A regular savings account is an account at a bank that pays interest on the deposits within the account. Not to be confused with a Certificate of Deposit, a regular savings account is completely liquid and funds can be withdrawn from the account at any time without penalty. Although a regular savings account has no check writing privileges, it has become common practice for banks to link a customer's regular savings account to the customer's checking account as a method of overdraft protection. Regular savings accounts are characterized by lower interest rates and thus lower balances than other, less liquid bank products.
Regular savings accounts have been available for hundreds of years. Some of the first "bankers" to offer regular savings accounts were village blacksmiths in the Middle Ages. Since the blacksmiths were usually the only ones who had a secure place to store precious metals like gold and silver, they stored gold or silver and issued receipts for the metals on deposit, creating the first passbooks. Early in the 20th century, a new type of regular savings account became popular called the Christmas Club savings account. Bank customers would usually make a predetermined deposit into the account each week and then withdraw the balance at Christmas time. These accounts had many restrictions and didn't pay much interest, but were popular due to the limited availability of the funds in the account that enabled the account holder to resist the temptation to withdraw funds throughout the year. These accounts were largely discontinued in the 1980s when more educated consumers had better savings options available to them and the costs of maintaining these annual accounts became prohibitive for the banks.
The function of a regular savings account is to provide a safe place to save money and to pay interest on the balance in the account. In the United States, all regular savings accounts are FDIC insured. In 2008, the limit on FDIC insurance was raised from $100,000 to $250,000.
There are no restrictions on the availability of funds within a regular savings account. Though not technically a demand account like a checking account, withdrawals can be performed as easily as visiting a local bank branch or ATM machine. Regular savings accounts are not time deposits like Certificates of Deposit, and there is no interest penalty for early or frequent withdrawals.
Regular savings accounts are an important part of the average investor's overall portfolio, and it is estimated that 65 percent of Americans have a regular savings account. However, regular savings accounts pay a low rate of interest and investors who have capital they don't need immediately may be better served with a Certificate of Deposit or other high-yield savings vehicle.
According to the U.S. Bureau of Economic Analysis, the national savings rate has dropped to just over one percent of disposable income. This is the lowest level since the Great Depression. The low savings rate has been viewed as a major contributing factor to the stock market crash of 2008.
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