Savings Accounts
Section 3.3
What is a savings account?
• An account in which the bank pays interest for
the use of money deposited.
• Bank then uses that money to give loans.
• Charges a greater interest rate on that loan
allowing the bank to pay you interest and still
make money.
Types of Accounts
• Savings Account
– Pays interest, may be a minimum balance,
unlimited access to money
• Money Market Account
– Interest rate is higher, must have minimum
amount in account, unlimited access to money
• Certificate of Deposit (CD)
– Highest interest rate, do not have access to money
until certificate matures (expires)
Think about it…
• Is there a risk in putting money into a savings
account?
• The FDIC guarantees the safety of money in a bank up to
$250,000
• During the Great Depression, this was not the
case
Grace just received a sum of $5,000 for her
middle school graduation. She decides that
she wants to put the money away for a period
of 3 years so that she can put it towards a car.
However, Grace is not sure what type of
account she should put it in. What do you
think?
Savings, Money Market, CD, Checking
Grace is going to deposit $5,000 into a CD for
a period of 2 years. She is comparing interest
rates quoted by 3 local banks and 1 online
bank. Write the interest rate in ascending
order.
First State Bank: 4 ¼ % E-Save Bank: 43 8 %
4.25%
4.375%
Johnson Trust: 4.22%
4.22%
Land Bank: 4.3%
4.3%
Ascending Order: 4.22% 4 ¼ % 4.3% 4
3
8
%
Write the following five interest rates in
descending order (greatest to least)
5.51 % 5 ½ % 5 8 % 5.099% 5.6%
5.5% 5.625%
5
5
Descending Order: 5 8 %
5.6%
5.51%
5½%
5.099%
Minimum Balance Fee
• Banks can charge you a fee if you fail to keep a
minimum amount of money in your account
• Makes it important to keep an accurate check
register
Raoul’s savings account must have at least
$500, or he is charged a $4 fee. His balance
was $716.23 when he withdrew $225. What
is his new balance?
Balance after withdrawal:
716.23 – 225
= $491.23
Since this is less than $500, he is charged an
additional $4
= 491.23 – 4
= $487.23
Mae has $891 in her account. A $7 fee is
charged each month the balance is below
$750. She withdraws $315. If she makes no
deposits or withdrawals for the next x months,
express her balance algebraically.
Balance after withdrawal:
891 – 315
= $576
Since this is less than $750, he is charged an
additional $7 for every month.
Total fee of 7x
= 576 – 7x
Class Work
• Page 135, numbers 2-6
SIMPLE INTEREST
What is interest?
• A sum paid or charged for the use of
borrowing money.
2 Types of Interest
• Simple Interest
– Interest is calculated only on principal
• Compound Interest
– Interest is calculated on principal and interest
– Increases the total principal
Simple Interest Formula
I=Prt
I=
P=
r=
t=
Using the simple interest formula
1) Write the formula
2) Substitute values for variables
3) Solve the equation for the unknown variable
4) Answer the question
Converting time to years
• If given:
Months: Divide by 12
9 months: 0.75 yrs
Weeks: Divide by 52
27 weeks: 0.519 yrs
Days: Divide by 365
245 days: 0.671 yrs
How much simple interest is earned on $4,000 in
3 ½ years at an interest rate of 5.2%.
1) Write the formula
I=Prt
2) Substitute values for variables
I = Principal
$4,000 0.052
rate 3.5
timeyears
3) Solve for the unknown variable
I = $728
4) Answer the question
$728 was earned in interest
Mitchell deposits $1,200 in an account that pays
4.5% simple interest. He keeps the money in the
account for three years without any deposits or
withdrawals. How much is in the account after
three years?
I=Prt
I=
P=
r=
t=
How much simple interest does $2,000 earn in 7
months at an interest rate of 5%?
How much simple interest would $800 earn in 300
days in a non-leap year at an interest rate of 5.71%?
SIMPLE INTEREST
Simple Interest Formula
I=Prt
I = Interest earned
P = Principal (money invested)
r = Annual interest rate (decimal)
t = Time (in years)
I=Prt
• So far, we have been solving problems to find
the interest earned
• Now want to use this formula to solve for
principal, rate, and/or time
• Can also use magic triangle
Magic Triangle
To solve an equation
for a specific variable,
simply cover the letter
with your hand.
Find Time:
Rate:
Principal:
I
I
Pt
Pr
rt
P r t
How much principal must be deposited to earn
$1,000 simple interest in 2 years at a rate of 5%?
1. Use the triangle to find the formula
Principal =
I
rt

= $10,000
1, 000
0 . 05  2
I
$10,000 must be deposited to earn
$1,000 in interest
P r t
How much principal must be deposited in a 2-year
simple interest account that pays 3 ¼ % interest to
earn $300?
Use the triangle to find the formula
Principal =
I
rt

300
0 . 0325  2
= $4,615.38
I
$4,615.38 must be deposited to earn
$300 in interest
P r t
Derek has a bank account that pays 4.1% simple
interest. The balance is $910. When will the
account grow to $1,000?
How much do you need to earn in interest?
Time =
I
Pr
= 2.2

90
910  0 . 041
I
In 2.2 years, the balance will reach
$1,000
P r t
How long will it take $10,000 to double at 11%
simple interest?
How much do you need to earn in interest?
Time =
I
Pr
=9

10 , 000
10 , 000  0 . 11
I
It will take approximately 9 years to
double.
P r t
Kerry invests $5,000 in a simple interest account for
5 years. What interest rate must the account pay
so there is $6,000 at the end of 5 years?
What are we looking for?
Rate =
I
Pt
= 0.04

1, 000
5 , 000  5
I
She will need an interest rate of 4%.
P r t
Marcos deposited $500 into a 2.5 year simple
interest account. He wants to earn $200 interest.
What interest rate must the account pay?
Rate =
I
Pt
= 0.16

200
500  2 . 5
I
He will need an account that pays
16%.
P r t
How much simple interest is earned on $5,000
deposited in an account that earns 3% interest if it
is left there for 5 years?
How much money would need to be deposited to
earn $350 in interest at 3% for 6 years?
What interest rate would you need for $5,000 to
grow to $5,750 in 4 years?
How long will it take $5,000 to double in an account
that pays 5.6% simple interest?