Slide 1
2-3 SAVINGS
ACCOUNTS
Understand the advantages & disadvantages of an
interest bearing account. (Interest bearing means it pays
interest.)
Compute simple interest.
Compute doubling time.
OBJECTIVES
You will need:
• Papers on the student
table
• Textbook
• Calculator
• Pen or Pencil
• Notebook PaperRed Items are needed during
the lecture
To do now:
1. Write down the objective
2. Take out earbuds
Slide 2
Banking
• What are disadvantages of a bank
account?
➢Not as easy to get your money
➢There may be fees
Slide 4
Example 2
▪ Grace wants to deposit $5,000 in a certificate of deposit for a period of two years.
▪ She is comparing interest rates quoted by three local banks and one online bank.
First State Bank: 1 % E-Save Bank: 1 %
Johnson City Trust: .0122 Land Savings Bank: 1.3%
3
8
1
4
Let’s convert each rate into a decimal %
Which bank will pay the most interest income?
Slide 5
Example 2
First State Bank: 1 % E-Save Bank: 1 %
Johnson City Trust: .0122 Land Savings Bank: 1.3%
3
8
1
4
Let’s convert each rate into a decimal %
First State: 1 ¼ % ¼ = .25 1.25%
E-Save Bank: 1 % 3/8 = .375 1.375%
Johnson: .0122 multiply by 100% 1.22%
Land: no change needed 1.3%
3
8
Slide 6
Example 2
First State Bank: 1 % E-Save Bank: 1 %
Johnson City Trust: .0122 Land Savings Bank: 1.3%
3
8
1
4
Let’s convert each rate into a decimal %
First State: 1 % ¼ = .25 1.250%
E-Save Bank: 1 % 3/8 = .375 1.375%
Johnson: .0122 multiply by 100% 1.220%
Land: no change needed 1.300%
1
43
8
Which bank will pay the most interest income?E-Save Bank
Slide 7
Example 3
▪ Raoul’s savings account has a minimum balance requirement of $500.
▪ If it falls below $500, he is charged a $4 fee.
▪ His balance is $716.23.
▪ He withdraws $225.
What was his new balance?
New Balance = Prior Balance - Reduction
= 716.23 – 225
= 491.23
Will he be charged a fee?
New Balance = Prior Balance - Reduction
= 491.23 – 4
= $487.23
Yes
Critical
Information!
Important difference:
If we just say “interest” that refers to dollars.
If we say “interest rate” we mean a percent.
“Interest” means $
“Interest Rate” means %
Slide 9
New Formula
Simple Interest formulas:
I = PRT or B = P + PRT
I = Amount of Interest Earned
B = Ending Balance
P = Principal (beginning amount)
R = Interest Rate (converted)
T = Time in years
Look at your Formula Cheat Sheet.
Where are these formulas?
What are their numbers?
1a 1b
Example 4▪ Mitchell deposits $1,200 in an account
that pays 1.5% simple interest.
▪ He keeps the money in the account for three years without any more deposits or withdrawals.
How much is in the account after three years?
One: TopSimple: 1
1b
Q1) One or multiple?Q2) Which key word?Q3) What are you looking for? Ending Balance: b
Which formula on the formula cheat sheet?
Slide 11
Example 4
▪ Mitchell deposits $1,200 in an account that pays 1.5% simple interest.
▪ He keeps the money in the account for three years without any deposits or withdrawals.
How much is in the account after three years?
B = P + P x R x T
= + x x
= $1,254.00
1,200 .015 31,200
Formula:Variables:
B =
p =
r =
t =
B
3
.0151,200
Slide 12
Example 4 - Now You Try It!
How much simple interest is earned on $4,000 in 3½ years at an interest rate of 1.2%?
Slide 13
Example 4 - Now You Try It!
How much simple interest is earned on $4,000 in 3½ years at an interest rate of 1.2%?
One: TopSimple: 1
1a
Q1) One or multiple?Q2) Which key word?Q3) What are you looking for? Interest: a
Which formula on the formula cheat sheet?
Slide 14
Example 4 - Now You Try It!
How much simple interest is earned on $4,000 in 3½ years at an interest rate of 1.2%?
I = PRT
I = 4,000 x .012 x 3.5
Interest = $168.00
Formula:Variables:
I =
p =
r =
t =
I
3.5
.0124,000
Slide 15
Example 6How much principal must be deposited to earn $1,000 simple interest in 2 years at a rate of 1.3%? Round to the nearest cent.
One: TopSimple: 1
1a
Q1) One or multiple?Q2) Which key word?Q3) What are you looking for? Principal BUT I know
the amount of interest: a
Which formula on the formula cheat sheet?
Slide 16
Example 6
How much principal must be deposited to earn $1,000 simple interest in 2 years at a rate of 1.3%? Round to the nearest cent.
I = PRT
1,000 = P x .013 x 2
(Nsolve, manually solve, or Mathway)
P = $38,461.54
Formula:Variables:
I =
p =
r =
t =
1,000
2
.013P
Example 7
▪ Derek has a bank savings account that pays 2.1% simple interest.
▪ The balance is $750.
When will the account balance double?
One: TopSimple: 1
1b
Q1) One or multiple?Q2) Which key word?Q3) What are you looking for? Time: b
Which formula on the formula cheat sheet?
Slide 18
Example 7
▪ Derek has a bank savings account that pays 2.1% simple interest.
▪ The balance is $750.
When will the account balance double?
B = P + PRT
1,500 = 750 + 750 x .021 x T
(Nsolve, manually solve, or Mathway)
T = 47.62 years
Formula:Variables:
B =
p =
r =
t =
1,500
T
.021750
Slide 19
Example 7 - Now You Try It!How long will it take a $1,000 investment to double with 10% interest?
Slide 20
Example 7 - Now You Try It!How long will it take a $1,000 investment to double with 10% interest?
One: TopSimple: 1
1b
Q1) One or multiple?Q2) Which key word?Q3) What are you looking for? Time: b
Which formula on the formula cheat sheet?
Slide 21
Example 7 - Now You Try It!How long will it take a $1,000 investment to double with 10% interest?
B = P + PRT
20,000 = 10,000 + 10,000 x .1 x T(Nsolve, manually solve, or Mathway)
T = 10 years
Formula:Variables:
B =
p =
r =
t =
20,000
T
.1
10,000
It took almost 50 years to double the money
when it was in a bank savings account.
0Years 10 20 30 40 50
Bank
Account
Investment:
1,000 2,000
1,000 32,00016,0008,0004,0002,000
The investment doubled every 10 years!