest based
on the stock market, which means the interest
goes up and down
Review Facts and Ideas
1. Explain several reasons why you should save.
Emergencies, vacations, social events, major
Home ownership, education, retirement,
Review Facts and Ideas
P. 252
2. List several short-term needs that you expect
to have in the next few months or years.
Answer will vary based on individual lives
I am currently planning a sweet sixteen party for my
Review Facts and Ideas
P. 252
3. List your long-term plans that will require
money in the next five years or more.
Answers will vary.
Education for my daughter
Retirement for myself and husband
Review Facts and Ideas
P. 252
4. What are some personal factors that help
determine the amount of money you will
(a) Discretionary income
(b) The importance of saving to you
(c) Your anticipated needs and wants
(d) Your will power
Review Facts and Ideas
P. 252
5. Why might people choose to save their
money in a commercial bank when another
type of financial institution offers a higher
interest rate?
Commercial banks provide the widest variety of
banking services, convenience
Review Facts and Ideas
P. 252
6. How is a credit union different from a savings and
loan association?
Credit Union
Owned by members
Offer Individual Retirement Accounts (IRAs)
Higher interest earned, lower interest paid
Savings and Loan Association
Primarily to lend money for home mortgages
Many commercial bank services
Slightly higher interest
Review Facts and Ideas
P. 252
7. How much is an account insured by the FDIC?
The book says $100,000 but the amount was
changed after the last financial market crash
$250,000 per bank, per account
This means never have more than $250,000 in any
NCUA – provides insurance for credit unions
Review Facts and Ideas
P. 252
8. Why does a regular savings account pay less
interest than a certificate of deposit?
A savings account is more liquid, less interest
CDs is less liquid, more interest earned
The longer banks can use your money, the more
interest banks are willing to pay
Review Facts and Ideas
P. 252
9. What types of penalties might you face for early
withdrawal of all or part of your savings from
(a) regular savings
No penalty for early withdrawal, may have low balance
fees, fees for exceeding maximum withdrawals
(b) certificate of deposit
Early withdrawal penalty will cost you more than the
interest you would have earned
(c) money market funds
No penalty for early withdrawal, may have minimum
balance and restrictions on the number of checks you can
Review Facts and Ideas
P. 252
10. What things should you consider when
choosing a financial institution for your
• Safety
• Liquidity
• Convenience
• Purpose
Review Facts and Ideas
P. 252
11. Describe ways you can force yourself to save.
• Direct deposit
• Automatic payroll deductions
• Proximity – make it difficult for you to access
the money, no ATM card, far from home and