PDF Savings Plans in My Community 101309 - U of I Center for ...

Savings Plans in My Community

SIX FINANCIAL SCENARIOS 1. You have savings of $500 that you want to be able to withdraw at any time without penalty. 2. You have savings of $1,500 that you may need within three years. 3. You have savings of $1,500 that you may need within six months. 4. You have savings of $12,000 but you wish to make periodic withdrawals. 5. You have savings of $1,000 that you will need in three years. You believe that the interest

rate will be decreasing in the next couple years. 6. You receive $2,000 from family members on the birth of your new baby. You want to put it

toward the newborn's college education.

For each financial scenario above, use the chart titled "Financial Services in My Community" to answer the following questions: 1. Which financial institution in your community would you select? And why?

2. Which savings instrument would you select? And why?

3. What is the current interest rate for that particular savings instrument?

4. At the current interest rate, how much will your savings be worth in 12 months if you deposit your money in that particular savings instrument? Assume a fixed interest rate that is compounded quarterly for regular savings accounts and CDS, and compounded monthly for money market deposit accounts. For U.S. savings bonds, assume a fixed interest rate that is added monthly and then compounded semi-annually.

5. At the current interest rate, how long will it take to double your money?

Bank A

Saving Instrument

Regular savings account

6-month CD 12-month CD 24 month CD Money market deposit account ( $1,499) Money market deposit account ($1,500 - $9,999) Money market deposit account ( $10,000) U.S. Savings Bond Series EE

Minimum balance or deposit

$50

$1,000 $1,000 $1,000 $50

$50

$50

$25

Savings Plans in My Community

Interest rate

Penalty for withdrawal

0.25% No penalties for early withdrawal.

1.00% 1.24% 1.75% 0.35%

0.50%

Penalties may be imposed for early withdrawal.

6 free withdrawals per month. Cost per additional withdrawal is $8.

Fees

$300 daily minimum balance required to avoid $3 monthly maintenance fee. Interest rate is fixed and not variable.

Compounded and Credited Quarterly

Quarterly

$1,500 daily minimum balance required to avoid $8 monthly maintenance fee.

Monthly

0.75%

0.70%

Must be held a minimum of one year. If redeemed in first 5 years, you forfeit the 3 most-recent months' interest. No penalties after 5 years.

EE Bonds earn a fixed market-based rate of interest with new rates being issued every 6 months.

Interest added monthly and compounded semiannually

Bank B

Saving Instrument

Regular savings account 6-month CD 12-month CD 24 month CD Money market deposit account ( $10,000) Money market deposit account ($10,000 - $24,999) Money market deposit account ( $25,000) U.S. Savings Bond Series EE

Minimum balance or deposit

$50 $2,500 $1,500 $1,500 $2,500

$2,500

$2,500

$25

Interest rate

0.15% 1.40% 1.55% 2.02% 0.40%

0.71%

Penalty for withdrawal

No penalties for early withdrawal. Penalties may be imposed for early withdrawal.

4 free withdrawals per month. Cost per additional withdrawal is $5.

1.10%

0.70%

Must be held a minimum of one year. If redeemed in first 5 years, you forfeit the 3 most-recent months' interest. No penalties after 5 years.

Fees

No monthly maintenance fee. Interest rate is fixed and not variable.

$2,500 daily minimum balance required to avoid $10 monthly maintenance fee.

EE Bonds earn a fixed market-based rate of interest with new rates being issued every 6 months.

Compounded and Credited Quarterly Quarterly

Monthly

Interest added monthly and compounded semiannually

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