What is a Savings Account: Savings Account Basics

Savings accounts are a safe place to keep money that is not immediately needed. Though they are not as liquid as checking accounts, the money is still fully accessible. Presently, there are two kinds of basic savings accounts. First, a customer can receive a passbook account, where the bank gives a person a booklet used to record withdrawals, deposits, and interest. There are few fees, low interest rates, and virtually no minimum balances. Second, a customer can acquire a high yield savings account, where the higher the balance, the higher the interest rate. Here, a customer cannot use checks with this savings account though he can link the two for deposits and withdrawals.

When keeping savings in mutual funds or stocks, a person will likely have to pay tax penalties to access the money. Savings accounts have no such tax penalties, though there may be some fees for closing the account or withdrawing a certain amount.

Time Deposit
Savings accounts are a common examples of time deposits, which are a form of savings where the depositor has restrictions when withdrawing funds. These accounts are usually set with a fixed term where the depositor may not withdraw funds until a certain time. Time deposits also benefit the depositor, as the restrictions on accessing funds result in the bank customer being inhibited from frequently drawing out small amounts from his savings accounts.

Health Savings Accounts
Health savings accounts are medical savings accounts that taxpayers who are enrolled in a High Deductible Health Plan can utilize. When the funds are not spent, they roll over and accumulate every year and are also not subject to federal income tax when deposited. Deposits are rolled over for either future medical expenses, or they can used to reimburse expenses qualified under health savings account plans from years before. The fund owners can withdraw them for qualified medical expenses without any tax liability, though expenses withdrawn for non-medical needs can incur penalties. Like any other investment, health savings accounts are subject to market risk as there are potential upsides and the possibility of downsides and capital losses.

Benefits of HSAs
Health Savings Accounts can help make individuals more responsible for their own health care by encouraging savings for future health care expenses. The premiums are generally less than those for conventional health insurance, and there is more flexibility to pay on a pretax basis for qualified medical expenses such as vision, dental, and non prescription medications, which are often not covered under traditional health insurance. Accounts can also accrue considerable assets that can be used for health care tax free or used for retirement on a tax-deferred basis.

HSA Drawbacks
Some consumer organizations claim health savings accounts only benefit healthier, younger people while proving costly for everyone else. People who generate little income likely do not earn enough for the tax breaks to be effective, and there is some concern that those who cannot fund these accounts may forgo the necessary medical care due to the relatively high deductibles.

Checking Account Basics

Checking accounts allow individuals and businesses to deposit and withdraw funds from federally-protected accounts at banks, credit unions, savings and loans, and other financial institutions.  Checking accounts are a safe and efficient way to pay bills and deposit money though savings accounts pay more interest.  Most checking account holders can use checks to pay debts and use debit or ATM accounts to make cash withdrawals.  Some banks require a minimal initial deposit and proof of identification when creating a checking account.  Some states grant lifeline checking account options for low income customers and the elderly.  These checking accounts usually waive fees, including surcharges for ATM usage and service fees for low balances.

While banks will send accounting statements, owners of the account must keep track of their available funds.  If a check-writer writes a check for a higher than available balance, he may have to pay overdraft fees and there may be legal action.  While some banks protect checking account holders by notifying them when an overdraft occurs, most recoup losses through heavy service charges.

Banks have various ways that allow customers to check their balances.  Banks send monthly statements of debits and deposits to account holders.  Account holders can contact banks electronically – online or by phone – to receive real time updates of their checks and balances.  Even ATMs offer an option to check the balance.  Owners should also record their deposits and withdrawals in check registers and compare the two to ensure there are no disparities.

Advantages
There are numerous reasons to own a checking account.  First, the Federal Deposit Insurance Corporation insures them, which grants the holder the security of knowing his money cannot be lost.  Second, employers can make direct deposits, which save the holder time and effort from having to deposit the money on his own.  While this is a convenient method, the holder should still look at the check to ensure there are no mistakes.  Third, checks are more secure to send by mail than cash.  When receiving a check as paid, the owner has a receipt of payment.  Should he suspect someone stole the check and it hasn’t arrived to its destination, he can even stop payment on a check or report this indiscretion to the bank for a small fee.  If cash is stolen, however, there are no like remedies.  If a check is stolen, the owner can easily change the account number as well to prevent future theft.

Fourth, online banking is very convenient and most banks presently offer this service.  Online banking benefits those who had had issues balancing accounts in the past, as they allow holders to download information in order to balance accounts.

Fees
There are some small fees to holding checking accounts, though more and more banks offer free lifetime checking accounts.  Some, in fact, offer money on every ATM purchase the holder makes.  There are also interest bearing checking accounts, which require the holder to maintain a minimum balance.