This is how the Market Savings terms can teach financial literacy and save you money.
The significance of five years is extremely relative. The five years until your middle-schooler leaves for college seems like a lifetime away, but it flies by in an instant.
Let’s say you put $5,000 in a 5-year Save® Market Savings term in the summer before your child’s 8th-grade year, then you make an additional $5,000 deposit for a 2-year term the summer before they started their junior year in high school.
Where most savings accounts would earn less than 3% in interest, the Market Savings 5-year term’s 9.35% average annual return and 2-year term’s 5.78% average annual return* potentially could earn the following return when they graduate:
|Year||FDIC-insured deposit amount and term length**||Average annual return per term*||Potential annual gains|
|8th grade||$5,000, 5-year term||9.35%||$467|
|11th grade||$5,000, 2- year term||9.35%, 5.78%||$467 + $289|
|Graduation||9.35%, 5.78%||$467 + $289|
At the end of the terms, your child’s Market Savings program could mature to $12,913 at the time of their graduation. Not only this, you can get a jump on teaching your child about financial literacy by utilizing the Market Savings terms.
According to Investopedia, financial literacy is “the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.”
As the pandemic has proved, it’s important to establish monetary security, adaptability, and backup plans in the face of unexpected crises. But according to a study conducted by the FINRA Investor Education Foundation, less than 35% of Americans can be considered financially literate.
The drastic effects of this statistic are illustrated by the US Federal Reserve, which revealed from a survey from July 2020 to May 2021 that a $400 emergency would be difficult to cover for 35% of Americans. Unfortunately, many adults faced this reality in the wake of the pandemic, but utilizing financial tools like the Market Savings program can help ease financial surprises.
How can Save build a foundation of financial literacy?
Only 23 states require financial literacy classes in high school, and 25 states don’t even require economics. Unsurprisingly, one in three students failed the National Financial Educators Council’s Financial Foundation Test in 2021. When considering our children’s financial education, it’s important to implement financial literacy in their everyday life.
The Market Savings program offers the perfect introduction for your child to practice money management before going off on their own.
Here are four lessons the Market Savings program can offer your child:
Insurance provides stability and security in the face of uncertainty. While developing a foundation of financial literacy, your children will come to understand that protecting their money is crucial as well.
Deposits into the Market Savings program are FDIC insured up to the maximum amount the law allows, meaning you are guaranteed security of your initial deposit up to $250,000.** In other words, while your child engages with their account to learn how the stock market works, they’re not actually risking their deposit in the stock market.
Financial planning skills are the root of financial literacy. After all, before you can maximize your wealth potential by investing, you have to have money to invest.
By empowering your child with their own Market Savings program, you allow them to practice essential financial-planning skills like budgeting. Introduce them to basic concepts like the 50/30/20 rule, in which budgeters allocate 50% of their income to necessities, 30% to their wants, and 20% to financial goals.
Review the budget together monthly to discuss how much they save, how often they withdraw, and how it aligns with their goals. By giving kids the opportunity to manage assets early on, you provide the security of your own experience and knowledge to help them navigate their financial future.
- Understanding Market Access
Remember when I said, “before you can maximize your wealth potential by investing, you have to have money to invest”? This is true, but the Market Savings program gives customers market access with a bit more security.
Save invests in a diversified portfolio on the behalf of customers based on their deposits. This is done at no risk to your funds thanks to the FDIC insurance protecting your Market Savings initial deposit.**
The Market Savings program has three terms that generate three potential returns. With average returns of 5.73% for 1-year terms up to 9.35% for 5-year terms,* the longer your money stays in your account, the higher your annual return.
At the end of the term, you receive a direct deposit with the gains from the investment’s returns (not the investments themselves), minus Save’s 0.35% management fee. If your returns are less than 0.35%, you aren’t charged a fee. Save provides customers market access, customers collect the returns, while their initial deposits remain FDIC insured.**
By using the Market Savings program to build financial literacy, you also prime your kid to be a successful participant in the stock market. Financial literacy leads to portfolio diversification, which leads to better returns. And while your child builds this foundational knowledge, Save maximizes their money’s potential in the meantime by investing on their behalf.
Inflation can be confusing, but it’s a fact of life: your dollar is worth drastically more today than it will be when your child is an adult. Luckily, the Market Savings program can buffer inflation’s diminishing effect on your child’s money with returns up to 9.35%.*
As the Federal Reserve aims to keep inflation around 2% yearly, even the shortest Market Savings term can combat the effects of inflation. The 1-year term’s 5.73% return* still vastly outperforms the average savings account, which only returns about 0.13%.
No matter what term you go for, the Market Savings program can help cover the cost of inflation. To top it off, all deposits are FDIC insured,** and if you don’t make money, Save doesn’t charge a fee. It’s a conservative way to allow your kid to participate in the market, observe inflation’s effects, and potentially reap 9.35% returns.*
Beyond that, the foundational knowledge they’ve built is invaluable. We should never stop improving our financial literacy, and your family can start with Save’s new Market Savings terms today.
* Average annual returns reflect the most recent deposit rates and are based on hypothetical back-tested performance in the Save Moderate Portfolio from 2006 to present and are shown net of fees. Hypothetical back-tested performance is no guarantee of future performance and actual results will vary. Returns are subject to change daily. For client accounts, the average annual return percentage calculated across the full term length of investment will never reflect returns of less than 0%. Calculations of average annual returns based on hypothetical back-tested performance across any term length of investment of one (1) year or greater are based on an assumption of sequential reinvestment of the principal and any returns of each such security into a new hypothetical strategy-linked security effective on the maturity date of the predecessor security. All return figures shown are for informational purposes only and are not actual customer returns. For more detailed information please see https://joinsave.com/hb-moderate
**To obtain FDIC insurance coverage, customer funds provided will be deposited into non-interest-bearing accounts at Webster Bank. FDIC insurance coverage for funds deposited at Webster Bank is limited to not more than $250,000 per depositor, per FDIC-insured bank, per ownership category. Actual deposit insurance coverage may be lower if you have other funds deposited at Webster Bank, N.A.. Customers are responsible for determining the amount deposited in each account at Webster Bank, N.A., and for monitoring the total amount of their deposits at Webster Bank, N.A., to determine the extent of available FDIC insurance coverage in accordance with FDIC rules. Learn more at: https://www.fdic.gov/deposit/deposits. Only the funds customers provide and deposit with Webster Bank, N.A. will be eligible for FDIC insurance. Webster Bank is not providing any investment advice or responsible for the purchase or performance of any investment contracts. The funds held in the Apex Clearing Corporation accounts are not FDIC-insured, are not bank guaranteed, and may lose value with a minimum return of zero. Maximum balance and transfer limits apply. Neither Save Advisers, LLC, nor its affiliates, are a bank. Apex Clearing Corporation is a member of the Securities Investor Protection Corporation (“SIPC”), formed by Congress to protect “customers” of broker-dealers and to promote public confidence in the U.S. securities markets. Customers of a SIPC Member that fails financially are afforded certain benefits under the Securities Investor Protection Act (“SIPA”). These benefits are relevant only if the broker-dealer that “carries” a customer’s account fails and is liquidated under SIPA. At Apex Clearing Corporation, your investments are protected by SIPC up to a maximum of $500,000 total, including $250,000 in cash balances. Coverage limitations apply. To learn more about SIPC coverage, visit the SIPC website at http://www.sipc.org.