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Financial Algebra© Cengage/South-Western Slide 11
3-3
SAVINGS ACCOUNTS
Learn the basic vocabulary of savings accounts.
Compute simple interest using the simple interest formula.
OBJECTIVES
Financial Algebra© Cengage Learning/South-Western Slide 22
savings account interest interest rate principal simple interest simple interest formula
statement savings minimum balance money market account certificate of deposit (CD) maturity
Key Terms
Financial Algebra© Cengage Learning/South-Western Slide 33
What types of savings accounts do What types of savings accounts do banks offer customers?banks offer customers?What types of savings accounts do What types of savings accounts do banks offer customers?banks offer customers?
What banking services does your family use?Where does the money that banks lend out for
loans come from?What is the value of compound interest?What are the advantages of direct deposit?
Financial Algebra© Cengage Learning/South-Western Slide 44
Grace wants to deposit $5,000 in a certificate of deposit for a period of two years. She is comparing interest rates quoted by three local banks and one online bank. Write the interest rates in ascending order. Which bank pays the highest interest for this two-year CD?
First State Bank: 4 % E-Save Bank: 4 %
Johnson City Trust: 4.22% Land Savings Bank: 4.3%
3
8
1
4
Example 1Example 1
Financial Algebra© Cengage Learning/South-Western Slide 55
Write the following five interest rates in descending order (greatest to least):5.51%, 5 %, 5 %, 5.099%, 5.6%1
2
5
8
CHECK YOUR UNDERSTANDING
Financial Algebra© Cengage Learning/South-Western Slide 66
Example 2Example 2
Raoul’s savings account must have at least $500, or he is charged a $4 fee. His balance was $716.23, when he withdrew $225. What was his balance?
Financial Algebra© Cengage Learning/South-Western Slide 77
Mae has $891 in her account. A $7 fee is charged each month the balance is below $750. She withdraws $315. If she makes no deposits or withdrawals for the next x months, express her balance algebraically.
CHECK YOUR UNDERSTANDING
Financial Algebra© Cengage Learning/South-Western Slide 88
EXAMPLE 3EXAMPLE 3
Mitchell deposits $1,200 in an account that pays 4.5% simple interest. He keeps the money in the account for three years without any deposits or withdrawals. How much is in the account after three years?
Financial Algebra© Cengage Learning/South-Western Slide 99
How much simple interest is earned on $4,000 in 3½ years at an interest rate of 5.2%?
CHECK YOUR UNDERSTANDING
Financial Algebra© Cengage Learning/South-Western Slide 1010
EXAMPLE 4EXAMPLE 4
How much simple interest does $2,000 earn in 7 months at an interest rate of 5%?
Financial Algebra© Cengage Learning/South-Western Slide 1111
How much simple interest would $800 earn in 300 days in a non-leap year at an interest rate of 5.71%? Round to the nearest cent.
CHECK YOUR UNDERSTANDING
Financial Algebra© Cengage Learning/South-Western Slide 1212
EXAMPLE 5EXAMPLE 5
How much principal must be deposited to earn $1,000 simple interest in 2 years at a rate of 5%?
Financial Algebra© Cengage Learning/South-Western Slide 1313
How much principal must be deposited in a two-year simple interest account that pays 3¼% interest to earn $300 in interest?
CHECK YOUR UNDERSTANDING
Financial Algebra© Cengage Learning/South-Western Slide 1414
EXAMPLE 6EXAMPLE 6
Derek has a bank account that pays 4.1% simple interest. The balance is $910. When will the account grow to $1,000?
Financial Algebra© Cengage Learning/South-Western Slide 1515
How long will it take $10,000 to double at 11% simple interest?
CHECK YOUR UNDERSTANDING
Financial Algebra© Cengage Learning/South-Western Slide 1616
EXAMPLE 7EXAMPLE 7
Kerry invests $5,000 in a simple interest account for 5 years. What interest rate must the account pay so there is $6,000 at the end of 5 years?