Savings  Savings plans consist of 

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					 Savings plans consist of:
   Saving accounts
   Certificates of deposit
   Money market funds
 Should try to save 10% of your net income
 Received=Saved (take it out RIGHT AWAY)
 Opportunity Cost
 Why do people save? 3 Reasons……..
 Making major purchases
   College Education, home purchase, car
 Emergencies
   Car breakdown, lose your job, health issues
 Planning for retirement
   Social security, retirement plans 401K’s, IRA’s
 “Instead, they are living paycheck to paycheck,
 depending on credit cards to get them through
 emergencies, and hoping that the rising value of their
 homes will give them a retirement nest egg.” MSN
 Investing Article
 Retire in 35 years
 $100 a month in a savings account
 Return rate of 6 Percent
 By the time you retire you will earn $143,000
 You would have put away $42,000
 Earned $101,000 in interest
 Generates loan money for people and businesses,
 Consumers
   Buy homes & cars
 Businesses
   Update facilities and equipment
   Enables businesses to produce more goods and services
   Company may need to hire more workers
 Rate of return- is the percentage of increase in the
  value of your savings from earned interest
 Simple Interest- is interest earned only on money
  deposited into a savings account, called the principal
 Compound interest-is interest earned on both the
  principal and any interest earned on the principal
 $50,000 at 6% annual interest
 $50,000*.06=$3,000
 Earned $3,000 after year one
 $53,000 *.06=$3180
 Earned $3180 after year two
 $56,180 after year two
 Look at chart on page 490 to see difference
 Regular savings account allow customers to deposit
  or withdraw money at any time and to earn interest on
  the funds
 Interest rate risk- What does this mean?
 $100 minimum rates vary from each financial
 May charge a service fee if the savings account falls
  below a minimum balance
 Requires you to deposit a specified amount of money
    in an account for a set period of time
   3 months, one year, or five years
   Maturity date is when the money becomes available to
   Rate is higher than a regular savings account
   What happens if you cash in before the maturity date?
 Is a kind of mutual fund, or pool of money, put into a
    variety of short term debt (loans less than one year
   Diversification???
   Rate varies from month to month
   Require high balances and you can only write a limited
    number of checks
   Why?
 FDIC (Federal Deposit Insurance Corporation)
   Will insure up to $250,000 through December 31st 2013
 Liquidity
 Low risk
 Money markets are not federally insured
 Low risk low return
 Inflation risk
   $1000 earns two percent interest
   Next year inflation is 4%
   It costs $1040 at the end of the year what you could have
    bought at the beginning of the year for $1000
   Penalties
        Fees for deposits and withdrawals
        Must be kept at a minimum balance
        Early withdrawal penalties
        Income tax (Unearned income)