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Savings ToolsTake Charge of Your Finances
Family Economics & Financial Education
Personal Finance 8.01 Savins & Investments
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 2Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
To Develop a Savings Fund:
Determine how much money is appropriate for a savings fund
Determine which savings tools in which to place money
1.14.2.G1
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 3Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Savings Tools
$ Savings tools are secure and liquid accounts offered by depository institutions assisting in the management of a savings fund
1.14.2.G1
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 4Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Savings Tools
$ Determine which savings tools are appropriate to assist in the attainment of personal financial goals
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Low Risk
$ Savings tools are very secure$ Most depository institutions offering
savings tools are backed by government insurance
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
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 lossIf a depository institution covered
by FDIC fails, FDIC will restore the lost funds up to $250,000 per account
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
$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
Checking Account
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
$ACCESSIBILITY Most liquid of all the savings tools
$Funds are easily accessed by: Checks Automated teller machines (ATMs) Debit cards Telephone Internet
Checking Account
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 9Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
$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
Checking Account
Before opening a checking account, learn all of the requirements
and restrictions.
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 10Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
$DEFINITION Account to hold
money not spent on consumption
$INTEREST Interest earning Lower interest
rates compared to the other savings tools except checking accounts
Savings Account
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 11Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
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
1.14.2.G1
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 12Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
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
1.14.2.G1
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 13Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
$DEFINITION segment of the
financial market in which financial instruments with high liquidity and very short maturities are traded
Used as a means for borrowing and lending in the short term, from several days to just under a year.
$ government insured account offered at most depository institutions
Money Market Deposit Account
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 14Funded 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
$INTEREST Minimum balance requirement with
tiered interest rates$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
1.14.2.G1
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 15Funded 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)
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 16Funded 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
$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
1.14.2.G1
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 17Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
$DEFINITION An insured interest
earning savings tool that allows restricted access to the funds
Deposits have to be held for a certain length of time$Usually 7 days to 8
years
$INTEREST Varies depending
upon the time length and amount of money deposited$The longer the
period of time, the higher the interest rate
Certificate of Deposit
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 18Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Certificates of Deposit
$ Contract for specific time period
$ If funds withdrawn before MATURITY DATE, penalty is deducted from your money
$ Earn higher rate because bank can lend money to borrowers for longer period and earn more
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 19Funded 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 (penalties) are assessed if funds are withdrawn before the end of the designated time period
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 20Funded 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
$FEATURES Minimum deposits range from
$100-$250,000 Low risk and no fees if funds are
held for the designated time period 7 days minimum, 8 years maximumCommon maturity terms 3-6-9-12-1824-36-48-60 months
1.14.2.G1
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 21Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Savings Bond
$DEFINITION$Bonds are purchased for
discount of 50% of the face value from the U.S. Government
$Loan given to a corporation or the government
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 22Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Savings Bond
$ INTEREST Can be redeemed once the investment
doubles Maturity date- when bond is redeemed 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
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 23Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Savings Bond
$ACCESSIBILITY Least liquid of all the savings tools
$Access to funds is restricted
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 24Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Savings Bond
$FEATURES Safe, secure, and affordable Purchased for $25.00 - $10,000.00 Taxes
$ Interest earned on a bond is tax deferred until redeemed
$ If the bond is used to pay for college, the interest it earned will be tax exempt when redeemed (if invested in 529 plan* see next slide)
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 25Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
529 college plans
$ A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996.
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 26Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Liquidity
Checking Account
Savings Account
Money Market Deposit Account
Certificate of Deposit
Savings Bond
Most Liquid
Least Liquid
Lowest Interest
Highest Interest
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 27Funded 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
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 28Funded 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
$ When and how often access is needed to funds helps determine which savings tool to use
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 29Funded 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.
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 30Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Depository Institutions
$ Features of savings tools vary between different depository institutions Interest rates Accessibility options Fees Penalties Minimum balance requirements
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 31Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
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
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 32Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Savings Tools Scenarios
$ Read each Savings Tool Scenario$ Discuss which savings tool would be
recommended for each scenario
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 33Funded 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 #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?
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 34Funded 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
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?
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 35Funded 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
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?
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 36Funded 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
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?
$
1.14.2.G1
© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 37Funded 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?
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 38Funded 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
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?
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 39Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
Summary
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© Family Economics & Financial Education – May 2010 – Saving Unit – Savings Tools – Slide 40Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences
at the University of Arizona
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