What Is A Savings Account?

What is a savings account? At its simplest definition, a savings account is one that earns the holder interest. This is paid by the bank in return for letting the bank use the money in the savings account.

At its simplest definition, a savings account is one that earns the holder interest. This is paid by the bank in return for letting the bank use the money in the savings account. "Banks pay interest on deposits that are kept in savings accounts. Usually the money in a savings account remains on deposit with the bank for long periods of time, allowing the customer's savings to grow," says Sharon Lee, the Executive Vice President and Director of Client Services of American National Bank, who has thirty years in the banking industry.


A basic savings account has one interest rate that may change depending on bank policy. Some savings accounts are referred to as 'premium' because the higher the balance, the higher the interest rate. This is also known as a 'tiered' account. There is also a passbook savings account, where the bank gives you a small booklet to record deposits, withdrawals and interest earning. This type of savings account is where most young people start out learning about saving.




It is safer to use a savings account than to stick your money in a coffee can. If this is money that you have and no immediate needs, you might as well earn some extra money from the interest. The Federal Deposit Insurance Corporation insures most types of savings accounts. It pays to do some research into the various types of savings accounts. There are minimum balances, maturity dates, monthly fees and other restrictions that might apply. Sometimes if the interest rate is too low, you may wind up paying more in taxes than on the interested earned.

A special type of savings account involves certificates of deposit or CDs. This account pays a higher interest rate because you put in a set amount of money and leave it for a predetermined period. The Federal Deposit Insurance Corporation insures certificates of deposit. Before investing in a certificate of deposit, make sure you will not need the money early. Removing money from the CD before the maturity date will result in interest penalties. Some CDs have a flexible or variable rate. This means that you can make deposits to it and maybe a limited number of withdrawals free from penalties.

Another standard type of savings account is a money market account, also called a money market deposit account. These accounts earn a higher interest rate than a standard savings account does. A money market account requires a minimum balance and limits the number of checks that can be written against it. If the minimum balance is not maintained, a monthly service charge may be applied to the account.

If you are looking for a longer-term savings account, check into bonds. Treasury bonds are debt securities that are issued by the government. Other corporations also issue bonds. You are buying debt and letting the issuer use the money. In return, when the bond matures, you receive back your principle. Along the way at various times, interest is earned.

There are plenty of ways to build up a savings account. One thing to do is consider it another bill to pay. Taking small amounts of money and sending them to your savings account every payday will add up over the long haul. If you receive a raise at your job, put some or all of that extra money into your savings account. Another trick is to keep paying a loan payment that you have already paid off. You are use to not using that money anyway, so saving it is a simple thing and one in your favor.

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