Savings Deposits

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.