Planning Ahead

Saving money is an important part of financial freedom and responsibility.

What are the advantages of having a savings account?

savings account

A specific kind of savings account that earns interest.

Lesson Objective Complete a savings account deposit slip and compute the total deposit.

Content Vocabulary

savings account

deposit

deposit

Checks, currency, or coins put into a banking account, savings and loan, credit union, or brokerage firm.

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withdrawal

Money taken out of a bank account.

Lesson Objective Fill out a savings account withdrawal slip.

Content Vocabulary

withdrawal

account statement

A bank statement that shows the status of your account, including all deposits to, withdrawals from, and interest earned and credited to your account.

Lesson Objective Compute the new balance of a savings account statement.

Content Vocabulary

account statement

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interest

The amount of money paid for the use of a lender’s money.

Lesson Objective Calculate simple interest and the amount.

Content Vocabulary

interest

simple interest

principal

annual interest rate

simple interest

Interest paid only on the original principal.

principal

The amount of money earning interest.

annual interest rate

The percent of the principal earned as interest in one year.

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Examples

1. Joe has 5124.32 in a savings account. He receives 4.25% interest. If he keeps it in the bank for 8 months, how much interest will he get. What is the total amount?

2. Joe has $12000 to invest at 5.75%. How long will it take to earn $1035 in interest?

5124.32*.0425*8/12 = $145.19

5124.32+145.19 = $5269.51

12000 .0575 1035

690 1035

1.5

x

x

x years

compound interest

Interest earned not only on the original principal but also on the interest earned during previous interest periods, earning interest on interest.

Lesson Objective Determine the compound interest and the amount.

Content Vocabulary

compound interest

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Example

1. Jane has $2360 in an account that get 4.5% interest compounded semiannually. What is the interest amount for the first two periods and the total amount?

12360 .045 53.10

22360 53.10 2413.10

12413.10 .045 54.29

22413.10 54.29 $2467.39

2467.39 2360 $107.39 int

amount

compound interest table

A tool to calculate compound interest quickly.

Lesson Objective Find compound interest using a table and the compound interest formula.

Content Vocabulary

compound interest table

1

principal, Present Value

rate per period

number of peri

9

o s

2

d

2n

A P r

P

r

p

n

g

Examples1. Thomas puts $1340 in an account earning 5% interest

compounded quarterly. He leaves it there for 3 years. What is his Future Value and his compound interest? Use Table on A11.

2. Thomas found a better account. This account compounds monthly. What is the Future Value and interest for this account for the same money and time? Use the formula.

1340 1.16075 $1555.41

1555.41 1340 $215.41 int

FV

361340 1 .00417 $1556.37

1556.37 1340 $216.37

FV

INT

daily compounding

Interest that is computed each day and added to the account balance.

Lesson Objective Calculate the interest for daily compounding.

Content Vocabulary

daily compounding

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Thomas puts $1340 in an account on March 1 earning 5.5% interest compounded daily. He withdraws it on June 9th. What is his amount and his compound interest? Use Table on A10.

Jane has $2360 in an account that get 4.5% interest compounded daily. Use the formula to compute the value and interest after 90 days.

1340 1.01517 $1360.33

1360.33 1340 $20.33 int

FV

902360 1.000123288 $2386.33

2386.33 2360 $26.33

FV

INT

annuity

An account into which someone deposits an equal amount of money at equal periods or equal intervals of time.

Lesson Objective Compute the future value of an ordinary annuity and an annuity due.

Content Vocabulary

annuity

ordinary annuity

annuity due

ordinary annuity

An account in which equal deposits are made at the end of each interest period.

annuity due

An account in which equal deposits are made at the beginning of the interest period and start earning interest immediately.

1 1

Future Value

AD Amount Deposited each period

rate per period

number

2

of period

37

s

nAD r

FVr

FV

r

p

n

g

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1. Alex saves $700 at the end of each quarter in an ordinary annuity earning 6.2% interest compounded quarterly. How much will he have saved after 15 years and how much interest has he earned?

60700 1 .0155 1

$68485.76.0155

700*60 $42000

68486.76 42000 $26486.76

FV

Amount deposited

INT

2. Roy deposits $1500 into an ordinary annuity at 6% after each quarter for 3 years. a)Find the future value and interest on this account.

b) If this were an annuity due account what would be the future value and interest?

1500 13.04121 $19561.82

1500*12 $18000

19561.82 18000 $1561.82 int

FV

$19561.82* 1 .015 $19855.25

19855.25 18000 $1855.25 int

FV

SummarySummary

Banking Tools

Savings accounts safely hold money and earn interest.

Account Statements

Know the status of you account.

Forms of Interest Simple Interest

Compound Interest Compound Interest Tables Daily Compounding

Deposits

Withdrawals

Annuities Ordinary Annuity

Annuity Due

1. Tyson Bingell deposits the money he earned in tips into his savings account. He has 2 twenty-dollar bills, 8 ten-dollar bills, 18 five-dollar bills, and 118 one-dollar bills. What is his total deposit?

A. $128

B. $228

C. $328

D. $428

2. ALGEBRA Victor Vazquez deposited checks totaling $1,985.40 into his savings account. He withdrew $100 while depositing some coins. If his total deposit was $1,750.40, how much did Victor deposit in coins?

A. $35.00

B. $65.00

C. $135.00

D. $270.00

4. The previous balance in William Hobb’s savings account is $2,305.60 and $5.40 in interest. He made a deposit of $306.50 and withdrew $521.00. What is his new balance?

A. $2,096.50

B. $2,650.90

C. $3,127.70

D. $3,138.50

5. John Arleque deposits $6,300 in an account that pays an annual 3.5% interest rate. Determine the simple interest for 3 years.

A. $220.50

B. $350.80

C. $540.75

D. $661.50

6. ALGEBRA Nathan Perez earned $220 in simple interest in 9 months at an annual interest rate of 8%. How much money did he invest?

A. $3,100.50

B. $3,666.67

C. $3,750.05

D. $3,900.45

7. Linda Howell’s savings account has a principal of $2,350. It earns 2.1% interest compounded quarterly. What is the amount in the account at the end of the second quarter?

A. $2,189.45

B. $2,362.34

C. $2,374.74

D. $2,399.35

8. April Yu has a principal of $900 in her savings account on January 1. The money earns interest at a rate of 5.5% compounded quarterly. What is the amount in the account after 6 months? Use the table on page A11.

A. $912.38

B. $922.64

C. $924.91

D. $927.11

9. Terrance LaMay deposits $5,000 in an account that pays 5.5% interest compounded daily. How much interest will he earn in 31 days? Use Amount of $1.00 = 1.00468 to find the answer.

A. $23.40

B. $32.50

C. $35.60

D. $38.10

10. Jason Miller deposits $300 in an ordinary annuity at the end of each quarter. The account earns 8% interest compounded quarterly. What is the future value of the account in 2 years? Use the value of 8.58297 to find the answer.

A. $1,209.45

B. $2,574.89

C. $2,890.45

D. $3,200.50

End of

Chapter 5Savings Accounts