Savings Deposits

  

Categories: Banking

Savings deposits are savings accounts. What makes a savings account different than a checking account? Nothing, really. Some places don’t even have both checking and savings accounts.

Still, in the U.S., savings accounts usually come with more restrictions in return for higher interest. For instance, maybe you can only make a certain number of withdrawals per month. Banks, credit unions, and other financial institutions can offer savings deposits, insured by the FDIC mostly. These financial businesses take your money and invest the bulk of it. Your money isn’t really just sitting there...how do you think they’re making that interest they’re paying you? You’re essentially loaning your money to the bank for a low rate, which is then loaned to others at a higher rate.

Depository institutions in the U.S. have to meet reserve requirements, which means they can’t lend out all of the deposits they have. For instance, if the reserve requirement was 10%, that means functionally that, for your $100 check you put in your savings account, $90 was lent out to some poor schmuck, while $10 is still sitting in the bank.

To keep your money from eroding in value (because prices are always rising all around you...it’s called “inflation”), it’s smart to try to keep most of your money in a safe (but high-interest) savings account. Most checking deposit accounts, as well as savings deposit accounts, offer interest rates well below inflation, which means your money is a ticking time bomb, losing value constantly.

Related or Semi-related Video

Finance: What is a Savings Bond?2 Views

00:00

finance a la Shmoop what is a savings bond well it's kind of like charity

00:08

charity because interest rates on savings bonds are exceptionally low even

00:13

by government standards well there was an era in America when taxpayers happily

00:18

and willingly loaned money to Uncle Sam and were happy to do so because they had

00:23

great faith and trust that the people we elected were in fact decent honest [old government photos]

00:28

hard-working representatives who had the interests of the nation placed far ahead

00:34

of their own personal gain it was the era of Jimmy Stewart and a whole bunch [photo of Jimmy Stewart]

00:38

of others you should think the greatest generation yeah we know even a pretty [picture of John Wayne]

00:44

good generation check Congress for details so savings bonds used to be a

00:48

standard birthday present for young people kind of like the cross pin that [kid's birthday party]

00:53

nice Jewish boys would get at their bar mitzvahs grandmother's after slathering [boy's mar mitzvah]

00:57

in a bathtub of angry perfume loved handing the $50 savings bond envelope to [woman in hot bath]

01:03

their college-bound progeny well savings bonds are issued by the US

01:07

Treasury and have no stated maturity date instead what happens is that the

01:11

savings bond welljust pays the interest for some

01:14

period of time like say a decade and at the end of that 10 years while it simply

01:18

stops paying interest you can cash in the bond at that time or just let it

01:23

ride essentially renting money to the Gov for free and yeah you don't want to

01:27

confuse a savings bond with this bond yeah who needs no safety

Up Next

Finance: What is a Savings & Loan v. a Bank?
187 Views

What is a savings & loan versus a bank? Hit play to find out.

Finance: What is a 529 Savings Plan?
4 Views

What is a 529 Savings Plan? A 529 Savings plan is a tax savings plan to set aside funds for a designated beneficiary’s college education and high...

Find other enlightening terms in Shmoop Finance Genius Bar(f)