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Chapter 30
Savings
Accounts
Section 30.1
The Basics of
Savings Accounts
Read to Learn
Discuss the three reasons people save money.
Describe compound interest.
The Main Idea
Savings are money people put aside for future use.
Generally people use their savings for major
purchases, emergencies, and retirement income.
Savings accounts can earn either simple or
compound interest. If one leaves money saved in
an account that accumulates compound interest,
interest is earned on both the amount saved and
the interest earned.
Key Concepts
A Guide to Saving
Earning Interest on Savings
Key Terms
savings
the money you save
rate of
return
the percentage of increase in the value
of your savings from earned interest
Key Terms
interest earned on both the principal
compound
and any interest earned on the
interest
principal
A Guide to Saving
Savings plans
include regular
savings accounts,
certificates of deposit,
and money market
accounts.
savings
the money you save
A Guide to Saving
Saving money should be a part of your budget.
Some personal finance experts say people
should save about 10 percent of their takehome income.
A Guide to Saving
The opportunity cost of saving means putting
off spending money on an item that you might
want right now.
The benefit of saving money might be greater
than purchasing an item that you want.
A Guide to Saving
Saving helps to ensure that you will have
money when you need it.
A Guide to Saving
Three reasons why people save money are:
To make major purchases
To provide for emergencies
To have income for retirement
Making Major Purchases
Common reasons people save money are to
buy a home or to pay for college education.
You might also decide to save money because
you want to purchase a less-expensive item.
Providing for Emergencies
Experts recommend that people set aside at
least six months of income in case of an
emergency.
Planning for Retirement
Most U.S. workers receive Social Security
income when they retire.
Many people have some type of retirement
plan where they work.
Figure 30.1
The Value of
Starting Early
Planning for Retirement
If you start putting away $100 per month in an
account with a return of 6 percent, by the time
you retire, you will have saved about $143,000.
You will have put in $42,000 and earned
$101,000 in interest.
Earning Interest on Savings
When you put money into a bank’s savings
account, you are a creditor.
The bank uses your savings to make loans to
other people.
Earning Interest on Savings
Saving is important to the economy because
it generates loan money for people and
businesses.
Rate of Return
Earnings on savings
can be measured by
the rate of return, or
yield.
rate of return
the percentage of increase
in the value of your
savings from earned
interest
Compounding
Simple interest is interest earned on money
deposited into a savings account, called the
principal.
Compounding
When principal and
interest are left in an
account, it earns
compound interest.
compound interest
interest earned on both
the principal and any
interest earned on the
principal
Graphic Organizer
Compound Interest
Simple Interest
You have
$50,000 in a
savings account
at 6 percent
annual interest.
You’ve earned $3,000
after one year.
Compound Interest
Fifteen Years Later
$3,000 is added to
the principle.
$20,00 of interest is
earned.
The Rule of 72
The Rule of 72 is used to calculate how long it
will take to double the money in an investment.
It is calculated by dividing 72 by the annual
interest rate to get the number of years.
1. Name three savings plans.
regular savings accounts, certificates of
deposit, and money market accounts
2. List the three main reasons people save
money.
Most people save money for three reasons: to
make major purchases, to provide for
emergencies, and to have income for
retirement.
3. How is interest compounded?
Interest is compounded from one period to the
next when interest is earned on both the
principal and any interest previously earned
on it.
End of
Chapter 30
Savings
Accounts
Section 30.1
The Basics of
Savings Accounts