Comparing True Savings Accounts to Other Types of Accounts
With so many different types of accounts available to consumers for storing their cash, it is easy to see why there is a bit of confusion regarding what makes an account a true savings account. In its truest sense, savings accounts are those that place restrictions on the number of withdrawals or transactions the account holder can make with the account. After all, the purpose of a savings account is to save up money, not to have an account that is easily accessible for cheques or other types of withdrawal. In exchange for keeping the money in place within the savings account, the account holder receives a fairly high rate of return in the form of interest earned.
An account that is truly a savings account does not offer cheque writing privileges. Some institutions, however, will refer to their higher-interest demand accounts or to their money market accounts as savings accounts. These accounts are not the same as a true savings account, though they do provide a means by which account holders can earn money with their accounts while saving at the same time. In addition, these types of accounts generally do offer cheque writing privileges to the account holder.
A higher-interest demand account is similar to a savings account in that the account holder can earn interest from the money that he or she places in the account. The interest rate on a higher-interest demand account is not, however, as high as what one can receive from a true savings account. For many, the trade off is well worth it because these accounts still allow for easy transfer of funds, including cheque writing, while making it possible to earn money from the account. Often, the account holder is required to maintain a minimum balance in a higher-interest demand account in order to avoid fees and to keep the account active.
Money market accounts are also frequently referred to as savings accounts, though they are not truly savings accounts. These accounts actually provide a higher interest rate payout. On the other hand, they do require carrying a larger balance than a true savings account. As with a true savings account, the account holder is limited in the number of withdrawals he or she can make each month. Nonetheless, cheque writing privileges are often offered with money market accounts, though the number of cheques that can be written each month is also generally limited.
Regardless of the type of account a person opens, whether a true savings account or another type of account that makes money for the account holder, there are potential fees involved. In addition, there are regulations that must be followed in order to avoid fees and to keep the account active. Therefore, it is essential to compare the pros and cons of each type of account and to examine one’s lifestyle and debts before opening an account in order to find the one that is the best fit.