3'6 Savings Accounts

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3.6 Savings Accounts
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Why do banks pay you interest?

• An incentive to deposit your
• They can then loan your to someone else _at_ a
  higher interest rate for profit

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Interest - paid for the privilege of using
their Transaction something that happens to
an acct (deposit/withdrawal) that needs to be
recorded
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Types of Savings Accounts

• Simple Interest often figured quarterly or
  semiannually
• I p r t

time
interest
principal
rate
Ex Find interest for 6 months on 400.60 _at_ 1.5
rate I 400.60 (.015) (.5) 3.00 Ex Find
interest for 3 months on 860 _at_ 2 ¼ rate I 860
(.0225) (.25) 4.84
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Types of Savings Accounts

• Compound Interest calculate interest (usually
  daily or quarterly) then added on to principal
  for next period
• Example 1
• Your bank pays 3 interest compounded quarterly
  on Oct 1 Jan 1. You had 700 on deposit on
  July 1 made no addl deposits or withdrawals.
  Find the balance on Jan 1

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Compound Interest Tables (see textbook p. 113)

• Example 2
• Using the table, find the compound interest pain
  on a 400 deposit that earns interest at an
  annual rate of 2 ½ for 12 years

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Example 3

• A 1200 deposit earns annual interest of 4
  compounded quarterly. Find the compound interest
  the deposit will earn in 3 years

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Wrap It Up