Personal Finance 1st Edition by Jack R. Kapoor

Exercise 3

1    What are the main types of savings plans offered by financial institutions?

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2   How does a money market account differ from a money market fund?

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3     What are the benefits of U.S. savings bonds?

Action Application Conduct online research to obtain past and current data on various interest rates (such as prime rate, T-bill rate, mortgage rate, corporate bond rate, and 6-month CD rate). Information may be obtained at www.federalreserve.gov and other Web sites. How do these rates affect various personal financial decisions?

Step 1 of 3

1. Different types of savings plans offered by financial institutions are-

• Regular Savings Accounts

• It involves a low or no minimum balance.

• Savers receive monthly or quarterly statement with a summary of transactions.

• It allows withdrawing money as needed.

• Certificates of Deposit(CDs)

• A savings plan requiring that a certain amount be left on a deposit for a stated time period to earn a specified interest rate.

• Money Market Account/Funds

• Money market account and money market funds offer earnings based on current market interest rates, and both have minimum- balance restrictions and allow check writing.

• Money market accounts are covered by federal deposit insurance whereas money market funds are not covered by federal deposit insurance and are product of investment companies.

• Money market funds invest mainly in short-term(less than a year) government and corporate securities so they are usually quite safe.

• U.S Savings Bonds

• Savings bonds are debt securities issued by the U.S. Department of the Treasury to help pay for the government’s borrowing needs and are considered as one of the safest investments.

• A person may purchase up to $15,000 of U.S savings bonds a year. This amount applies to any person, so parents may buy an additional $15,000 in each child’s name.

• Banks and other financial institutions sell U.S savings bond and can also be purchased online.

• Lost, stolen or destroyed U.S savings bonds will be replaced by the government free of charge.