Savings Tools

Savings Tools Are….

Secure and liquid accounts offered by depository institutions assisting in the management of a savings fund

Checking Accounts Money Market Certificate of DepositFive Savings Tools

Savings tools are secure because they are low risk since they are backed by government insurance – FDIC: Federal Deposit Insurance Corporation.

Liquidity: The ability to convert an asset to cash quickly.

Tools Definition Interest Accessibility Features Features

Checking Account

Allows cash purchases using money put into account

May or may not be – if it is – it is the lowest rate

Most liquid of all tools

Can have fees and charges Eliminates the need for cash

Before opening an account - investigate

Savings Account

Account to hold money not spent on consumption

Interest earning but a low rate

Very liquid Allows for frequent activity - emergencies

Funds can be accessed through ATM, telephone

Money Market Deposit Account

Government insured savings tool

Tiered interest rates – moderate rate of return

Limited number of transactions per month

Maintain a minimum balance in order to earn interest

Minimum Balance Required

Certificate of Deposit

Tool that allows restricted access to funds

Interest will vary depending upon time

Penalties for early withdrawal

Time 7 days to 10 years

Minimum balance required

Savings Bond

US Gov’t Discount bondpurchased for 50% of theface value

Interest is exempt from tax until it is redeemed

Least liquid – no access to funds until redeemed

Redeemed when bond matures – usually several years

For conservative low risk investors

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?

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?

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?

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?

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?

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?

Savings Bond

• ACCESSIBILITY– Least liquid of all the savings tools• Access to funds is restricted

Certificate of Deposit

• ACCESSIBILITY– Less liquid than checking, savings, and

money market deposit accounts• Large fees are assessed if funds are withdrawn

before the end of the designated time period

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)

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

• ACCESSIBILITY–Most liquid of all the savings tools• Funds are easily accessed by:– Checks– Automated teller machines (ATMs)– Debit cards– Telephone– Internet

Checking Account