TYPES OF SAVINGS



Chapter 6 TYPES OF SAVINGS

1. Savings Account

• A bank account which pays interest on the money deposited.

• Banks offer a variety of savings accounts which usually do not charge a monthly fee, however it is common to pay transactions fees.

• They do pay more interest than chequing accounts.

• Like chequing accounts, you have ready access to your money.

2. GIC (Guaranteed Investment Certificate)

• An investment where the interest remains the same for a set time.

• You buy it for a set period of time, called a term, and at the end it comes due or matures.

• You do not have access to the money until the GIC matures.

• You are paid more interest than a savings account pays.

• The interest rate varies depending upon the term.

3. Mutual Funds

• A large collection of stocks and/or bonds owned by many people, who purchase units and are administered by a fund manager

• These collection of stocks trade on the stock market

• It is possible to earn more money buying mutual funds, and stocks in general, than buying GICs. However, you also risk losing money.

• Although you can sell mutual funds at any time, buying mutual funds, or any stocks, is not recommended for short-term savings.

|Type of Savings |Rate of Return |Risk |Accessibility |

| | | | |

|Savings Account |Very Low |None |anytime |

| | | | |

|GIC |Low |None |Locked in for term (1 yr, 3yrs, |

| | | |etc.) |

| | | | |

|Mutual Funds |Low – High |Low – High | |

| | |(depending on type of mutual fund) |anytime |

Advantage and Disadvantage

Savings Account ( have access to your money, but there are transactions fees.

GIC ( you earn more interest, but there is no access to money until term is up.

Mutual Funds ( more money could be made, but you risk losing money as well.

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