Chapter 10Chapter 10

Saving for the Future

Goals for Chapter 10.1Goals for Chapter 10.1Savings Goals and InstitutionsSavings Goals and InstitutionsDescribe different purposes of saving.Explain how money grows through

compounding interest.List and describe the financial institutions

where you save.

Why You Should SaveWhy You Should Save

Short-Term Needs– Emergencies: unemployment, sickness,

accident, death in family– Vacations– Social Events: weddings– Major Purchases: car, appliances, remodeling

Why You Should SaveWhy You Should Save

Long-Term Needs– Home ownership (down payment)– Education– Retirement– Investing

Financial Security– Peace of mind

How Your Money GrowsHow Your Money Grows

The amount of money deposited by a saver is called the principal.

For use of the saver’s money, the financial institution pays the saver money called interest.

Compound interest is interest computed on the original principal plus accumulated interest. (Figure 10-1 Pg. 239)– The more often interest is compounded, the greater

your earnings.

How Your Money GrowsHow Your Money Grows

Earning on savings can be measured by the rate of return or yield.– Yield is the percentage of increase in the value of your

savings due to earned interest. Because financial institutions compound interest

in many ways, comparing yields can be difficult. The law requires all financial institutions to

publish the annual percentage yield (APR), which is the actual rate you earn including compounding.

Where Can You Save?Where Can You Save?

Commercial BanksSavings BanksSavings and Loan AssociationsCredit UnionsBrokerage Firms

Goals for Chapter 10.2Goals for Chapter 10.2Savings Options, Features, Savings Options, Features,

and Plansand Plans Explain the features and purposes of savings

accounts, certificates of deposit, and money market accounts.

Discuss some of the factors that influence the selection of a savings plan.

Explain at least two ways to save regularly.

Savings OptionsSavings Options

Regular Savings Account– The major advantage of a regular savings

account is liquidity. Liquidity is the ability of an asset to be converted into cash quickly without loss of value.

– The tradeoff for liquidity is lower return.

Savings OptionsSavings Options

Certificate of Deposit– A certificate of deposit (CD) is a deposit that

earns a fixed interest rate for a specified length of time.

– A CD has a set maturity date, which is the date on which an investment becomes due for payment.

Savings OptionsSavings Options

Money Market– A money market is a combination savings-

investment plan in which money deposited is used to purchase safe, liquid securities.

Selecting a Savings PlanSelecting a Savings Plan

LiquiditySafetyConvenienceYieldFees and Restrictions