The Characteristics of Savings Accounts
Savings accounts are accounts intended to help the account holder save money. Unlike a capital account, money within a savings account should not be removed on a regular basis. In fact, savings accounts generally have limitations as to how often money can be removed each month. As such, these accounts do not offer the ability to write cheques or to use a debit card. Many do, however, allow the account holder to use an ATM for cash removal or to visit the bank to request funds from his or her account.
Savings accounts may be opened at a number of different financial institutions. These include:
- Commercial banks
- Credit unions
- Mutual savings banks
- Savings and loan associations
Each of these institutions offers interest payments to the account holder based on the amount of money held in the account. In most European countries, the interest earned from savings accounts is taxed at source. Some countries have high rates, which has caused a number of Europeans to choose to open offshore savings accounts. As such, the European Union Savings Directive has partnered with a number offshore financial centres in order to have information regarding European account holders reported to tax authorities.
In addition to helping the account holder save money and make money with interest earned, a savings account also provides itemized lists of transactions made within the account. A passbook is often used to track these transactions, though a bank statement may be used as well.
Traditionally, savings accounts have been held in brick and mortar establishments. With the ever-growing popularity of the Internet and improvements in security, however, online banking is becoming more common. In addition, by cutting out the expenses associated with maintaining a brick and mortar establishment, these banks are often able to offer savings accounts with higher-yielding interest. These banks also keep costs down by offering the bulk of its customer service through computers and automated systems, which many customers also find to be more convenient.
Since savings accounts are not intended to be used for regular payment of bill or removal of funds, there are penalties often associated with removing funds on a frequent basis. In the United States, for example, account holders are only allowed to make up to six transfers from a savings account within a one month period of time. Any transfers made beyond six results in extra fees. In addition, the financial institution may change the account to a “checking account,” which is similar to a current account in the UK
In the UK, account holders may opt for a special savings account called a notice deposit. With this type of account, the account holder earns an interest premium but must provide 90 days notice when intending to make a withdrawal. Otherwise, a fee is assessed. In many cases the penalty fee is equivalent to the amount of interest that was earned within that notice period.
Savings accounts can provide a great means for making a little extra money while saving up. Nonetheless, it is important to explore all options and to avoid tying up all money in a savings account as some funds will still need to be easily accessible for every day expenses and bills.