At the start of class

1. At the start of class • Go over homework • Announcement : Chapter 12 and 13 tests next Friday! • I am available next week for tutoring or catch-up Monday, Tuesday, and Thursday from at 2:45-4pm

2. How much does it cost for your style of living? Label each expense under one of the categories on the right What percent did you spend in each category? Housing Transportation Food Entertainment Clothes Savings/investing Maintenance/health Discretionary (gifts, charity, etc) Expenses Tracker

3. Chapter 13: Methods of Saving Learning goals: Explore ways savings can earn interest; describe different savings accounts and retirement savings options

4. Interest and your savings • Factors that determine the amount of interest: • Length of time deposit money is committed to be in bank • Deposits covered by FDIC or NCUSIF generally earn less than uninsured deposits • Market rates of interest • Policies of the financial institution

5. Market Rates of Interest and Liquidity • The Federal Reserve significantly impacts market interest rates through money supply and the discount rate • The Fed doesn’t control all interest rates, just influences them • Liquidity level of accounts affects its interest rate • High liquidity = lower interest rates and visa versa

6. Types of Bank Accounts • Checking accounts • Negotiable Order of Withdrawal (NOW) • Interest Bearing savings accounts • Certificates of Deposit (CDs) • Money Market Deposit Accounts (MMDA) • Credit unions

7. Checking accounts are the most liquid type of bank account (no interest for that reason) Money in checking account called demand deposit(can be withdrawn on demand) NOW accounts function like checking accounts but earns interest Requires that you maintain a minimum monthly balance Offers the lowest interest rates penalties if you don’t maintain balance Checking and NOW accounts

8. Interest bearing Savings Accounts • Very liquid, but not as high as checking • Pays higher interest rates than checking and NOW accounts • No check-writing services • Used for saving for vacations, holiday gifts, emergencies, or other expensive goals

9. Certificate of Deposits (CDs) • CD – a contract between an individual and the financial institution that specifies some length of time the individual will leave a certain amount of money in a bank • Common CD maturities are 1 month, 3 months, 6 months, 1 year, 3 years, and 5 years • Lower liquidity = higher interest rate • Pay a penalty for withdrawing funds before maturity

10. Money Market Deposit Account (MMDA) • require minimum balance • Have no maturity date • Pays interest • Limited check writing privileges • EX: minimum monthly balance of $2,500 and 5 check limit • Fees for low balance or too many checks • Higher interest rate than NOW, lower than CDs

11. Do you have it? • Rank the 5 accounts in order from most liquid to least liquid • Checking, NOW, MMDA, Savings, CD • Which accounts provide no interest? low interest? High interest? • (N) checking, (L) NOW, MMDA, Savings, (H) CDs • Which accounts require a minimum balance? • NOW and MMDA accounts

12. Credit Unions • Nonprofit • Exists to serve members, not earn money for investors • Generally higher interest rates on deposits than ordinary banks

13. Annual Percentage Yield (APY) • Compound interest – interest added to an account earns interest • Compound frequency is how often the bank puts interest into your account • Higher frequency = more yearly interest earned • APY – the interest rate that takes into account the compound frequency (the “real” annual interest) • EX: 3.95% interest compounded quarterly has an APY of 4.009% annual interest

14. How fast will your money grow? • http://cgi.money.cnn.com/tools/millionaire/millionaire.html

15. Retirement Savings options • http://www.irs.gov/Retirement-Plans/Plan-Sponsor/Types-of-Retirement-Plans-1

16. Individual Retirement Plans (IRA) • Created by the government • Can contribute $5500 per year • Must be 65 years old to take money out without a penalty(book is not current on this age1) • Account consists of CDs and mutual funds

17. Traditional Tax deductible contributions (taken out before taxes, pay no federal taxes on amount) All earnings are tax deferred (interest not taxed until withdrawn) Roth IRA contributions NOT tax deductible Earnings NEVER taxed, even after withdrawal Traditional IRA vs. Roth IRA

18. Employer Sponsored Retirement Plans • Defined benefit plan (pension plans) – guarantee you a specific amount of income when your retire • Must work a specified number of years to be vested (eligible to receive benefits) • Employer contributes funds, not employee • Employee receives benefits until death

19. Employer Sponsored Retirement Plans • Defined-contribution plan – employer contributes to the employee’s retirement account but doesn’t guarantee specific retirement benefits • Once funds are gone, they are gone • More risk for employee, less for employer • EX: 401(K) and 403(b)

20. 401(K) and 403(b) Plans • Many employers will match what employees contribute to a point • Employees can contribute more • Taken out pre-tax from paycheck (lowers taxable income and therefore taxes)

21. Annuities • Annuities– financial product that guarantees annual payments to the owner for a fixed period of time or for a person’s lifetime • Require a minimum investment of at least $5,000 • Not taxed until dispersed • Fixed annuity – payment is a guaranteed amount • Variable annuity – payment depends on investment performance

22. Ch. 13 Assignment: Due Tuesday • What do you know? Pg 423 #3, 4b, 6a, 8b • Test Prep pg 426 #1, 3, 4, 6, 8, 10, 12, 13, 16, 17