Download Choosing a Savings Tool

Savings Tools
Take Charge of Your Finances
Family Economics & Financial Education
To Develop a
Savings Fund:
Determine how much money is
appropriate for a savings fund
Determine which savings
tools in which to place money
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 2
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
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Savings Tools
$ Savings tools are secure and liquid accounts offered
by depository institutions assisting in the
management of a savings fund
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 3
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Savings Tools
Five types of savings tools
•
•
•
•
•
Checking Account
Savings Account
Money Market Deposit Account
Certificate of Deposit
Savings Bond
$ Determine which savings tools are appropriate to assist in the
attainment of personal financial goals
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 4
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Low Risk
$ Savings tools are very secure
$ Most depository institutions offering savings tools
are backed by government insurance
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 5
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
FDIC
The most common type of government
insurance is offered by the Federal Deposit
Insurance Corporation (FDIC)
FDIC is a federal government
agency insuring certain depository
institutions against loss
Video:
FDIC
[3:39]
If a depository institution covered by FDIC
fails, FDIC will restore the lost funds up to
$250,000 per account
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 6
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Checking Account
$ 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
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 7
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Checking Account
$ ACCESSIBILITY
 Most liquid of all the savings tools
$ Funds are easily accessed by:
 Checks
 Automated teller machines (ATMs)
 Debit cards
 Telephone
 Internet
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 8
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
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
Video:
‘How to Choose A
Checking Account’ [4:46]
Before opening a checking
account, learn all of the
requirements and restrictions.
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 9
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Savings Account
$ DEFINITION
 Account to hold
money not spent on
consumption
$ INTEREST
 Interest earning
 Lower interest rates
compared to the other
savings tools except
checking accounts
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 10
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
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
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 11
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Savings Account
$ FEATURES





Allows for frequent deposits or withdrawals
Easily accessible
Money storage for emergencies or daily living
Available at depository institutions
May require a minimum balance or have a limited
number of withdrawals per month
Video: ‘How to Get the Best Interest Rates on Checking &Savings Accounts’ [5:44]
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 12
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Money Market
Deposit Account
$ DEFINITION
 A government insured account offered at most
depository institutions
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 13
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
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 higher interest rate than a
balance of $2,500
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 14
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
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)
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 15
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
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 entire account will earn a
lower interest rate
Video: ‘About Money Market Accounts’ [3:14]
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 16
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Certificate of
Deposit
$ 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
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$ INTEREST
 Varies depending upon
the time length and
amount of money
deposited
$ The longer the period of
time, the higher the
interest rate
$ Usually 7 days to 8 years
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 17
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 18
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Certificate of
Deposit
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$ FEATURES
 Minimum deposits range from $100-$250,000
 Low risk and no fees if funds are held for the
designated time period
Video:
‘How Do CDs Work?’ [1:15]
Video:
‘Managing CDs’ [1:03]
Website: BankRate.Com
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 19
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Savings Bond
$ DEFINITION
Video:
- ‘Buy US Savings Bonds (1970s) PSA [:54]
- ‘U.S. Savings Bond Chicken Commercial’
(1983) Ad Council PSA [:30]
 Discount bond purchased for 50% of the face
value from the U.S. Government
$ Similar to a loan but is given to a company or the
government
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 20
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Savings Bond
$ INTEREST
 Can be redeemed once the investment doubles
 Amount of time it takes to double in value
depends on the current interest rate offered
$ Invest $50 for a $100 savings bond
$ The bond can be redeemed once the investment
doubles to reach $100
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 21
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Savings Bond
$ ACCESSIBILITY
 Least liquid of all the savings tools
$ Access to funds is restricted
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 22
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Savings Bond
$ FEATURES
 Safe, secure, and affordable
 Purchased for $25.00 - $10,000.00
 Taxes
$ Interest earned on a bond is tax exempt until redeemed
$ If the bond is used to pay for college, the interest it earned
will be tax exempt when redeemed
Video: ‘How Much is Your Savings Bond Worth?’ [2:54]
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 23
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Liquidity
Most
Liquid
Checking Account
Savings Account
Lowest
Interest
Money Market Deposit Account
Certificate of Deposit
Least
Liquid
Savings Bond
Highest
Interest
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 24
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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
Higher
Interest
Lower
Liquidity
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 25
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
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
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 26
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
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.
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 27
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Depository
Institutions
$ Features of savings tools vary between different
depository institutions





Interest rates
Accessibility options
Fees
Penalties
Minimum balance requirements
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 28
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
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
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 29
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Savings Tools
Scenarios
$ Read each Savings Tool Scenario
$ Discuss which savings tool would be recommended
for each scenario
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 30
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Savings Tools
Scenario #1
Mariah has twin daughters that will be graduating
from high school in two years. They both have a
goal to attend college after graduation, and Mariah
wants to help them reach this goal by paying for
some of their schooling. She has $2,000 for each
daughter that she would like to save and then be
able to access in two years. Which savings tool
would you recommend Mariah utilize and why?
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 31
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Savings Tools
Scenario #2
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Conner and Lisa were recently married and
purchased a new house. They received $1,000 as a
wedding present from Lisa’s parents. They want to
use this money to buy new furniture for their house
in six months. Which savings tool would you
recommend Conner and Lisa utilize and why?
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 32
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Savings Tools
Scenario #3
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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?
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 33
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Savings Tools
Scenario #4
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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?
$
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 34
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Savings Tools
Scenario #5
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?
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 35
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Savings Tools
Scenario #6
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Paul and Grace want to purchase a house in two
years. They want to begin saving money to use for
the down payment on a home. They are able to save
$300 per month and need to know which savings
tool would be the best option for them to put their
money in. Which savings tool would you
recommend Paul and Grace utilize and why?
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 36
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Summary
Five types of savings tools:
Checking
Account
Savings
Account
Money
Market
Deposit
Account
Certificate
of
Deposit
Savings
Bond
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 37
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.14.2.G1
Summary
$ Savings tools are very secure
$ Most depository institutions offering savings tools
are backed by FDIC insurance
$ Different savings tools can be utilized to assist in
reaching personal financial goals
$ Features of savings tools vary between depository
institutions
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 38
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona