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.
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 The fund owners can withdraw them for qualified medical expenses without any tax liability, though expenses withdrawn for non-medical needs can incur penalties.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.
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.
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