Savings Tools. Take Charge of Your Finances Family Economics & Financial Education

Savings Tools Take Charge of Your Finances Family Economics & Financial Education To Develop a Savings Fund: Determine how much money is 1. appropri...
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Savings Tools Take Charge of Your Finances Family Economics & Financial Education

To Develop a Savings Fund: Determine how much money is 1. appropriate for a savings fund

Determine which savings 2. 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

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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

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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

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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

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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 If a depository institution covered against loss 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

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Checking Account $ DEFINITION  Tool used to transfer funds deposited into an account to make a cash purchase

$ INTEREST  May be noninterest 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

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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

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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. © 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

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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

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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

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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 © 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

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Money Market Deposit Account

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$ 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

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

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Money Market Deposit Account

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$ 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 © 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

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 $ Usually 7 days to 8 years

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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

© 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

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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

© 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

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Savings Bond $ DEFINITION  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

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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

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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

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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 © 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

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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

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$ Different savings tools can be utilized to assist in reaching personal financial goals $ Higher interest rates are a trade-off for lower liquidity Higher Lower Intere Liquidi st ty © 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

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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

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

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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

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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

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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

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Savings Tools Scenario #1

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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 © 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

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 © 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 © 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

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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

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

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Summary

Five types of savings tools: Checki ng Accoun t

Saving s Accoun t

Money Market Deposit Accoun t

Certific ate of Deposit

Saving s 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

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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