What is a Savings Account?

We hear the word “Savings Account” in our routine talk. But do you know that What is a Savings Account and How it works?

What is a Savings Account? -

Savings accounts are accounts maintained by retail financial institutions that pay interest but can not be used directly as money ( for example, by writing a cheque). These accounts let customers set aside a portion of their liquid assets while earning a monetary return.

A savings account typically refers to an account in which one places money to earn a small amount of interest.

the savings account funds are usually easily accessible, though some banks do charge for withdrawing money early. In most cases, people can withdraw money from a savings account at any time, at least at any time the bank is open, or one has access to the bank’s ATM.

The term "bank" is used here loosely. Not only banks, but also credit unions, and money market funds companies can offer a savings account to customers. In addition to earning interest on your deposits, the savings account also provides a safe place to put your money, far better than stowing it in the mattress or the cookie jar.

How Savings Account Works? -

Many people wonder how a savings account works and is profitable to the bank or other financial institution. The simple explanation is that you are actually lending your money to the financial institution. In return for this loan, the bank offers you part of the interest rate they charge customers. Thus the bank makes a profit and you make a profit on any money in a savings account.

Why to use Savings Account? -

If you don’t plan to use your money for next couple of months than Savings Account is for you. Because it will earn some interest on your deposits as well as safety.

Most savings accounts require a minimum deposit, usually Rs.1000 or Rs.5000. An exception exists for children, who often have a savings account as their first bank account. Banks are very accommodating to children who wish to open a savings account because it is a way to build its future base of customers. Usually kids can open a savings account with about Rs.500