saving
trading current spending for the ability to spend in the future. a "trade-off
Reasons the save
unexpected expenses, oppurtunities, major purposes, flexibility, achieve goals
how can savings give you flexibility?
you choose to spend it on what you need instead of what you have to
What are savings strategies?
pay yourself first, save by the numbers, reward yourself, saving and values
Not through tax refunds? Why?
payroll deduction, checking account transfers, not a piggy bank
commericial bank
serves individuals and businesses, offers a variety of services: checking, savings, investments, loans, etc
savings banks
financial institutions owned by their depositers. don't make interest, they make dividends
dividend
a share of the company's profits
savings and loan associations
S and L's became popular during the great depression. specialize in lending money to buy homes
credit unions
offer membership to people that share a common bond. a member is an owner. offer checking, saving, and loans. higher interest rates on savings, lower on loans
savings accounts
accounts offered in which you deposit money and earn interest on your deposits. you may withdraw at any time
Interest rates
the more money you keep in a savings account, the higher interest rate you can receive
What is FDIC
insures money in commercial and savings bank
What is SAIF
money in S&L (save and loan) are insured through this
NCUSIF
ensures credit unions
what factors should you consider in selecting a savings account
interest rates, fees, restrictions, atm availability
certificate of deposit (CD)
deposit in a savings institution that earns a fixed rate for a specific period of time
face value
amount printed on the bond
savings bonds
US gov't bonds issued for amounts of $50,000-$10,000
bond
a written promise to pay a debt by a specified date. you "cash" them when they mature
annual percentage yield (APY)
actual interest rate an account pays per year
Why do banks pay higher intererest on your CD's?
because they know they can hold the money for a specific amount of time
WHat is a money market?
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How do money market accounts differ from regular savings accounts?
MM accounts offer higher interest rates that change with economy. they require a substantial minimum deposit. some banks let you write checks from it.
savings accounts offer a fixed rate and have a lower required minimum balance.
What are the three types of savings bonds?
EE: interest rates change over time (government controlled)
HH: you get these when you "cash" in EE bonds and they pay interest each year
I: pay a fixed rate of interest in addition to the rate of inflation
What are the factors you need to consider when selecting a term for your CD?
Your need for money, interest rate trend
WHy do you think a tax advantage exists on government bonds?
interest not faxed. to encourage people bc government needs money.
principal
money that you have on deposit in savings account, CD, or other savings options
simple interest
interest paid on the average balance of an account once a year at the end of the year
compound interest
the interest paid on the principal and also on the previously earned interest, assuming that the interest is left in the account
inveting
savings in a way that earns income
risk
chance that an investment will decrease in value
return
income that you earn on an investment
diversification
investing in various businesses with different levels of risk
what is the trade-off to make more income on your ivnestments?
to risk more money
How is the rate of return measured?
amount of your return/ amount you invested
How do age and financial situation affect how you make investment decisions?
when you're young you can afford to risk more because you still have time to make it up
How does your tolerence for risk affect your choice of investments?
you would invest in a company you believe will succeed
Share of stock-- wb (p. 77)
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