Cogito
Consumer Math · Chapter 3 · Lesson 2
Savings Accounts and Rates
Reading the rate that is actually offered.
12 problems · about 21 minutes · TEKS M.M.3.B
What this lesson teaches
The student compares savings products using annual percentage yield and accounts for inflation.
- APY states the true annual earnings, with compounding included.
- The real return is roughly the rate minus inflation.
- Emergency money belongs where it can be reached, even at a lower rate.
Warm Up
Straightforward practice. Get the method working first.
5 problemsAn account pays 4% while inflation is 1%. Real return in percent?
Answer 3
Why 3%.
What does APY let you do?
Answer Compare accounts on one number, with compounding included.
Why It makes different compounding schedules comparable.
Pays 6%, inflation 2%. Real return in percent?
Answer 4
Why 6 − 2.
Pays 3%, inflation 3%. Real return in percent?
Answer 0
Why They cancel.
$1000 at 2% APY for one year. Balance in dollars?
Answer 1020
Why 1000 × 1.02.
Build It Up
The same ideas with more to keep track of.
3 problems$5000 at 4% APY for one year. Balance in dollars?
Answer 5200
Why 5000 × 1.04.
Which is better, all else equal? 1 for 5% APY, 2 for 4.1% APY.
Answer 1
Why Higher yield.
Where should emergency money sit? 1 accessible account, 2 locked higher-rate account.
Answer 1
Why You may need it tomorrow.
Stretch Yourself
Mixed problems. Work out what kind of question it is before you start.
4 problemsWhich statements about APY are true?
Answer It already includes the effect of compounding; It lets two accounts be compared directly
Why Inflation is a separate subtraction you must make yourself.
Pays 2%, inflation 5%. Real return in percent?
Answer -3
Why 2 − 5.
The Real Rate: An account pays 5% while inflation is 2%. What is the approximate real return, in percent?
Answer 3 %
Why 3%.
The Loss: An account pays 1% while inflation is 4%. Approximate real return, in percent?
Answer -3 %
Why −3%.