Savings will put you in the
drivers seat
Lesson Objectives

Identify “emergencies, goals and irregular
expenses” as the three categories of savings

Explore the eight saving strategies presented

Identify the Truth in Savings Act and define the
term “annual percentage yield” (APY)

Explain the benefits of interest compounding
and calculate compound interest.
Lesson Objectives
 List
three benefits of depositing savings in
an FDIC insured account
 Use the Rule of 72 to determine savings
outcomes.
 Compare different types of savings
products.
 Discuss how investing money is different
from saving money
Reasons for Saving Money
aside 6–8 months of
living expenses, to be used in case of job
layoff, illness, or other “SHIFT HAPPENS”
 Irregular or seasonal expenses-such as
holiday spending, replacement or
purchase of big ticket items
 Financial Goals- such as retirement, home
ownership, college and technical training
 Emergencies-put
8 Saving Strategies to Help You Save

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Focus on reaching a
“SMART” goal
Use the “Pizza Principle”
Motivate yourself
Pay yourself first
Comparison shop before you
buy
Examine your spending
habits
Begin today and save
regularly
Direct Deposit your savings
into a savings account
Review Major Vocabulary
Terms and concepts
 Pay
yourself first- Put at least 10% of your
pay away in a savings account
 FDIC-Federal Deposit Insurance
Corporation ensures deposits up to
250,000
 Interest - money paid regularly at a
particular rate for the use of money lent
Review Major Vocabulary
Terms and concepts



Compound interest rate - Interest figured on
money deposited plus interest at a specified
rate.
Rule of 72. A method used to estimate the
amount of time or interest it will take for
savings to double in value.
Truth in Savings Act-Law established in 1991,
requires financial institutions to provide information
about costs and interest-earning accounts in
uniform terms. Helps consumers compare savings
products and make informed decisions.
Vocabulary Terms and
concepts
 annual
percentage yield (APY) -The rate
of yearly earnings from an account,
including compound interest.
 Liquidity –Refers to how quickly and
conveniently you can retrieve your
money from an investment, and at what
cost if any.
How to Chose the Right
Savings Account for you?
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Look for Financial Institutions that are insures
with the FDIC or NCUA (National Credit Union
Association)
Compare APR (interest rate) to ensure
maximum growth
Determine the liquidity of your savings- Do
you want to be able to take the money out
without penalty? (The longer you promise to
keep it in a savings account the better the
higher the interest rate.)
Ask customer service representatives
Basic Types of Accounts


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Savings Accounts- offer liquidity in exchange
for lower interest rates
A Certificate of Deposit (CD)- Offer higher
interest rates in exchange for less liquidity. You
make a contract with the financial institution
to leave a certain amount of money on
deposit for an agreed about period of time.
Money Market Accounts offer you a higher
interest and liquidity in exchange for
maintaining a high minimum balance.
continued
Investing for Future Long-Term Goals is different
from saving because the risk is higher with the
possibility of earning even more money.

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Stocks-Shares or small pieces of a company
that can be purchased
Mutual Funds – Allow you to pool your money
with other investors to purchase many
different stocks, bonds, or other assets held by
the fund.
Bonds – Are long term loans issued by the
government, company, or local authority
usually used to finance things such as schools,
construction, and development.
continued
Investing for Future Long-Term Goals
 Real
Estate- purchasing property such as
homes, apartments, complexes, land, or
buildings usually takes longer to purchase
and sell than many other investments
 Precious Metals and Collections-Gold,
silver, jewelry, antiques, and other
collectibles
continued
How to Choose the Right
Savings Account for you?
 Maximize
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your savings by considering
total amount deposited
interest rate
time span of deposit
interest type: simple interest or compound
interest
frequency of compounding
Compare rates
Calculating Compound
Interest
1. Multiply the deposit amount by the
annual interest rate
2. Divide Step 1 answer by rate of
compounding
3. Add Step 2 answer to deposit amount to
get new balance with interest
continued
Calculating Compound
Interest
Calculating compound
interest (problem one)
 Jacob
opens an online only savings
account and deposits $50 each month.
The annual interest rate is 2.5 percent.
Interest is compounded monthly. What is
the account balance after 5 months?
Calculating compound interest (problem one)
Month- EVERY
MONTH ADD FIFTY
DOLLARS to balance
Step 1 Multiply the
deposit amount by the
annual interest rate
Step 2
Divide Step 1 answer
by rate of
compounding
Step 3
Add Step 2 answer to
deposit amount to get
new balance with
interest
I. Opening
balance 0 add
$50.00
$50.oo x 2.5%
50 x .025 = $1.25
$1.25 / 12 = .10
$50.00 + .10 =
$50.10
2. $50.10 +
$50.00 =$100.10
$100.10 x .025 =
$2.50
$2.50 /12 = .21
$100.10 + .21 =
$100.31
3.$100.31
+$50.00
=$150.31
$150.31 x . 025 =
$3.76
$3.76 / 12 = .31
$150.31 + .31 =
$150.62
4$150.62 +
$50.00
= $200.62
$200.62 x . 025 =
$5.02
$5.02 / 12 = .42
$200.62 + .42 =
$201.04
5 $201.04 +
$50.00 = $251.04
$251.04 x .025 =
$6.28
$251.04 /12 = .52
$251.04 + .52 =
$251.56
Challenge yourself then check
with your partner
James opened a savings account and
deposited $1,525.00. The interest rate is 2.73
percent and interest is compounded
quarterly. How much interest will her
deposit earn her after one year?
Don’t PANIC …
 There
are calculators to help!
 http://www.bankrate.com/cd.aspx?ic_id
=calc_savings_bank-rates_globalnav
 http://www.mathsisfun.com/money/com
pound-interest.html
Rule of 72
 Use
Rule of 72 to estimate the amount of
time or interest needed to double savings
 To find the number of years to double
savings, divide 72 by interest rate
 To find the annual interest rate needed to
double savings, divide 72 by number of
years
continued
Rule of 72
 How
long will it take $1000
deposited at a 4% interest
rate to double in value?
 Find the annual interest rate
you need to double your
savings if your savings was in
an account for 20 years
continued
Rule of 72
 72
divided by 4 is 18; in 18 years your
$1,000 will be worth approximately $2,000
 72 divided by 20 is 3.6; your savings must
be in an account paying 3.6% for it to
double in 20 years
Central Ideas of the Chapter
A
savings plan is an essential piece
of an overall financial program.
 Compound interest helps your
savings grow over time.