Savings Plans and
Payment Methods
Types of Savings Plans
O To achieve your financial goals, you will need
a savings program.
O Savings programs include:
O Regular savings accounts
O Certificates of Deposit
O Money Market Accounts
O Savings Bonds
Regular Savings Accounts
O Traditionally called passbook accounts, are
ideal if you plan to make frequent deposits
and withdrawals.
O Require no minimum balance and allow you
to withdraw money on demand.
O Low interest earned
O Bank may provide monthly or quarterly
statements
Certificates of Deposit
O A certificate of deposit(CD) is a savings
alternative, in which money is left on deposit
for a stated period of time to earn a specific
rate of return. This period of time is called
the term.
O The date when the money becomes
available to you is called the maturity date.
O Relatively low risk way to invest money.
O Offers a higher interest rate than a regular
savings account with a few trade offs.
Three key limitations to CDs
O You may have to leave your money on
deposit for one month to five or more years.
O You probably will pay a penalty if you take
the money out before the maturity date.
O Financial institutions require that you
deposit a minimum amount to buy a
certificate of deposit. This amount is usually
larger than the balance a regular savings
account requires.
Money Market Accounts
O A money market account is a savings account
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that requires a minimum balance and earns
interest that varies from month to month.
The rates float, or go up and down, as market
rates change.
Requires a higher minimum balance
Could incur a penalty if your balance goes below
the minimum amount
The FDIC insures money market accounts up to
$100,000.
U.S. Savings Bonds
O Also called a Patriot Bond
O Can be purchased from the federal
government in amounts that range from $25
to $5,000(face values of $50 to $10,000
respectively)
O The government limits total purchases per
year to $15,000 per person.
U.S Savings Bonds
O The maturity date, or the date a bond
reaches its face value, depends on the date
it was bought and the interest rate the bond
is earning.
O Rates could change every six months
O Interest earned on Bonds are exempt from
state and local taxes
O You will pay federal taxes on the interest
earnings until you cash in the bond
Evaluating Savings Plans
O Rate of Return
O The percentage of increase in the value of
your savings from earned interest.
O Compounding
O The process in which interest is earned on
both the principal – the original amount you
deposited – and on any previously earned
interest
O May take place every year, every quarter,
every month, or even every day
Truth in Savings
O According to the Truth in Savings law, financial
regulations have to inform you of the following
information:
O Fees on deposit accounts
O Interest Rate
O Annual percentage yield(APY)
O Terms and conditions of the savings plan
O Annual percentage yield(APY) is the amount of
interest that a $100.00 deposit would earn,
after compounding
Choose wisely
O Consider the following factors:
O Inflation
O Tax Considerations
O Liquidity
O Safety
O Restrictions and Fees