Savings accounts

• What they are
• Interested parties
• Strengths and drawbacks
• Expenses
• Underlying rules
• Pitfalls

What they are

Savings accounts are also called savings deposits or deposit accounts. They differ from current accounts because they're a savings instrument and the only operations available are paying in or withdrawing money.

A savings account holder has a bankbook, which is where all the withdrawals and deposits are recorded.

Savings accounts are widely used for minors and can be opened for them by their parents (one or both), and in this case the bankbook is in the name of the minor.

With savings accounts, banks agree to pay back the sums deposited when requested to do so.

A savings account can be unrestricted (demand deposit account) or time-restricted (time deposit account). With the former, the sums deposited are available immediately. The latter only allows you to withdraw money at the end of a set period (from 1 to 36 months), but the interest you receive on your money is higher. If you need to withdraw money before the end of the set period, you have to pay a penalty, which usually means that the interest isn't paid on your deposits.

Interested parties

Anyone who wants to save money without running any particular risks.

Strengths and drawbacks

It's a low-risk savings tool.

As with other bank contracts, if changes are to be made to your contract, the bank must propose any change (to the credit interest rate, fees or service charges) with at least two months' notice in a written communication called a 'Proposal for a unilateral change to the contract'. If you don't accept the changes, you can refuse the proposal by asking to end your contract with the bank and without having to pay any penalties or costs.

Expenses

As with all banking products, the cost of holding a savings account varies from bank to bank. Savings accounts in the name of minors may be free of opening and administration charges. Payment of stamp duty and tax on interest are added to these costs.

Underlying rules

As of 4 July 2017, banks and post offices can no longer issue bearer passbooks and their transfer is not allowed. The last date on which sums deposited on bearer passbooks could be withdrawn was 31 December 2018. A fine had to be paid if accounts were not closed by that date.

It's useful to know that money deposited in a savings account is protected by the guarantee for all banks operating in the European Union provided by the Interbank Deposit Protection Fund and the Depositors' Guarantee Fund. In the event of a bank crisis, and the application of the bail-in mechanism, deposits of up to €100,000 are guaranteed for each depositor. This limit is valid for each depositor, per bank.

Pitfalls

People often sign a savings account contract without reading it carefully first, because it's too much of an effort to read and understand the various clauses (this is true for all contracts!). They can't understand and process all the information available unless they use mental shortcuts that simplify (though only on the surface) the decision-making problem and help them decide quickly and easily.

To find out more, watch our videos on behavioural traps.