Chapter 14 Savings and Interest Consumers have two options that they can do with money that is left over, they can either put it towards savings or invest it. Savings means safely putting money aside for future use. Savings deposited in a financial institution earn interest and are protected against loss. But this money loses purchasing power over time due to inflation. Examples of options for savings are savings accounts, term deposits, GICs, and RRSPs. Investing is using your savings to earn extra income. Investing has two major advantages over saving: 1. Investments often yield a larger rate of return. 2. Investments can grow at or exceed the rate of inflation. However, there are two major disadvantages of investing: 1. The yield is not guaranteed 2. There is some risk of losing part or all of the money While savings are protected, investments can be lost completely. Smart investors have a combination of savings plans and investments. This way if they loss all their money in the investment they still have the saving fund. The Need for a Savings Plan A savings plan is a systematic or regular method of putting money aside to reach a financial goal. How much you save, what you save, and where you save are important decisions. Developing a savings plan should be a basic part of your budgeting process and financial future. Many help you save by deducting amount of your paycheque and depositing it directly into your bank account. Sometimes, the bank will do this for you, Why People Save People save for many reasons: emergency needs, short- and long-term goals, security, and future needs. Emergency Needs Insurance offers protections against risks such as an accident, a serious illness, or the loss of a job, but it doesn’t always cover every cost. Savings can help families meet needs during an emergency.