1

Essential Question:Essential Question:Explain the benefits people gain from saving

money; compare and contrast Savings Accounts to Time Deposits; identify the reason why economists measure savings.

SavingSavingSECTION 1

2

So how do Banks work?So how do Banks work? Depositors create accounts with the banks and

deposit money in the bank. The Bank uses this money in several different

ways: Loaning money, investing, and paying for overall company operations.

Since the bank makes interest from loaning this money out, they pay you part of the interest for providing them with the funds to do it.

SavingSavingSECTION 1

3

Benefits of saving money:Benefits of saving money:Security- Your money is securely held by a

bank protecting you from loss or theft. Your money is also protected for you from the bank by Federal Depository Insurance Corporation- FDIC

Interest- By allowing the bank to use your money to make loans, you gain interest, growing your savings.

SavingSavingSECTION 1

4

Difference between savings accounts, Difference between savings accounts, money market, and time deposits:money market, and time deposits:Savings accounts

offer liquidity- you have access to the money whenever. Your money is used directly by the bank. Since you can ask for the full amount in your account at any time, the bank cannot make as much money with your account and therefore doesn’t pay as much interest.

SavingSavingSECTION 1

5

Difference between savings accounts, Difference between savings accounts, money market, and time deposits:money market, and time deposits:Money Market Account

The funds are used by the bank to invest in marketable securities that make the bank money. These include stock’s, bonds, or commodities such as oil or gold

Your funds are liquid- to a point. The better the interest rate, the harder it is to access your money.

SavingSavingSECTION 1

6

Difference between savings accounts, Difference between savings accounts, money market, and time deposits:money market, and time deposits:Time deposits (Also known as CD’s)

require the saver to leave money in the account for a specific amount of time

offer higher and fixed interest rates offer reduced liquidity Can impose penalties (fees) if depositor removes

funds early.

SavingSavingSECTION 1

7

Savings RateSavings Rate

Economists measure savings by calculating the savings rate, or the percentage of people’s unspent disposable income.

The higher the savings rate, the better the overall economy is performing as people have more money left unspent

SavingSavingSECTION 1