How Does a Savings Account Work?

An Introduction

Savings accounts help to save your money for retirement, emergency bills or for "rainy day" funds. Banks offer savings accounts to go along with your checking account, or as a single account. In the days before the Internet, savings accounts were not as easy to remove your money from, so people were able to save better.

Before Internet and Electronic Transfers

You had to personally go to your bank of choice and open the account. This meant filling out paperwork, and handing the cashier either a check or cash to deposit into the account. The customer was given a savings account passbook. This is where the record was kept of how much money you had saved up.

In order to get money from that account, or to deposit more into it, the customer had to return to the bank with passbook in hand. A deposit slip was filled out and signed to put money into the account. To get money out, you also had to sign a slip that the teller filled out. The bank teller would stamp the date into the little passbook.

The money that was left in the account would draw a small amount of interest each month. People found this a great way to make a little extra money, while saving at the same time. Most banks imposed a minimum balance penalty. It was necessary to open the account with a certain amount of money, and to keep that amount in the account at all times.

People of lesser financial status had a harder time opening accounts because they were unable to meet the deposit requirement amounts, or to maintain that large of a balance. If the balance feel below the minimum required amount, a monthly service fee was imposed.

Modernizing the Savings Account

Automatic Teller Machines (ATM) made it easier to access a savings account. Once you actually went to your bank and opened the savings account, some banks allowed the savings account to be attached to the customers checking account. That meant that the customer could either call the bank and ask to transfer money to the checking account, or use an ATM machine and withdraw money directly from the savings account.

This gives easier access to money the customer is trying to save. It could be a good thing in times of emergencies, or it could just make the temptation of using the money for something frivolous much easier. With each withdrawal, the balance gets lower which means the interest it is accumulating is smaller.

More people are turning to the Internet to open savings accounts. Many online banking sites allow customers to open and use savings accounts with merely a click of he mouse. Walk-in customers are considered a thing of the past, as no tangible banking facility is used. Major credit card companies and finance companies are turning to offering checking account and savings account services.

Opening an account strictly by using Internet service is easy and convenient for busy people. The different companies offer many competitively attractive interest rates for choosing them as your depository. Some carry very high minimum balance allowances as well.

Whether you decide to go the old fashion route and go directly to a bank to open a savings account in person, or you consider using the many online services to open a savings account, you should know all of the facts.

Make sure you know exactly how this account is going to work. What is the interest rate it will be getting? Some facilities offer a higher interest rate for a higher balance. Some charge a monthly maintenance fee. Make sure you know exactly what you are getting before you sign, or click anything.