What is a Savings Account?
What is a Savings Account?
A savings account is an account maintained by a financial institution which pay interest for the use of the money saved. The most common type of this kind of financial institution is a bank. A depositor (a person who places money in the bank) earns interest income when he/she deposits money in his/her savings account. This kind of account lets the depositor set aside a portion of their liquid assets while earning a monetary return.
Maintaining a savings account in a bank is convenient as the money can be withdrawn from the bank as often as one likes through the bank's ATM or directly from one of the bank's authorized personnel. A savings account is the most common type of bank account and the bank may only require a minimum balance of $25 to as maintaining balance for the savings account. Other banks have different maintaining balances.
One of the benefits of saving money in a savings account is that the money deposited in the bank is insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures savings account deposits uo to $1,000. In the event that the bank becomes insolvent, a depositor gets back his/her deposits through the FDIC. The Federal Deposit Insurance Corporation is an independent agency of the U.S. federal government created in 1933 during the early 1930s economic crisis due in part to thousands of banks failing and closing.
In essence, a savings account is a kind of a record of loan. A depositor lends the money to the bank (financial institution) so that the latter can use this money as capital for their business activities such as investments business expansion, or loans to borrowers. In return for this loan, the bank provides the depositor a part of the interest rate it charges to the bank customers. A depositor makes profit on the money in a savings account by interest earnings provided by the bank.