Savings accounts are offered by banks and other financial institutions for customers to deposit excess funds to accrue interest. Savings accounts allow account holders to set aside portions of liquid assets while earning a monetary return. Funds within savings accounts may not be used directly as access to funds are generally only accessible through A.T.M. cards, pre-authorized withdrawals, or by withdrawal slips similar to a checking account. The financial institution may authorize three of the six withdrawals in the form of transfers, check, bank draft, debit card, or similar withdrawals signed by the depositor and payable to third parties.
Most withdrawals from savings accounts may be limited as many financial institutions require account holders to maintain minimum balances and only allow a specified number of withdrawals within certain time frames. Within the United States, the Federal Reserve Requirements for Depository Institution limited the number of pre-authorized withdrawals through Regulation D, allowing only 6 withdrawals within a one month or four week cycle. Most financial institutions implement a charge for exceeding the maximum number of withdrawals per cycle which significantly decreases the benefit of holding a savings account.
Within many European countries, interest paid on savings accounts is generally taxed at the source. Financial centers within Europe often require account holders to pay a withholding tax or disclose account holder information to relevant tax authorities on interest earned. The high rates of some European countries has increased the development of offshore savings industries though the EU tax authorities thwart potential tax evasion by requiring a withholding tax to be deducted on interest paid on offshore savings accounts.
Types of Savings Accounts
There are many types of savings accounts offered by banks, credit unions and other financial institutions. High Interest Savings Accounts offer high interest rates based upon minimum deposit requirements determined by financial institution regulations. Interest rates on savings accounts are influenced tremendously by the amount a depositor initially invests and by the demand the financial institution has from borrowers. Banks with a substantial demand for loans generally offer better interest rates and other incentives, including decreased maintenance fees, to attract and retain depositors.
Online Savings Accounts are quickly growing tremendously popular. As opposed to traditional brick and mortar banking, online savings accounts allow depositors to open accounts and transfer funds between accounts with a quick log in and the click of a mouse. Online savings accounts have decreased operating costs and frequently offer higher interest rates when compared to traditional banking institutions. Additionally, online savings accounts offer twenty four hour access to funds, ease in the transfer of funds from savings to checking accounts, and minimal deposit requirements.
Savings Accounts For Children
Parents who make the habit to save money also have children who save. Many banking institutions offer savings accounts for children to foster sound financial habits at early ages. Savings accounts for children are generally opened with minimal initial deposits and often incur minimal or no service charges. Most banks and financial institutions also pay interest free of Federal taxes. Best of all, kids can watch their pennies grow to dollars and eventually transfer funds into a higher yield, interest bearing account as they grow older.
Health Savings Accounts
Health savings accounts allow depositors to allocate funds for qualified medical expenses. Health savings accounts are tax advantaged savings accounts in which no federal income taxes are charged on interest yields. Funds within a health savings account may also be transferred for other investment opportunities though withdrawals for reasons other than medical expenses are subjected to income tax and withdrawal penalty fees as determined by financial institutions.
Choosing A Savings Account
Choosing a savings account which best meets your financial needs and suits your personal lifestyle largely depends upon your financial situation and the length of time you intend to keep the savings account active. Also consider present inflation rates and means of preserving your savings account balance with minimal risks. Researching your options and choosing a financial institution offering quality customer service, minimal service fees, and the best interest rates are key factors to consider when choosing a savings account.
Savings accounts are a great option for people who wish to earn interest and develop the healthy habit of saving money. Many savings accounts cater to a depositors banking needs and financial possibilities. Be certain to investigate your savings account options before depositing funds and you'll likely reap the rewards associated with saving money.