Savings AccountsIntroduction to Business and Marketing

Chapter 30.1

THE MAIN IDEA

Savings are money people put aside for future use. Generally people use their savings for major purchases, emergencies, and retirement income. Savings accounts can earn either simple or compound interest. If one leaves money saved in an account that accumulates compound interest, interest is earned on both the amount saved and the interest earned.

A Guide to Saving

Savings plans include

Regular savings accounts

Certificates of deposit

Money market accounts

The amount you save depends on the amount you are willing NOT to spend

Experts say people

should save about

10% of their take-

home income.

Pay Yourself First

Experts suggest that the

amount being saved should be

taken from the income first so

you are not tempted to spend it

Saving money should be a part

of your budget

A Guide to Saving

Opportunity cost - putting off

spending money on an item

that you might want right

now

Benefit - greater than

purchasing an item that you

wantSavings Calculator

Why you should maintain a savings account To make major purchases later

A new home A new car College

The provide for emergencies Experts suggest you set aside

6 months of income

To have income for retirement

Retirement

Average retirement

income when saving

begins at different

ages

Retirement

Most people receive Social

Security income

Most people have some sort

of retirement plan from

work

Theses are usually not enough

to support you once you retire.

You will need savings too.

Earning Interest on Savings

Not all savings earn income

When you put your money into a bank’s savings account you are lending them money (you are the creditor)

They use your money to loan to others

This makes saving good for the economy

Rate of Return

The percentage of increase in the

value of your savings

Earnings on savings can be

measured by the rate of return,

or yield.

Compounding

Simple interest is interest earned on money

deposited into a savings account, called the

principal.

When principal and interest are left in an

account, it earns compound interest.

Compound Interest

Compound Interest

You have $50,000 in a savings account at 6 percent annual interest.

Simple Interest

Compound Interest

You’ve earned $3,000 after one year.

$3,000 is added to the principle.

Fifteen Years Later

$20,00 of interest is earned.

You have $50,000 in a

savings account at 6

percent annual interest.

Simple Interest

Compound Interest

You’ve earned $3,000 after one year.

$3,000 is added to the principle.

Fifteen Years Later$20,00 of interest is earned.

The Rule of 72

The Rule of 72 is used to calculate how long it will take to double the money in an investment. It is calculated by dividing 72 by the annual interest rate to get the number of years.

The truth about millionaires

Millionaire Quiz

When will you be a millionaire?