SAVINGS Key Terms: liquidity, term, money market account, certificate of deposit, savings bonds Factors for Choosing Savings Options Safety and Risk Liquidity Earnings Taxes Restrictions Fees/Service Charges SAFETY AND RISK FDIC NCUA Federal Deposit National Credit Union Insurance Association Corporation Insurance means safety! Individual account options LIQUIDITY Defined—the ease with which savings or investments can be turned into cash to be spent Fixed term—period of time during which money must be kept on deposit EARNINGS Check out the APY (Annual Percentage Yield) Higher APY = greater earnings TAXES You are required to pay income tax on interest earned. Some savings options offer tax advantages. RESTRICTIONS There may be certain requirements! For example: Required deposit amount Maintain a certain balance Limited transactions FEES AND SERVICE CHARGES Questions concerning fees and charges ATM charges? Monthly fees? Fees if below minimum balance? KNOW ALL ABOUT YOUR ACCOUNT! SAVINGS OPTIONS Savings Accounts Money Market Accounts Certificates of Deposit Savings Bonds SAVINGS ACCOUNTS Most liquid Low minimum balance Fewer restrictions Interest usually low Monthly statement Deposits Withdrawals Interest earned MONEY MARKET ACCOUNTS Deposits invested by financial institution Yield higher earnings Higher interest rate More restrictions May write checks Limited number Withdrawals limited Deposits limited MONEY MARKET ACCOUNTS Do not confuse with money market funds Mutual fund (investment) CERTIFICATES OF DEPOSIT CERTIFICATES Specify the amount deposited Specify the interest rate Specify the length of term Terms usually: 3 months-5 years Minimum $1,000-$100,000 CERTIFICATES OF DEPOSIT Defined—a certificate issued by a financial institution to indicate that money has been deposited for a certain term SAVINGS BONDS Non-transferable debt certificattes Issued by U. S. Treasury You purchase; you loan Extremely safe Government backed Tax exempt (local and state tax) Federal Tax Deferred SAVINGS BONDS Defined—nontransferable debt certificates issued by the U. S. Treasury. When you buy, you are loaning money to the federal government. SAVINGS BONDS THREE TYPES OF SAVINGS BONDS Series EE Series HH Series I WHY SAVE? 1. Accumulate money for future purchases 1. To earn income SAVE OR INVEST? MAIN PURPOSE: Saving—to set aside money for some anticipated future need Investing—committing money for the purpose of making a profit over time SAVING INVESTING Setting aside money for Committing money to future use make profit over time Bonus: Interest Earned Grows in long run No Risk Risks involved Withdrawals at any time Not easily accessible Time to decide if you Often begins with really want item saving Allows you to spend wisely REASONS FOR SAVING EMERGENGIES RECURRING EXPENSES FUTURE PURCHASES FINANCIAL GOALS RETIREMENT Food for Thought Saving delays Credit leads to purchase until more spending you have money Pay interest Buy more Takes time It’s easy FINANCIAL GOALS CHANGE FAMILY LIFE STAGES 1. Marriage 2. Parenthood 3. Children Moving Out 4. Aging SAVINGS PLAN STEPS TO SAVINGS 1. Decide what you’re saving for 2. Set a specific goal 3. Break long-term goal into short-term goals 4. Save regularly and consistently 5. Keep your savings goals in mind AUTOMATIC SAVINGS Automatic Transfers checking to savings or savings to checking Direct Deposit employer to employee’s bank account Payroll Deductions save/invest by paycheck withdrawal REMEMBER STICK TO YOUR GOAL! PAY YOURSELF FIRST!