4.1.4 Saving and Money Market Accounts

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Saving and Money market accounts

What will you learn in this lesson? - explain the purpose of a savings account- distinguish between savings and money marketaccounts

I can..

Watch the first video in EDIO on "Reasons to Save"

Assume the average monthly expenses for one person are about $4000. The calculations to the right show the recommended amount that should be saved for 3 and 6 months of expenses, if the average monthly expenses are $4000. A good goal for a single person is to save $12000 to $24000 as an emergency fund. This money should be thought of as unusable for unnecessary expenses such as concert tickets or a trip.

Saving for an emergency:

- A big purchase (Car/Home) - Purchase for a hobby - A vacation - Retirement - Emergencies

Why should I save?

• The average rate in 2024 was 0.46% per year, but each financial institution varies and occasionally may offer a rate closer to 5%.
• At the average rate: $1000 would earn you $4.60 after a year.

~ A savings account is an interest-bearing account, meaning the bank will pay you interest or a small percentage of your balance each month. ~ Earning interest is often compounded which means the interest is added to your account balance. You then earn interest on the new account balance.

Savings Accounts

Savings Account

~ A money market account, or MMA, is an account that has the features of both a checking and savings account. These accounts are interest-bearing like a savings account and often include features of a checking account, such as check-writing and a debit card. ~ Money is pooled together in put into investments. Interest is then paid to the accountholders. ~ The average rate for money market accounts in 2024 was 0.63%, but some can exceed 5%. The interest rate can also change. ~ Often require a minimum ammount to open.

Money Market Accounts

Money Market Accounts

Money Market Accounts

Watch the video "Understand Interest" and answer the question on page 3 in EDIO.

Scenario ~ You open an account that promises 2.5% interest that compounds monthly. You invest $1,000 and add $300 each month to your account.

Interest over time

Answer questions in EDIO then submit your lesson