2.4.3.G1
Savings Tools
Take Charge
2.4.3.G1
Types of Savings Tools
Savings tools - secure and liquid accounts
offered by depository institutions assisting
in the management of a savings fund
Checking
Account
Savings Account
Money Market
Deposit Account
Certificate of
Deposit
© Take Charge Today –August 2013 – Savings Tools– Slide 2
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
Ideal for Storing Emergency Savings
Insured depository institutions offer accounts
which are:
Liquid
Secure
Accounts must
stay within
coverage limits
Generally quick
and easy to
withdraw
money
How will a consumer know if their depository
institution offers secure accounts?
© Take Charge Today –August 2013 – Savings Tools– Slide 3
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Savings Tools Characteristics
Each savings tool has
different characteristics
Interest
Liquidity
Goal: Determine the
savings tool most
appropriate for reaching a
financial goal
Features
© Take Charge Today –August 2013 – Savings Tools– Slide 4
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
2.4.3.G1
Checking Account
Definition
Interest
• Account that
provides an
easy method
for
withdrawing
and
depositing
money
• Most do not
• If offered,
rates are low
Liquidity
(accessibility)
• Most liquid
What are common ways to access funds
in a checking account?
© Take Charge Today –August 2013 – Savings Tools– Slide 5
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Checking Account Features
Reduce the need to
carry large
amounts of cash
Different types of
accounts are
available
(some have fees)
Also known as a
share draft account
at a credit union
Not recommended
as the only account
used to save
money
© Take Charge Today –August 2013 – Savings Tools– Slide 6
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
2.4.3.G1
Savings Account
Definition
Interest
• Account
designed to
hold money
not spent on
current
consumption
• Earns interest
• Rates are
often low
Liquidity
(accessibility)
• More liquid
than other
savings tools
(except
checking
accounts)
What are common ways to access funds
in a savings account?
© Take Charge Today –August 2013 – Savings Tools– Slide 7
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Savings Account Features
Effective for storing
emergency funds
May require a
minimum balance or
have a limited number
of withdrawals each
month
Also known as a share
account at a credit
union
© Take Charge Today –August 2013 – Savings Tools– Slide 8
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
2.4.3.G1
Wells Fargo
Vs.
Bank of
America
Money Market Account
Definition
Interest
• Account that
usually has
minimum
balance
requirements
and tiered
interest rates
• Often tiered
interest rates
– the amount
of interest
earned
depends on
the account
balance
2.4.3.G1
Liquidity
(accessibility)
• Less liquid
than checking
and savings
accounts
because of
minimum
balance
requirements
and
transaction
limits
Which would typically earn a higher interest rate? An
account with a $10,000 balance or a $2,500 balance?
© Take Charge Today –August 2013 – Savings Tools– Slide 10
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Money Market Account Features
Usually have to deposit a
minimum amount to open
the account (typically
$1,000)
Similar to a savings
account but earns higher
interest and has higher
minimum balance/deposit
requirements
© Take Charge Today –August 2013 – Savings Tools– Slide 11
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
2.4.3.G1
Wells Fargo
Vs.
Bank of
America
Certificate of Deposit (CD)
Definition
• Account that
is used for a
fixed period
of time and
allows
restricted
access to the
funds
Interest
• Varies
(depending
on time and
amount of
money
deposited)
2.4.3.G1
Liquidity
(accessibility)
• Least liquid
savings tool
Why would a depository institution typically offer higher interest
rates for CD’s with a longer time period or more money invested?
© Take Charge Today –August 2013 – Savings Tools– Slide 13
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Certificate of Deposit Features
Deposits must be held
for a certain length of
time (usually 7 days to
10 years)
Deposits can range
from $100 to $250,000
If funds are held for
the designated time
period, then there is
limited risk and no fees
© Take Charge Today –August 2013 – Savings Tools– Slide 14
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
2.4.3.G1
Wells Fargo
Vs.
Bank of
America
Matching Savings Tools to Goals
Consider these factors when determining the most
appropriate savings tool for your financial goal
Amount
of funds
available
Liquidity
Interest
Purpose
of
money
saved
When
money
is
needed
Savings
tool
require
ments
Fees
© Take Charge Today –August 2013 – Savings Tools– Slide 16
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
You Decide: Which Tool is Best?
Avery’s goal is to create an
emergency savings fund
Javier’s goal is to purchase
a new car within the year
Savings account
Money market account
Funds are easily
accessible
Higher interest rates
available
© Take Charge Today –August 2013 – Savings Tools– Slide 17
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
2.4.3.G1
Liquidity
Higher interest rates are a trade-off for lower liquidity
Money
Market
Money
Deposit
Market
Deposit
Account
Accounts
Checking
Checking
Account
Most
Liquid/Lowest
Interest
Accounts
Savings
Savings
Accounts
Account
Certificates
Certificate
of Deposit
of Deposit
Least
Liquid/
Highest
Interest
© Take Charge Today –August 2013 – Savings Tools– Slide 18
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
Analyze the features of a savings
tool among depository institutions
Terms and conditions such as interest rates, fees,
and minimum balance requirements may vary.
© Take Charge Today –August 2013 – Savings Tools– Slide 19
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
Summary
Understand the features of savings
tools to select the most appropriate
tool for each financial goal
© Take Charge Today –August 2013 – Savings Tools– Slide 20
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
Retirement Plan Options
• Pension Plans [401(k)]
• Keogh-Self employed pension plan
• IRA / Roth IRA
• IRA-Taxed at the end, money taken
out
• Roth IRA- Taxed at the beginning
• Real Estate is often seen as an
INVESTMENT
© Take Charge Today –August 2013 – Savings Tools– Slide 22
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
Investing for Retirement
• Pension plans (401K): company
plans that provide retirement
income for their workers.
– A portion is withheld from your
paycheck
– Company matches contribution
– No Federal tax until you withdraw
funds (tax deferred)
– Maximum Contribution limit
© Take Charge Today –August 2013 – Savings Tools– Slide 23
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
Individual Pension Plans
• Keogh plan-retirement plan for selfemployed individuals.
– Can save up to 15%
– Can deduct that amount from taxable
income
– Maximum contribution limit
© Take Charge Today –August 2013 – Savings Tools– Slide 24
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
IRA / Roth IRA
• Retirement Plan for individuals or
married couples
• Savings grow tax free
• Invested in mutual funds, stocks or other
securities
© Take Charge Today –August 2013 – Savings Tools– Slide 25
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
Real Estate
• Land & Buildings
• Homes/Developed land (safer)
• Undeveloped property (usually
riskier)
• Not very liquid – what does that
mean?
© Take Charge Today –August 2013 – Savings Tools– Slide 26
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
How much to save and invest?
© Take Charge Today –August 2013 – Savings Tools– Slide 27
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
How much to save and invest?
• Tradeoff!
– Risk Tolerance
– Rate of Return
– Liquidity
– Income
© Take Charge Today –August 2013 – Savings Tools– Slide 28
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
Diversification, Risk, & Values
• Diversification
– Spreading of investments among several
different types to lower overall risk
• Risk
– Every person has a different Risk tolerance
• Values
– Your values may determine where/what you
invest your money in
© Take Charge Today –August 2013 – Savings Tools– Slide 29
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
Stocks & Bonds
• Stock
– A Share of a company’s assets
• Stockholders
– People who invest in a corporation &
own some of it’s stock
© Take Charge Today –August 2013 – Savings Tools– Slide 30
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
Bonds
• Tax-Exempt Bonds
– Sold by local & state governments. Interest
paid on the bond is not taxed by the Federal
Gov.
• Savings Bonds
– Issued by the Federal Gov. as a way of
borrowing money.
– Purchased at ½ the face value (EE bonds)
© Take Charge Today –August 2013 – Savings Tools– Slide 31
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1
2.4.3.G1
Stocks vs. Bonds
•
•
•
•
•
•
•
STOCKS
All corp. issue stock
Represent ownership
Stocks do not have fixed
rate
Dividends only paid
when there is a profit
No maturity date
Board of directors in
control
Stockholders have claim
against property of corp.
•
•
•
•
•
•
BONDS
Corp. not required to
issue
Represent debt
Interest must be paid
regardless of profit
Have maturity date
Bondholders have no
control of the corp.
Bondholders claim
against property comes
before stockholders
Stocks
• Broker
– A person who acts as a go-between for
buyers & sellers of stocks & bonds.
– Internet brokerage firms are popular now.
• Stock Exchanges
– Place where stocks are bought/sold on a
daily basis.
• NYSE –Largest stock exchange
– Chicago Exchange –example of regional
– Tokyo & London –examples of foreign
© Take Charge Today –August 2013 – Savings Tools– Slide 33
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.4.3.G1