What Is a Passbook Savings Account?
The term passbook savings is a throwback to the old days when customers took a bank book, or pass book, into the bank and the clerk would record the transaction in the book. Most people recognize this type of bank service as a traditional savings account and most banks no longer require you to present a passbook to process your transaction.
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Features
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A passbook savings account is an interest-earning account. No checks can be issued off of this account, but funds can typically be transferred between a savings and checking account. This type of bank account is insured by the Federal Deposit Insurance Corporation (FDIC). This means if the bank goes out of business, you will still receive your money, up to $250,000 per depositor. And unlike many mutual-fund accounts or stock transactions, you will never lose money. It is a relatively safe way to save your money and earn interest.
Interest Rates
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Interest rates for passbook savings accounts vary among banks. In order to get the best return on your money, shop around and compare offers. Be aware that most interest rates are tied to the prime rate, which is regulated by the federal government. As the prime rate rises and falls, so will the interest you earn. For this reason, it is wise to periodically review the interest rate your savings earns and compare it to rates offered at other banks.
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Alternatives
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While some banks still offer passbooks to customers to track deposits and withdrawals, other alternatives may make tracking your savings activity more convenient. Check with your bank about online banking and automatic downloads to personal electronic checking software. Making regular deposits may be easier than a trip to the bank, as well. You may be able to call in or do an online transfer from your checking account to savings. If your employer offers direct deposit, consider having all or part of your check automatically deposited into savings each pay period.
Incentives
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Ask your banker if you will earn more interest by making a large initial deposit or by agreeing not to let the account fall below a certain level. The bank may also allow you to link all of your accounts and consider the overall balance when charging monthly service fees. If you keep a specific amount on deposit with the bank, you may avoid all services charges.
Hybrid
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Traditionally, passbook savings accounts are meant for predominantly deposit activity with few withdrawals. The bank may offer a hybrid saving account that allows you to cash a limited number of checks against the account each month without incurring fees.
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References
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