2-3 Savings Accounts

2-3 Savings Accounts

by Marcie Borchard

​A SAVINGS ACCOUNT is an account in which the bank pays INTEREST for the use of the money deposited in the account.

​The money on deposit with a bank is used by the bank to give loans. The people who borrow the money from a bank must pay it back with interest. The interest they pay is greater than the interest the bank pays for the customers money.

​Interest is based on INTEREST RATE and PRINCIPAL is the amount you put in or the balance.

​There are two types of interest: SIMPLE INTEREST and COMPOUND INTEREST.

​Simple interest is calculated on principal only.

The simple interest formula is:

​I = prt

​I = Interest,

p = principal,

r = interest rate (percentage expressed as a decimal)

and

t = number of years

​SIMPLE INTEREST

​Have you heard of FDIC?

​FEDERAL DEPOSIT INSURANCE CORPORATION

​Is there a risk in putting money into a savings account? The FDIC guarantees the safety of money in a bank by insuring each depositor for up to $250,00 per depositor per bank depending on the type of account. So if the bank fails, the money is replaced by the federal government.

​Different types of SAVINGS ACCOUNTS

​STATEMENT SAVINGS - you receive a monthly statement kind of like a bank statement showing all the activity including deposits, withdrawals, interest earned and any fees. Some savings accounts may require a MINIMUM BALANCE. You may be charged if your account goes below a certain amount or you may not receive interest if it goes below the minimum balance.

​MONEY MARKETS - you may get a higher interest rate but you also have to have a greater initial balance and may be limited to a certain number of transactions.

​CERTIFICATE OF DEPOSIT (CD) - is a certificate that states you have a specific sum on deposit and guarantees the payment of a fixed interest rate until MATURITY, which is a specific date in the future.  Maturity dates can be anywhere from 7 days to ten years.  Usually the longer the maturity date, the higher the interest rate is.  You CANNOT make deposits to or withdrawals from a CD without penalty.

​

​All banks report interest rates as annual rates.  When choosing a savings account at a bank, or which bank to use, compare the interest rates.  Also consider penalties, fees, minimum balances, and other banking services.

Open Ended

Grace wants to deposit $5000 in a CD for a period of 2 years.  She is comparing interest rates quoted by 3 local banks and one online bank.  Write the interest rates in ascending order,

$$4\ \frac{1}{4}\%,\ 4\ \frac{3}{8}\%,\ 4.22\%,\ and\ 4.3\%$$  

​Ascending order means least to greatest. You should have first converted the fractions to decimals. This puts them all into "like terms."

​

​To convert a fraction to an equivalent decimal, divide the numerator by the denominator. Add zeros so they all have the same number of decimal places. Then write the original numbers in order from least to greatest.

​

​

Open Ended

Let's try again:  Write the following five interest rates in DESCENDING order (greatest to least).

$$5.51\%,\ 5\ \frac{1}{2}\%,\ 5\ \frac{5}{8}\%,\ 5.099\%,\ 5.6\%$$  

​Is this what you got?

​716.23 - 225 = 491.23

WHOOPS, he went below minimum balance of 500

​491.23 - 4 = 487.23

​SOLUTION

Open Ended

Naveah has $891 in her account.  A $7 fee is charged each month the balance is below $750.  She withdrawals $315.  If she makes no deposits or withdrawals for the next x months, express her balance algebraically.

This will get your brain going!  :)

​SOLUTION

​576 - 7x

​She will be penalized each month until she gets the account back above $750.

​

​Now let's try that Simple Interest Formula

​I = prt

​SOLUTION

​I = prt

​I = 1200(.045)(3) = 162

​Total balance then will be 162 + 1200 = 1,362

​

​So the answer is, $1362

Open Ended

Try again.

Kana deposits $4000 into a savings account for  $$3\ \frac{1}{2}$$  years at an interest rate of 5.2%.  How much INTEREST did she earn?

​SOLUTION

​$728

​

4000(.052)(3.5) = 728

Open Ended

Jaz put in $2000 at 5% for 7 months.  How much will she earn in interest?

​SOLUTION

​2000(.05)(7/12) = 58.3333333

​

​In terms of money, $58.33.

Open Ended

How much simple interest would Alan make if he put $800 in an account for 300 days in a non-leap year at an interest rate of 5.71%?  Round to the nearest cent.

Just making you think some more.

​Does it really matter if it is a leap year? It says 300 days.

​So here is the math.

p = 800

​r = 5.71% = .0571

​

t =

​Julissa has a bank account that pays 4.1% simple interest. The balance is $910. When will the account grow to $1000?

​

Open Ended

How long will it take Alex's $10,000 to double at 11% simple interest?

Did you get......​

About 9 years?​

Multiple Choice

Eliana invests $5000 in a simple interest account for 5 years.  What interest rate must the account pay so there is $6000 at the end of 5 years?

• 3%

• $$3\ \frac{1}{2}\%$$  

• 4%

• 4.5%

Multiple Choice

Eddie deposited $500 into a 2.5-year simple interest account. He wants to earn $200 interest. What interest rate must the account pay?

• 12%

• 14%

• 16%

• 10%

Poll

How is your level of understanding for savings accounts using simple interest?

• Call an UBER, I'm ready to go to the BANK.

• I think I can figure most of this out.

• I get the formula but I need more practice.

• I = PRT!!

  I Party

  :)