A periodic savings plan is a method of saving that involves making deposits on a regular basis. You can call your first deposit an initial deposit, or an initial investment.
One reason you might devise a periodic savings plan is to save money for future expenses. For example, you can devise a periodic savings plan to save money you will need for college, retirement, or a car.
Example Determining When Periodic Savings Plans Meet Goals
Penny estimates that the cost of attendance for the first year at a certain college will be $29,130. Penny's family has saved $13,000. Her family wants to save enough money to cover her cost of attendance for at least the first year of college, not including any earned interest. Will each periodic savings plan let the family meet their goal? Explain.
a. Weekly deposit: $160
Time: 2 years
b. Weekly deposit: $90
Time: 3 years
c. Monthly deposit: $340
Time: 5 years
a. Find the amount saved with the periodic savings plan. The time is 2 years, or 104 weeks.
table with 4 rows and 3 columns , row1 column 1 , cap amount , , saved , column 2 equals , column 3 cap current , , balance , plus , cap weekly , , deposit , middle dot , cap number , of , weeks , column 2 equals , column 3 13comma000 , plus , open 160 close . open 104 close , column 2 equals , column 3 13 comma 000 plus 16 comma 640 , column 2 equals , column 3 29 comma 640 , end table
The family will have saved $29,640 with this plan. Since $29,640 is greater than $29,130, the savings plan covers Penny's cost of attendance for at least the first year of college.