Savings account

A savings account is a deposit account held at a retail bank that pays interest but cannot be used directly as money in the narrow sense of a medium of exchange (for example, by writing a cheque). These accounts let customers set aside a portion of their liquid assets while earning a monetary return. For the bank, money in a savings account may not be callable immediately and, in some jurisdictions, does not incur a reserve requirement. Cash in the bank's vaults may thus be used, for example, to fund interest-paying loans.

The other major types of deposit accounts are the transactional account (usually known as a "checking" (US) or "current" (UK) account), money market account, and time deposit.

In the United States, under Regulation D, 12 (CFR) §204.2(d)(2), the term "savings deposit" includes a deposit or an account that meets the requirements of Sec. 204.2(d)(1) and from under the terms of the deposit contract or by practice of the depository institution, the depositor is permitted to make up to six pre-authorized transfers or withdrawals per month or a statement cycle of at least four weeks. There is no regulation limiting number of deposits into the account.

Within most European countries, interest paid on deposit accounts is taxed at source. (This is due to cease in the UK in 2016.) The high tax rates of some countries have led to the development of a significant offshore savings industry. The European Union Savings Directive has made arrangements with many offshore financial centres either for information on interest earned to be shared with EU tax authorities or for withholding tax to be deducted on interest paid on offshore accounts, because of concerns relating to potential tax evasion. Account holders must either pay the withholding tax or disclose account holder information to relevant tax authorities. In the United States, under the Lifetime Savings Account Act of 2005, taxpayers are allowed to create a tax-exempt trust known as a "Lifetime Savings Account" for themselves or their beneficiaries. Cash contributions to the trust of up to $5,000 are qualified for tax-exempt status.

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