Math_126

Mathematics in our world is a very interesting concept being that math is used in our everyday lives, even when we don’t think we are using math we use it so much that it is done subconsciously. In chapter nine we talk about the advantages and disadvantages of different types of ways to invest 1000 dollars. I will discuss the differences of each one and write in detail which one I would invest in and why. In these times of recession, one wants to hold on to one’s savings and invest in sound options. One such option is the Certificate of Deposits (CDs) – these are time based deposits, quite similar to a bond. Issued by a commercial bank or obtainable through a brokerage, these allow an investor to invest for a fixed interest rate for a fixed time. A CD will have maturity date, a specified fixed interest and can be of any denomination. The term of deposit can vary from one month to five years. While investing, it is always good to know the pros and cons of the investment option. Advantages are: • CDs typically offer a higher rate of interest than Treasury bills and savings account due to the higher risk associated with them. • As the rate of interest is fixed, your return on investment is ensured despite the rate fluctuations in the market. • CDs are insured by Federal Deposit Insurance Corporation and hence are a good investment option for single income households and retired folks. CDs are a risk-free investment. • . CDs can be purchased and sold through a brokerage firm. This way you can encash the CD before the maturity term without paying the penalty. Disadvantages are: Money is tied down for long durations of time. Though the investor can withdraw money, he has to generally incur penalty in terms of some amount of loss of interest on the deposit amount. You can get a waiver on the penalty in case of special circumstances like disability, death or retirement. • As the rate of interest is fixed, it is difficult to change or to take advantage of the market situation when the market rates are favorable. You will not be able to get an interest rate that favors inflation. • Though the return rate is higher on CDs than savings account, it is much lower than other money market instruments where you can make possible investments. • According to the federal regulations, FDIC will insure CDs up to the maximum amount of $100,000 in a single financial institution. So if you want to invest more than &100,000 you will have to invest in separate CDs in different banks! Another investment option is Money Market accounts. A money market account works just like any other bank investment, like a fixed-term deposit or notice deposit. Your money is deposited into the account and gains interest for as long as the money is maintained as an investment. Some high interest money market accounts restrict your transactions to deposits, withdrawals and balance transfer from one account to another, while others permits you to perform the complete line of transactions. The main reason why transactions involving best money market accounts are limited is to persuade you to invest rather than transact. The manner in which the transaction fees are designed is to also convince you to keep your investment. Transaction accounts may have reduced monthly charges compared to investment accounts which provide lesser features and lower charges. High interest money market accounts are processed by banks as regular investment accounts and interest is computed on a day to day basis and profited to your account once in a month. Advantages of Money Market Accounts: The main advantages of high interest money market accounts include: • Your cash is not fastened into a particular term of investment as compared to a fixed or notice deposit. You can deposit your cash into a money market account now and take it out the next day even without informing the bank. Clearly, the lengthier your money is kept in the account, the higher the interest you will gain. • Your investment in a money market account is assured. • Money market account interest rates are more established compared to money market unit trusts. Although money market account rates may differ, they seldom change unless the chief borrowing rate is altered. Disadvantages of Money Market Accounts: The money you invested is incorporated into the assets of the bank. While the bank is required to pay back your capital and the guaranteed returns, if the bank closes down, you are set to lose all or a portion of your investment, which is highly dependent on the degree to which the collapsed banks liabilities exceeded the assets. High interest money market accounts are directed towards traditional investors who want to have minimal risks with their investments. They are also suited for people who want to gain interest to either They are also suitable for people who want to earn interest to either support their income or generate some income. Another investment option is the Passbook savings account: The Advantages are: No risk; federally insured; convenient, safe and liquidity. Money deposited in passbook accounts is always in safe hands. Banks lend the money to businesses and to make mortgage or car loans, and they do them with great caution. When it comes to liquidity, passbook accounts enable withdrawal of money anytime, anywhere from automated teller machines or ATMs. Disadvantages are: Low interest rates; possible fees for low balances and inflation. Because passbook accounts yield low interest rates, the interest earned cannot keep up with inflation. In addition, putting money into a passbook savings account yields so little income compared to other investment types. In the United States, the average yield for a passbook account is not more than 0.05 percent. That's the price passbook account owners pay for the guaranteed safety of their savings accounts. And then there are others that provide more income also at low risk, an example of which is the Treasury bond. Savings accounts are the other type of investment accounts and the advantages and disadvantages are: Advantage are: Savings accounts earn an interest to the customer as they continuously feed their account with money over a period of time. When the money is untouched for over a long period of time, it also earns more interest than when the account is accessed from time to time. A person is allowed to carry out transactions, withdrawals and even payments as long as the money is handled by the financial institution. This is not the case for all of them because they are governed by different bodies, some which are independent from the government while others are controlled by other bodies besides the government being a very big influence. These accounts are profitable in that the customer is entitled to do what they want with the money because they have unlimited access to the savings account. They choose what they please as long as the account is active on what to with the money they possess. It is difficult to convince anyone that unlimited access cannot be as much fun as we think it is. The financial institution involved in coming up with the savings account for the customer is entirely dependent on what the customer desires. Decisions are made by the customer and what they want is what is accomplished through the bank. It is to the customer’s advantage for them to do as they please with the mandate they have over their own money. Implementation is not supposed to pose any worries. The savings accounts need to be updated every now and then, and this is often done by the customers. They make the deposits from time to time to keep the account on check and demand to have reports on how their savings accounts are doing. This serves in major ways, considering all that has been put on  an offer by the bank, all to the customer’s advantage. Another way that these savings accounts are profitable is how they are associated with the customer’s credit. It is often placed that if the customer faces a crisis, the savings account can be used to settle the debt without having to harass the customer. When the customer finally pays back what they owe, everything in the savings account is refunded. Disadvantages are: One disadvantage is the unlimited access issue. When a person gets hold off their savings, they are tempted to overspend and may risk losing everything, including the profits they have made over the period that they have been working. A person may end up with nothing after so much hard work of saving and saving continuously for the future benefits. Accessing one’s savings account is very risky, especially if a financial assistant is involved. They may tend to hijack your pin number when you are totally unaware and access your account on your behalf ,which is tantamount to theft, and use up all your savings. It is hard for someone to keep track, especially if they trust their personal financial assistants so much. Savings accounts are supposed to be very helpful in the future and accessing them whenever someone pleases is not a very advisable thing to do, considering it only profits the person then. It is a clear indication that they have no plan for their future in whatever manner, so the bank or the financial institution is supposed to be kept on deck. It is supposed to come up with a strategy that allows their customers to access their funds for a certain period of time and only under certain conditions. In conclusion if I were to invest 1000 over a certain period of time I would have to look into a few factors in general. First I would have to look at the stability of the world first to base what route I would go for investment. Second is how long I was willing to save my money for and third I would take my goals as far as what I want to achieve with this set of money. Although it is very easy to calculate the interest over a certain time, there is no way to see how we can calculate which banks are going to remain open in order to invest in them, now I know I am speaking in general but I am speaking realistically. I know that all the accounts I listed are federally insured, but for me my goal would be to make money while losing very little of it and I would be in it for the long haul, retirement. It seems that the more you have at the end, the better you will be off. I would invest in CD’s because they earn a fixed interest over a certain time and you will get the interest no matter what, unlike other accounts to where a bank closes, you will lose everything you had in all accounts. I saw this in our countries financial disaster and some people lost all their savings and their livelihood along with it and I am not about to take that kind of risk with what is going on in today’s financial world. I will earn money over the long term without the risk of say a money market account even though a money market has a higher interest, but I will earn money with a higher interest rate than that of say the passbook savings and a traditional savings as they only earn a mere .25 percent or less depending on what bank you are with. References http://www.understandingcds.com/advantages-and-disadvantages-of-certificate-of-deposits/ http://www.blogsharp.com/news_7357.html http://ezinearticles.com/'Savings-and-Investment-Options&id=1152052 http://www.zuuply.com/article/624/savings+accounts+advantages+and+disadvantages.html Bluman, A. G. (2005). Mathematics in Our World (1st ed.) Ashford University Custom Edition. New York: McGraw-Hill.