Savings & Investing

1. Savings & Investing

2. Savings Tools Are: Safe Liquid Used For: Large Purchases Emergencies Financial Security

3. Are: Checking Account Savings Account Money Market Account Certificate of Deposit Savings Bond 5 Savings Tools

4. Savings Tools are Safe Why? Government Insured/Guaranteed With the Exception of US Savings Bonds FDIC-Federal Depository Insurance Corporation up to $250,000 Federal government agency that insures depository institutions

5. Choosing a Savings Tool • By understanding the features of different savings tools, an individual can choose which tools will help them reach their financial goals.

6. Depository Institutions • Features of savings tools vary between different depository institutions • Interest rates • Accessibility options • Fees • Penalties • Minimum balance requirements

7. Depository Institutions • Research and compare savings tools at different depository institutions in order to find the best option • Not limited to one depository institution • Can have different savings tools at different depository institutions

8. DEFINITION Tool used to transfer funds deposited into an account to make a cash purchase INTEREST May be non-interest or interest earning Interest rate is usually the lowest available for the savings tools Checking Account

9. Checking Account • ACCESSIBILITY • Most liquid of all the savings tools • Funds are easily accessed by: • Checks • Automated teller machines (ATMs) • Debit cards • Telephone • Internet

10. Checking Account • FEATURES • Can have minimum balance requirements • Can charge transaction fees • Can have a limit on the number of checks written monthly • Reduces the need to carry large amounts of cash Before opening a checking account, learn all of the requirements and restrictions.

11. Checking Account • ADDITIONAL INFORMATION • If interest is earned on the account, you must report it on your income taxes (unearned income) in the year it was earned • You will receive a form 1099 that tells you the total interest you earned for the year

12. Savings Account • INTEREST • Interest earning • Lower interest rates compared to the other savings tools except checking accounts • DEFINITION • Account to hold money not spent on consumption

13. Savings Account • ACCESSIBILITY • More liquid than all savings tools except a checking account • Funds may be accessed or transferred between accounts through: • Automated teller machines • Telephones • Internet • Debit Card

14. Savings Account • FEATURES • Allows for frequent deposits or withdrawals • Easily accessible • Money storage for emergencies and/or large purchases • Available at depository institutions • May require a minimum balance or have a limited number of withdrawals per month

15. Savings Account • ADDITIONAL INFORMATION • Interest earned on the account must be reported on your income taxes (unearned income) in the year it was earned • You will receive a form 1099 that tells you the total interest you earned for the year

16. Money Market Deposit Account • DEFINITION • This is a kind of combination checking/savings account.

17. Money Market Deposit Account • INTEREST • Minimum balance requirement with tiered interest rates • The amount of interest earned depends on the account balance • For example: a balance of $10,000 will earn a 4% interest rate while a balance of $2,500 would only earn 3% $1,000-$5,000 3% $5,001-$10,000 4% $10,001-$15,000 5% $15,001-$20,000 6%

18. Money Market Deposit Account • ACCESSIBILITY • Less liquid than checking and savings accounts • Accessibility is limited to a certain number of transactions per month (usually 3-6)

19. Money Market Deposit Account • FEATURES • Minimum amount required to open the account, often $1,000 • If the average monthly balance falls below a specified amount, the account will earn a lower interest rate for the entire month

20. Money Market Deposit Account • ADDITIONAL INFORMATION • Interest earned on the account must be reported on your income taxes (unearned income) in the year it was earned • You will receive a form 1099 that tells you the total interest you earned for the year

21. Certificate of Deposit • INTEREST • Varies depending upon the time length and amount of money deposited • The longer the period of time, the higher the interest rate • DEFINITION • An insured interest earning savings tool that allows restricted access to the funds • Deposits have to be held for a certain length of time • Usually 7 days to 8 years

22. Certificate of Deposit • ACCESSIBILITY • Less liquid than checking, savings, and money market deposit accounts • Large fees are assessed if funds are withdrawn before the end of the designated time period

23. Certificate of Deposit • FEATURES • Minimum deposits range from $100-$250,000 • Low risk and no fees if funds are held for the designated time period

24. Certificate of Deposit • ADDITIONAL INFORMATION • Interest earned on the account must be reported on your income taxes (unearned income) in the year it was earned even if you don’t touch the money • You will receive a form 1099 that tells you the total interest you earned for the year

25. US Savings BondE now EE • DEFINITION • Current bonds purchased for face value from the U.S. Government • Loan given to the government • As of 2012, all bonds are electronic—no paper

26. US Savings Bond • INTEREST • Earns interest up to 30 yearsthen mature (stops)

27. Savings Bond • ACCESSIBILITY • Least liquid of all the savings tools • Access to funds is restricted • Can only be redeemed after 1 year with a substantial penalty • Can be redeemed after 5 years with no penalty

28. Savings Bond • FEATURES • Cannot be transferred; whoever owns it must cash it in—if die, goes to estate • Purchased for $25 - $10,000 • Any one SS# is allowed a total yearly bond purchase of no more than $10,000 • Taxes • Interest earned on a bond is tax exempt until redeemed • If the bond and its interest are used to pay for higher education, the interest it earned will be tax exempt when redeemed

29. Savings Bond • ADDITIONAL INFORMATION • Taxes • Interest earned on a bond is tax exempt until redeemed (cashed in) • Once cashed in or when bond matures (30 years), interest earned on the bond must be reported on your income taxes (unearned income) • If the bond and its interest are used to pay for higher educationthe interest it earned will be tax exempt when redeemed

30. Liquidity Assets: Everything an individual owns with monetary value. Liquidity: How quickly and easily an asset can be converted to cash. Examples of Assets Cash Clothing Houses Electronics Savings Accounts Automobiles Furniture

31. Liquidity Most Liquid Lowest Interest Highest Interest Least Liquid

32. Choosing a Savings Tool • Different savings tools can be utilized to assist in reaching personal financial goals • Higher interest rates are a trade-off for lower liquidity

33. Choosing a Savings Tool • When and how often access is needed to funds helps determine which savings tool to use • An individual wants to develop an emergency savings fund • They need a very liquid account • A savings account is very liquid and accessible in emergency situations Additional info savings

34. Savings Tools Scenarios • Read each Savings Tool Scenario • Discuss which savings tool would be recommended for each scenario

35. Savings Tools Scenario #1 Sean is a high school student that just received his first paycheck from his new part-time job at the local grocery store. He currently has no expenses to pay, and his goal is to save every paycheck from his job to buy a new car in two years. He needs to find a savings tool that will help him reach his financial goal. Which savings tool would you recommend Sean utilize and why?

36. Savings Tools Scenario #2 Brittany recently moved into her first apartment. Before, she was living with her parents and had very few expenses to keep track of. Now that she has to pay rent and utilities for her apartment, she needs to find a savings tool that will help her manage her money and ensure she can pay her bills every month. Which savings tool would you recommend Brittany utilize and why?

37. Savings Tools Scenario #3 Bryan has a goal to become financially secure by developing an emergency fund. He has been saving twenty percent of his net income for the past year and now has $2,000. He plans to maintain this balance and only use this money for emergency expenses. Which savings tool would you recommend Bryan utilize and why?

38. Saving vs. Investing Savings Investing Portion of current income not spent on consumption Purchase of assets with the goal of increasing future income or wealth used for long-term goals

39. Savings vs. Investing Money saved is used to pay for: Money invested is used to pay for: • Emergencies • Large Purchases • Financial Security • Higher Education • Buying a Home • Retirement

40. Liquid Assets Savings are known as liquid assets, because they are easily accessible (turned into cash) in emergency situations. In most cases, investments are not as liquid as savings. Of your assets, which are the most liquid?

41. Why are Saving & Investing Important? Investing Savings Provides the foundation for financial security Enhances and helps build wealth

42. Saving vs. Investing Activity Directions: A characteristic of saving or investing will be identified Decide which you think is correct Discuss the answer

43. Saving vs. Investing Activity Characteristic: Builds Wealth Saving or Investing: Investing

44. Saving vs. Investing Activity Characteristic: More Liquid Saving or Investing: Saving

45. Saving vs. Investing Activity Characteristic: Used to pay for emergencies Saving or Investing: Saving

46. How is Wealth Measured? The components include: Assets – Everything a person owns with monetary value Liabilities – Debts (what is owed to others) Net Worth – the amount of money left when liabilities are subtracted from assets (indicates wealth) Net worth statement - Describes an individual or family’s overall financial condition on a specified date

47. The Choices You Make Today Impact Your Future! Saving and investing… Decrease Liabilities Increase Assets Increased Wealth!

48. True or False? Identify if each statement is true or false… They are both true. Now we are going to learn how!

49. Time Value of Money Money paid out or received in the future is not equivalent to money paid out or received today Three factors affect how an investment will grow.

50. Interest Rate Interest is the price of using money. Interest rate is the percentage rate paid on the money invested or saved Are you earning interest on any money?