Savings Plans and Payment

Methods

Types of Savings PlansO To achieve your financial goals, you

will need a savings program.O Savings programs include:

O Regular savings accountsO Certificates of DepositO Money Market AccountsO Savings Bonds

Regular Savings Accounts

O Traditionally called passbook accounts, are ideal if you plan to make frequent deposits and withdrawals.

O Require no minimum balance and allow you to withdraw money on demand.

O Low interest earnedO Bank may provide monthly or

quarterly statements

Certificates of DepositO A certificate of deposit(CD) is a savings

alternative, in which money is left on deposit for a stated period of time to earn a specific rate of return. This period of time is called the term.

O The date when the money becomes available to you is called the maturity date.

O Relatively low risk way to invest money.O Offers a higher interest rate than a regular

savings account with a few trade offs.

Three key limitations to CDs

O You may have to leave your money on deposit for one month to five or more years.

O You probably will pay a penalty if you take the money out before the maturity date.

O Financial institutions require that you deposit a minimum amount to buy a certificate of deposit. This amount is usually larger than the balance a regular savings account requires.

Money Market Accounts

O A money market account is a savings account that requires a minimum balance and earns interest that varies from month to month.

O The rates float, or go up and down, as market rates change.

O Requires a higher minimum balanceO Could incur a penalty if your balance goes

below the minimum amountO The FDIC insures money market accounts

up to $100,000.

U.S. Savings BondsO Also called a Patriot BondO Can be purchased from the federal

government in amounts that range from $25 to $5,000(face values of $50 to $10,000 respectively)

O The government limits total purchases per year to $15,000 per person.

U.S Savings BondsO The maturity date, or the date a bond

reaches its face value, depends on the date it was bought and the interest rate the bond is earning.

O Rates could change every six monthsO Interest earned on Bonds are exempt

from state and local taxesO You will pay federal taxes on the

interest earnings until you cash in the bond

Evaluating Savings Plans

O Rate of ReturnO The percentage of increase in the value

of your savings from earned interest.O Compounding

O The process in which interest is earned on both the principal – the original amount you deposited – and on any previously earned interest

O May take place every year, every quarter, every month, or even every day

Truth in SavingsO According to the Truth in Savings law,

financial regulations have to inform you of the following information:O Fees on deposit accountsO Interest RateO Annual percentage yield(APY)O Terms and conditions of the savings plan

O Annual percentage yield(APY) is the amount of interest that a $100.00 deposit would earn, after compounding

Choose wiselyO Consider the following factors:

O InflationO Tax ConsiderationsO LiquidityO SafetyO Restrictions and Fees