Saving and InvestingUNIT VII – Personal Financial Literacy

Saving Your Money

• Save early• Save often• Pay yourself first (make it a fixed

expense)

Types of Savings Accounts

Type Definition Return

Standard Savings Account

Certificates of Deposit

Money Market Accounts

U.S. Savings Bonds

Accounts at a bank, savings association, or credit unionBank notes for a set period of time at a fixed interest rateSavings accounts offered by banks that require a high minimum balanceGovernment issues bonds as one of its ways of borrowing money

Rates are usually higher

Rates are usually higher

Rates are usually higher

Rates are relatively low

Compounding Interest

•Money is really made by interest adding up over time• Example: $2000 @ 8% interest will give

$2160, the next year it would be $2172.80 which is only $12.80• But if you saved $2000 a year plus the

interest from 22 to 65 you would ultimately end up with $713,899 instead of $86,000

Saving and Risks

•Multiple ways to save money• The more risk you take, the higher the

interest rate will be• It is important to DIVERSIFY your

savings – “Don’t put all your eggs in one basket.”

Investments• You may wish to try to earn more on your money,

different investments yield different results• Stocks – partial ownership of a business can give

you steady returns (dividends) and go up in value to give you more money• Bonds – lending money to a company or

government to gain interest• Mutual Funds – pooling stocks and bonds

together with hundreds of other people, less risky

Pyramid of RiskSpeculative

Stocks

Real Estate

Individual Stocks

Mutual Funds

Certificates of Deposit

Savings Accounts

U.S. Savings Bond