Savings account

Savings account

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Savings accounts are accounts maintained by retail financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...

s that pay interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....

 but cannot be used directly as money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...

 (for example, by writing a check
Check
Check may refer to* A small crack in the glass, also known as a check, in the glass container industry* Cheque , an order for transfer of money* Check box, a type of widget in computing...

). These accounts let customers set aside a portion of their liquid assets while earning a monetary return. For the bank, money in a savings account may not be callable immediately and therefore often does not incur a reserve requirement
Reserve requirement
The reserve requirement is a central bank regulation that sets the minimum reserves each commercial bank must hold of customer deposits and notes...

 freeing up cash from the bank's vault to be lent out with interest.

The other major types of deposit account
Deposit account
A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the...

 are transactional (checking) account, money market account, and time deposit
Time deposit
A time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time...

.

Regulation


In the United States, under Regulation D
Regulation D (FRB)
Reserve Requirements for Depository Institutions is a Federal Reserve Board regulation that limits the number of preauthorized withdrawals and transfers from a savings account or money market account...

, 12 Code of Federal Regulations(CFR) 204.2(d)(2), the term "savings deposit" includes a deposit or an account that meets the requirements of Sec. 204.2(d)(1) and from under the terms of the deposit contract or by practice of the depository institution
Depository institution
A depository institution is a financial institution in the United States that is legally allowed to accept monetary deposits from consumers...

, the depositor is permitted or authorized to make up to six transfers or withdrawals per month or statement cycle of at least four weeks. The depository institution may authorize up to three of these six transfers to be made by check, draft, debit card, or similar order drawn by the depositor and payable to third parties. There is no regulation limiting number of deposits, but some banks choose themselves to limit deposits.

Within most European
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...

 countries, interest paid on deposit accounts is taxed at source. The high rates of some countries has led to the development of a significant offshore savings industry. The financial centers for either information on interest earned to be shared with
EU
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

 tax authorities or for withholding tax to be deducted on interest paid on offshore accounts, because of concerns relating to potential tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...

. Account holders must either pay the withholding tax or disclose account holder information to relevant tax authorities.

Costs


Withdrawals from a savings account are occasionally costly and are sometimes much higher and more time-consuming than the same financial transaction
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...

 being performed on a demand (current/deposit) account. However, most saving accounts do not limit withdrawals, unlike certificates of deposit. In the United States, violations of Regulation D often involve a service charge, or even a downgrade of the account to a checking account. With online accounts, the main penalty is the time required for the Automated Clearing House
Automated Clearing House
Automated Clearing House is an electronic network for financial transactions in the United States. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit payroll and vendor payments. ACH direct debit transfers include consumer payments...

to transfer funds from the online account to a "brick and mortar" bank where it can be easily accessed. During the period between when funds are withdrawn from the online bank and transferred to the local bank, no interest is earned.

Online savings accounts


Some financial institutions offer online-only savings accounts. These usually pay higher interest rates and sometimes carry higher security restrictions.