Economics and Personal Finance/Investments and Savings

Section 1
Principal: How much you have originally invested or borrowed -You deposit $200 <-- the principle -You made a purchase using your credit card for $250 <-- the principle you borrowed

Simple interest: Amount charge for the use of invested or borrowed money. -When you invest money, you earn interest, so look for a higher interest rate. -When you borrow money, you pay interest (look for a lower interest rate). Interest = Principle • Rate • Time in years (I=PRT)
 * Calculation for INTEREST

If the time is given in months, you'll have to divide the months by 12 (5 months: 5/12 = 0.42 years).

Section 2
Simple interest only earns interest on the principal while compound interest earns interest on the principal plus the interest. Basically, savings grow faster with compound interest.

Section 3
This rule tells you how long it takes for your investment to double in value. It also tells you how long it takes for your debt to double in value.
 * Rule of 72

Formula: 72/interest rate = Number of years it will take for the money to double.

Savings Accounts
Savings accounts are not intended for daily use and are used for long-term purposes. It typically has a higher interest rate than checking, but still relatively has a weak earning potential. Your number of withdrawals are also limited. Certificates of deposit means that you agree to keep your money deposited for a certain amount of time. The cons are that there will be a hefty penalty for a withdrawal and the initial deposit is much more. Interest rates are higher but require higher minimum balances.
 * CD
 * Money Market Funds

3 types of savings accounts: Saving Accounts, CDs and Money Market Funds

Investments
When you invest, you can earn OR lose money on your principal.
 * Types
 * 1) Stocks: If you invest in a company stock, you become part owner of a company; therefore, you could share the profits or loses of the company.
 * 2) Mutual Funds: Example of "indirect investing" because investors pool their money with other investors to reduce risk (you pay for the company's expertise).
 * 3) Government Savings Bonds: You loan money to the government and then the government promises to repay you with interest: you can get a U.S. bond or a municipal (local government) bond.
 * 4) Real Estate: Property such as land, houses, or office buildings (house flipping).
 * 5) Retirement Plans: Individual (traditional IRA, Roth IRA), employee-sponsored (401K, 4038, 4038-B).