Sep 11

What Is A Passbook Savings Account?

Passbook Accounts

In this time-honored arrangement, you deposit and withdraw money in any amount and as many times as you wish, with a bank teller recording the transactions, as well as accumulated interest, in a passbook provided to you by the bank. Though the rates have been fairly standard, actual yields can vary depending on the way the interest is compounded — yearly, quarterly, monthly, daily or from day of deposit to day of withdrawal. There may, however, be a small loss of interest if funds are withdrawn before a certain time has elapsed.

Be careful to read the terms of the passbook contract and ask questions if you are uncertain about any detail. If one bank offers a quarter percent lower interest rate on passbook accounts than a competitor, but compounds interest daily, it may actually provide a higher yield than the competitor’s if the money is left on deposit for a full year.

On passbook savings accounts, as well as statement and club accounts (see below), a bank may require as much as 30-days notice before a withdrawal is made. If this is the case, a statement to that effect is included in the contract that sets up the account. As a practical matter, however, banks rarely enforce this injunction and depositors usually have total access to their cash.

Banks do, however, look askance at people who use savings accounts as if they were checking accounts; some institutions limit the number of withdrawals that can be made in a week or month. A bank may even insist that an account be closed if the depositor makes too many withdrawals within a specified period. Another method banks use to limit withdrawals is to charge a service fee for each such transaction in excess of an agreed upon number per month. In a typical situation, a bank might charge a $1 service fee per withdrawal after the customer has made five withdrawals in a two-month period. A bank may also charge a similar fee if the customer closes out the account within three months of the opening date.

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