Types of Savings Accounts

Saving money

People in the United Stated have many ways to save money. They may spend it or save it, consume it or not con­sume it. Spending (the consumption of disposable income) and saving (the non-consumption of disposable income) are equally important to a strong economy.

People save money for four main reasons. They save for a down payment on an automobile or a house and to finance a major purchase such as a television set. They set money aside regularly to meet large annual or semiannual bills such as property taxes or automobile insurance payments. They save to have a ready reserve to meet unexpected expenses such as medical or home repair bills. Finally, they save for major expenses in the future such as college tuition payments or to meet retirement needs. Some people save because they want to leave money to their children.

Depositing money in a financial institution provides phys­ical security by protecting savers' money from losses due to fire, theft, or other catastrophes that might take place in the home. Most financial instructions are protected by state and federal deposit-insurance plans.

The fee that financial institution pays for the use of depositors' money is interest. A financial institution charges interest on loans to make money. It pays interest on savings deposits to attract a pool of money it can lend. A financial institution makes a profit by charging more interest on loans than it pays on deposits.

One of the measures economists use to analyze savings behavior is saving rate, the percentage of disposable income deposited into savings accounts. The single most important determinant of personal savings in the United States is income. Two other economic factors that have key effects on the savings rate are the availability of consumer goods and rising prices. When consumer goods are adequate to meet

consumer demand and prices are lower, people tend to spend their money. At such times, savings rates are relatively low. When consumer demand is greater than the supply of con­sumer goods and prices are high, people cannot readily pur­chase the goods they need or want. At such times, savings often increase.

Financial institutions have devised many types of saving accounts to meet the different needs of savers. Among these are passbook savings, NOW and money market accounts.

A common type of savings accounts among financial insti­tutions is a regular savings account, which is sometimes called a passbook account because depositors receive a book in which all account transactions are recorded. A second type of savings accounts is the negotiable order of withdrawal, or NOW account. NOW accounts are offered at most commer­cial banks, savings banks, and loan associations across the nation. The holder of a NOW account can write checks on the amount deposited in the account and collect interest on the money remaining in the account. Another type of savings account that pays interest and allows easy access to the sav­ings is a money market account. It offers variable interest rates that are usually higher than those of regular savings or NOW accounts. The interest paid by money market accounts is often linked to Treasury bills because financial institutions invest the money deposited in money market accounts in Treasure bills.

A savings account that requires the saver to leave money in the account for a specific amount of time is called a time deposit.

Дата добавления: 2014-12-29