Investments
Question 1: Explain how interest is earned on savings accounts and how banks stay in business.
Answer 1: A bank savings account pays interest because the bank is borrowing the money from you. The bank lends your money to other people, and by charging a higher interest rate on that loan than the interest rate they are paying you, they are able to make money. Since the interest in a savings account is compounded daily and paid monthly, you can also receive interest on the money that has been earned as interest.
There are lots of good resources about Investments that you can find available.
Question 2: Discuss the two types of savings accounts most frequently offered.
Answer 2: The two types of savings accounts that banks offer are a basic savings account and a money market account. A basic savings account usually does not require a minimum balance, but it also has a very low interest rate. However, you can take money out of a basic savings account whenever you want. A money market account pays a higher interest than a basic savings account but it also may require a higher minimum balance. Also, you can only to write a minimum number of checks (usually three) each month and you may only be able to make a certain number of withdrawals each month.
Question 3: List some simple strategies to get a savings program started.
Answer 3: To help start a savings program, look at your spending habits to see where you can cut back. Have your employer regularly deduct money from your paycheck and automatically deposit it into your savings account. Deposit any unexpected extras like raises and bonuses in your savings account, and reinvest the interest and dividends made from your savings account. Work a little more to earn extra money, and if any loan payments end, write checks for those same amounts but deposit them into your savings account. Keep track of the returns you receive on your savings account, and if it’s only 2 or 3 percent, consider opening a money market account. Establish a retirement plan and contribute to it on a regular basis, and splurge every now and then to feel good and make saving money easier.
Previous: Introduction to Computing, Part 9 - Next: Issues
|
