Almost every type of financial institution offers its customers the opportunity to open various types of savings accounts. Savings accounts are intended to help customers save towards particular savings goals including house purchase, motor vehicle purchase, education, vacations, emergencies and several other goals. These can be important vehicles for achieving financial objectives. However, some amount of discipline is required if savings accounts are going to be used effectively.
Savings accounts are different from current or checking accounts. The main difference between savings accounts and other types of deposit accounts is that savings accounts are intended to be low activity accounts. This means that deposits are made periodically with a minimal number of withdrawals. The idea is to leave funds in the account long enough to accumulate a fair amount of interest. If funds are withdrawn too regularly, very little interest will be earned on deposited funds. Even so, many persons operate their savings accounts like current or checking accounts and rob themselves of the opportunity to maximize interest returns.
There are several different types of savings accounts offering different rates of return based on such things as account balance, and time period of deposit. Many financial institutions offer higher rates of interest on accounts with larger balances and accounts in which funds are deposited for longer periods of time. This is an incentive to customers to save their money in these financial institutions.
Savings accounts are very important to financial institutions since it is the funds that customers deposit that are usually used to provide loans for other customers. As a savings account customer, you are usually given preferential loan rates by financial institutions. Although savings accounts offer some amount of interest, the rates are usually much lower than the rates that could be earned by investing your money alternatively. Nevertheless, savings accounts provide a relatively safe way of earning interest.