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Savings ToolsTake Charge

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© Take Charge Today –August 2013 – Savings Tools– Slide 2Funded 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

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 AccountCertificate of

Deposit

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© Take Charge Today –August 2013 – Savings Tools– Slide 3Funded 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

Ideal for Storing Emergency Savings

SecureAccounts must

stay within coverage limits

Liquid Generally quick

and easy to withdraw

money

Insured depository institutions offer accounts which are:

How will a consumer know if their depository institution offers secure accounts?

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© Take Charge Today –August 2013 – Savings Tools– Slide 4Funded 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

Interest

Liquidity

Features

Each savings tool has different characteristics

Goal: Determine the savings tool most

appropriate for reaching a financial goal

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© Take Charge Today –August 2013 – Savings Tools– Slide 5Funded 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

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?

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© Take Charge Today –August 2013 – Savings Tools– Slide 6Funded 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

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© Take Charge Today –August 2013 – Savings Tools– Slide 7Funded 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

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?

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© Take Charge Today –August 2013 – Savings Tools– Slide 8Funded 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

Also known as a share account at a credit

union

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Wells Fargo

Vs.

Bank of America

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© Take Charge Today –August 2013 – Savings Tools– Slide 10Funded 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

Definition

• Account that usually has minimum balance requirements and tiered interest rates

Interest

• Often tiered interest rates – the amount of interest earned depends on the account balance

Liquidity (accessibility)

• 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?

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© Take Charge Today –August 2013 – Savings Tools– Slide 11Funded 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

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

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Wells Fargo

Vs.

Bank of America

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© Take Charge Today –August 2013 – Savings Tools– Slide 13Funded 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 (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?

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© Take Charge Today –August 2013 – Savings Tools– Slide 14Funded 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

If funds are held for the designated time period, then there is

limited risk and no fees

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Wells Fargo

Vs.

Bank of America

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© Take Charge Today –August 2013 – Savings Tools– Slide 16Funded 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

Amount of funds available

Purpose of

money saved

When money

is needed

Liquidity Interest

Savings tool

requirements

Fees

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

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© Take Charge Today –August 2013 – Savings Tools– Slide 17Funded 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?

Avery’s goal is to create an emergency savings fund

Savings account

Funds are easily accessible

Javier’s goal is to purchase a new car within the year

Money market account

Higher interest rates available

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© Take Charge Today –August 2013 – Savings Tools– Slide 18Funded 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

Liquidity

Higher interest rates are a trade-off for lower liquidity

Checking Accounts

Savings Accounts

Money Market Deposit

Accounts

Certificates of Deposit

Most Liquid/Lowest

Interest

Least Liquid/Highest Interest

Checking Account

Savings Account

Money Market Deposit Account

Certificate of Deposit

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© Take Charge Today –August 2013 – Savings Tools– Slide 19Funded 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 institutionsTerms and conditions such as interest rates, fees, and minimum balance requirements may vary.

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© Take Charge Today –August 2013 – Savings Tools– Slide 20Funded 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

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

Summary

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© Take Charge Today –August 2013 – Savings Tools– Slide 22Funded 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

Retirement Plan Options

• Pension Plans [401(k)]• Keogh-Self employed pension plan• IRA / Roth IRA

• IRA-Taxed at the end, money taken out• Roth IRA- Taxed at the beginning

• Real Estate is often seen as an INVESTMENT

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© Take Charge Today –August 2013 – Savings Tools– Slide 23Funded 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

Investing for Retirement• Pension plans (401K): company

plans that provide retirement income for their workers.– A portion is withheld from your

paycheck– Company matches contribution– No Federal tax until you withdraw

funds (tax deferred)– Maximum Contribution limit

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© Take Charge Today –August 2013 – Savings Tools– Slide 24Funded 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

Individual Pension Plans• Keogh plan-retirement plan for self-

employed individuals.– Can save up to 15%– Can deduct that amount from taxable

income– Maximum contribution limit

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© Take Charge Today –August 2013 – Savings Tools– Slide 25Funded 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

IRA / Roth IRA• Retirement Plan for individuals or

married couples• Savings grow tax free• Invested in mutual funds, stocks or other

securities

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© Take Charge Today –August 2013 – Savings Tools– Slide 26Funded 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

Real Estate• Land & Buildings• Homes/Developed land (safer)• Undeveloped property (usually

riskier)• Not very liquid – what does that

mean?

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© Take Charge Today –August 2013 – Savings Tools– Slide 27Funded 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

How much to save and invest?

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© Take Charge Today –August 2013 – Savings Tools– Slide 28Funded 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

How much to save and invest?• Tradeoff!

– Risk Tolerance– Rate of Return– Liquidity– Income

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© Take Charge Today –August 2013 – Savings Tools– Slide 29Funded 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

Diversification, Risk, & Values

• Diversification– Spreading of investments among several

different types to lower overall risk• Risk

– Every person has a different Risk tolerance• Values

– Your values may determine where/what you invest your money in

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© Take Charge Today –August 2013 – Savings Tools– Slide 30Funded 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

Stocks & Bonds• Stock

– A Share of a company’s assets

• Stockholders – People who invest in a corporation &

own some of it’s stock

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© Take Charge Today –August 2013 – Savings Tools– Slide 31Funded 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

Bonds

• Tax-Exempt Bonds– Sold by local & state governments. Interest paid

on the bond is not taxed by the Federal Gov.• Savings Bonds

– Issued by the Federal Gov. as a way of borrowing money.

– Purchased at ½ the face value (EE bonds)

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Stocks vs. Bonds

STOCKS• All corp. issue stock• Represent ownership• Stocks do not have fixed

rate• Dividends only paid

when there is a profit• No maturity date• Board of directors in

control• Stockholders have claim

against property of corp.

BONDS• Corp. not required to

issue• Represent debt• Interest must be paid

regardless of profit• Have maturity date• Bondholders have no

control of the corp.• Bondholders claim

against property comes before stockholders

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© Take Charge Today –August 2013 – Savings Tools– Slide 33Funded 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

Stocks• Broker

– A person who acts as a go-between for buyers & sellers of stocks & bonds.

– Internet brokerage firms are popular now.• Stock Exchanges

– Place where stocks are bought/sold on a daily basis.• NYSE –Largest stock exchange

– Chicago Exchange –example of regional– Tokyo & London –examples of foreign