Where Your Money Is Protected From Loss

Backyard, Mattress, & Other Safe Money Places

Safe Money Places

• Certificates of Deposit

• Fixed Annuities

• Money Market Account

• Savings Account

• Savings Bond

Important Information

• Definition: A safe money place as one

where your principal is protected from loss

as long as you follow the initial guidelines

• If you do decide to take your money and

leave, you know pretty much what leaving

early will cost.

How Safe Is Safe? ............ Get The Facts How Safe Is Safe? ............ Get The Facts

Each Category Includes:

• Yield Section• Tax Advantage Section• Liquidity and Penalties Section• Safety of Principal Section

Important Information:• We say a safe money place is a place

where it is highly unlikely to lose principal.

• Please Note: In this presentation, “liquidity” means “under normal circumstances.”

Red, White, & Blue … Savings BondsRed, White, & Blue … Savings Bonds

Each Category Includes:

• Series I Bonds• Series EE Bonds• Series HH Bonds

Important Information:

• Savings Bonds are issued by the U.S. Treasury.

• The bonds earn interest monthly.

• The interest is compounded twice a year.

• Savings Bond interest is exempt from all state and local income taxes

Red, White, & Blue … Savings BondsRed, White, & Blue … Savings Bonds

Yield

• New rates each May and November for

Savings Bonds

• Series EE bonds issued on or after 1 May,

2005 lock-in and earn a fixed rate of

interest

• Series I Bonds combine a minimum rate

with an index-linked component

• Series EE Savings Bonds offer a minimum

guaranteed return, ensuring principal will

at least double after 20 years.

Tax Advantages

• Tax Deferred until it is redeemed or until

final maturity is reached in 30 years

Liquidity and Penalties

• The money placed in savings bonds cannot be

withdrawn for 1 year from all state and local

income taxes

• If redeemed within 5 years after purchase, the

penalty for early withdrawal is equal to the last

three months of earned interest.

Safety of Principal• Do you have to ask?

Savings AccountsSavings account is a bank instrument where money is

extremely liquid and FDIC insured.

Money Market Accounts Protects principal, is very liquid, and earns interest.

• Yield– Yields are typically higher than those paid on bank

savings accounts. – Lower than rates realized on certificates of

deposit.

• Tax Advantages – None

• Liquidity and Penalties– Extremely liquid– You can write a certain number of checks a month

• Safety of Principal– Bank money market accounts are FDIC insured

Mom, Apple Pie, & CDsA Certificate of Deposit (CD) is a bank savings

account with a specified maturity.

• Yield– Average Earned Interests 1% - 7%– Rates can swing violently up and down

• Tax Advantages – Interests are fully taxable

• Liquidity and Penalties– ECD penalties for early withdraw can vary

from one month to one year’s worth of interest

• Safety of Principal– Certificate of Deposits are FDIC insured

Fixed Annuities … Fixed Rate or Linked RateFixed Annuities … Fixed Rate or Linked Rate

• An annuity is a periodic income for a specified length of time, for life, or a combination of the two.

• Provide a means of accumulating interest with a tax advantage

• Provides an instrument that preserves and protects assets.

• Two Types: – Variable Annuities– Fixed Annuities

Fixed Annuities … Fixed Rate or Linked RateFixed Annuities … Fixed Rate or Linked Rate

Yield

• Fixed Annuities guarantee minimum value

• Guarantees potential interest• Often higher rates than other

Safe Money Places

Stated Rated• Many fixed rate annuities declare

new interest rates each year• Others lock-in a rate from 2-10 years

Index AnnuityIndex-Link InterestIndex-Link Interest

Minimum Value

Fixed Annuities … Fixed Rate or Linked RateFixed Annuities … Fixed Rate or Linked Rate

Linked Rate• The interest within the annuity grows tax-deferred. • Interest received is linked to the performance of an

external index. • Principal and credited interest are protected from

stock market risk

Tax Advantage• Money remaining inside an annuity grows without

being taxed until withdrawn.

Liquidity and Penalties• Fixed annuities offer a wide variety of term choices• Most Permit the withdrawal of at least the interest

earned each year without penalty.

Safety of Principal• A fixed annuity is as safe as the insurance company

issuing the annuity. – Insurance companies have an exceptional record of

safety.

Index AnnuityIndex Annuity

Participates in Index Gains

But Never Loses

Comparisons of Safe Money Places

Comparisons of Safe Money PlacesComparisons of Safe Money Places

Yield• Passbook Savings Accounts will

usually offer the worst yield.• Money Market Accounts often have

low yields because they are so liquid.

• Series EE Savings Bonds returns have a floor. Interest Rate is locked for the life of the bond.

• Series I Bonds have a fixed rate for the life of the bond.

– It also combines an inflation-linked rate which is updated every 6-months

• Certificates of Deposit offer a variety of terms and ease of use.

• Fixed Annuities have different yields because they have different ways of crediting interest.

– There is a guaranteed minimum interest rate.

Tax Advantages• Savings Bonds and Fixed Annuities

offer tax deferral.– Doesn’t mean tax free

Liquidity and Penalties• Money Market Accounts clearly win the

liquidity

• Savings Bonds are typically liquid after the first year.

• Certificates of Deposit usually have a penalty of 6 months to a year’s worth of interest if cashed before maturity.

• Fixed Annuities have penalties for early surrender that vary.

Cost of Liquidity• Insurance companies are rated by their

financial strength.

• Banks are backed by the FDIC or the Treasury.

Summary of Safe Money Places

Quick Recap• Savings Bonds and Fixed annuities offer

tax deferral• Money market accounts and savings

accounts offer the highest liquidity. • Fixed annuities and Series EE Savings

Bonds offer minimum return.

Think about your Financial Needs:

• When do you need your money back?• Do you want to make more money with

higher interest?• Are you concerned with liquidity? • Are you trying to save money for

retirement or leave a legacy?