Savings Tools

Advanced Level

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Types of Savings Tools Savings tools - secure and liquid accounts offered by depository institutions assisting in the management of a savings fund

Checking Account Savings Account Money Market Deposit Account Certificate of Deposit © Take Charge Today –August 2013 – Savings Tools– Slide 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.4.3.G1

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Ideal for Storing Emergency Savings Insured depository institutions offer accounts which are: Secure

Accounts must stay within coverage limits

Liquid

Generally quick and easy to withdraw money How will a consumer know if their depository institution offers secure accounts?

© Take Charge Today –August 2013 – Savings Tools– Slide 3 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Savings Tools Characteristics Each savings tool has different characteristics

Interest Liquidity

Goal: Determine the savings tool most appropriate for reaching a financial goal

Features © Take Charge Today –August 2013 – Savings Tools– Slide 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.4.3.G1

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Checking Account

Definition • Account that provides an easy method for withdrawing and depositing money Interest • Most do not • If offered, rates are low Liquidity (accessibility) • Most liquid What are common ways to access funds in a checking account?

© Take Charge Today –August 2013 – Savings Tools– Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Checking Account Features

Reduce the need to carry large amounts of cash Different types of accounts are available (some have fees) Also known as a share draft account at a credit union Not recommended as the only account used to save money 2.4.3.G1

© Take Charge Today –August 2013 – Savings Tools– Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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Savings Account

Definition • Account designed to hold money not spent on current consumption Interest • Earns interest • Rates are often low Liquidity (accessibility) • More liquid than other savings tools (except checking accounts) What are common ways to access funds in a savings account?

© Take Charge Today –August 2013 – Savings Tools– Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Savings Account Features

Effective for storing emergency funds May require a minimum balance or have a limited number of withdrawals each month 2.4.3.G1

Also known as a share account at a credit union © Take Charge Today –August 2013 – Savings Tools– Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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Money Market Account

Definition Interest Liquidity (accessibility) • Account that usually has minimum balance requirements and tiered interest rates • Often tiered

interest rates

– the amount of interest earned depends on the account balance • Less liquid than checking and savings accounts because of minimum balance requirements and transaction limits Which would typically earn a higher interest rate? An account with a $10,000 balance or a $2,500 balance?

© Take Charge Today –August 2013 – Savings Tools– Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Money Market Account Features

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Usually have to deposit a minimum amount to open the account (typically $1,000) Similar to a savings account but earns higher interest and has higher minimum balance/deposit requirements © Take Charge Today –August 2013 – Savings Tools– Slide 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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Certificate of Deposit (CD)

Definition • Account that is used for a fixed period of time and allows restricted access to the funds Interest • Varies (depending on time and amount of money deposited) Liquidity (accessibility) • Least liquid savings tool Why would a depository institution typically offer higher interest rates for CD’s with a longer time period or more money invested?

© Take Charge Today –August 2013 – Savings Tools– Slide 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Certificate of Deposit Features

Deposits must be held for a certain length of time (usually 7 days to 10 years) Deposits can range from $100 to $250,000 2.4.3.G1

If funds are held for the designated time period, then there is limited risk and no fees © Take Charge Today –August 2013 – Savings Tools– Slide 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Matching Savings Tools to Goals

Consider these factors when determining the most appropriate savings tool for your financial goal 2.4.3.G1

Amount of funds available Liquidity Interest Purpose of money saved When money is needed Savings tool require ments Fees Other answers include: savings tool requirements, fees © Take Charge Today –August 2013 – Savings Tools– Slide 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

You Decide: Which Tool is Best?

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Avery’s goal is to create an emergency savings fund Javier’s goal is to purchase a new car within the year Savings account Funds are easily accessible Money market account Higher interest rates available © Take Charge Today –August 2013 – Savings Tools– Slide 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Analyze the features of a savings tool among depository institutions

Terms and conditions such as interest rates, fees,

and minimum balance requirements may vary.

© Take Charge Today –August 2013 – Savings Tools– Slide 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.4.3.G1

Liquidity

Higher interest rates are a trade-off for lower liquidity

Most Liquid/Lowest Interest Checking Account Accounts Savings Savings Account Money Market Money Deposit Account Accounts Certificates Certificate of Deposit Least Liquid/ Highest Interest 2.4.3.G1

© Take Charge Today –August 2013 – Savings Tools– Slide 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Summary

Understand the features of savings tools to select the most appropriate tool for each financial goal

© Take Charge Today –August 2013 – Savings Tools– Slide 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.4.3.G1

What does “higher interest rates are a trade-off for lower liquidity” mean?

Depository institutions pay higher interest in order to have access to funds for a longer period of time, and charge fees to liquidate an account early.

© Take Charge Today –August 2013 – Savings Tools– Slide 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.4.3.G1

Which Savings Tool?

Mariah and the Twins

• 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?

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© Take Charge Today –August 2013 – Savings Tools– Slide 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Which Savings Tool?

Conner and Lisa’s wedding present

• 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?

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© Take Charge Today –August 2013 – Savings Tools– Slide 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Which Savings Tool?

Aran’s First Paycheck

• Aran is a high school student who 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 half of 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 Aran utilize and why?

© Take Charge Today –August 2013 – Savings Tools– Slide 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.4.3.G1

Which Savings Tool?

Brittany’s First Appartment

• 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?

© Take Charge Today –August 2013 – Savings Tools– Slide 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.4.3.G1

Which Savings Tool?

Bryan’s Goal

• 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?

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© Take Charge Today –August 2013 – Savings Tools– Slide 23 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Which Savings Tool?

Amani and Grace Save for a House

• Amani 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 Amani and Grace utilize and why?

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© Take Charge Today –August 2013 – Savings Tools– Slide 24 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona