Most banks today offer online and mobile banking services that allow you to effortlessly manage your money from anywhere. It’s easy to see the convenience and appeal, but some customers prefer a more old-school option. That’s what you get with a passbook savings account.
While these accounts aren’t too common today, some banks still offer them. Here’s what you need to know about these accounts and potential alternatives to consider.
A passbook savings account is similar to other savings accounts — the main difference is that it includes a physical record of account transactions, known as a passbook. Within the passbook, you find a record of every time money flows into and out of your account. Think of it like a journal with all the important details about your transactions.
Typically, you need to visit a bank branch in person to deposit or withdraw money from a passbook savings account so the banker can record the transactions. (They may not make a handwritten note, but instead create an entry on their computer and print the information onto your passbook.)
Passbook savings accounts can have some unexpected advantages. For instance, the need to physically visit a branch to withdraw creates an extra barrier compared to online savings accounts. This could mean money stays in your account longer, while helping you build savings over time. Passbook savings accounts may also pay interest, though the rates tend to be lower than alternatives like high-yield savings accounts.
Passbook savings accounts were once commonplace, but these days, you won’t encounter passbook savings accounts nearly as often. However, some smaller local and regional banks may still offer them.
In fact, passbook savings accounts have had somewhat of a resurgence despite their overall drop in popularity. For example, in Britain, some banks reported sharp increases in passbook savings account numbers.
The reason for the increase is largely due to a cost of living crisis in the country, according to a report from The Guardian. Some customers find budgeting easier when using a passbook, as dealing with cash and in-person withdrawals allows them to better control their spending. So while they are less popular today, these accounts still have their place for some banking customers.
Like all banking products, passbook savings accounts have pros and cons. Here’s what to consider before opening an account.
Pros
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Tangible record: Provides a physical record of all transactions, such as deposits, withdrawals, and interest. This can make it easier to keep track of your money.
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Encourages savings: These accounts can make it more difficult to access your money than typical savings accounts with online banking access, which can encourage savings for some customers.
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Low risk: Passbook savings accounts are usually FDIC-insured, giving you a safety net in case your bank fails.
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Easy to use: These accounts typically don’t have too many extra features. In other words, they’re a simple, no-frills way to set money aside.
Cons
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Requires in-person transactions: Although in-person transactions can help encourage saving, they can also make accessing your money inconvenient.
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Withdrawal limits: Like many savings accounts, passbook savings accounts may limit the number of monthly withdrawals you’re allowed to make without incurring a fee.
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Lower savings rates than some accounts: While these accounts often pay interest, the rates are usually lower than high-yield savings rates.
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Fees to replace your passbook: If you ever lose your passbook, there might be a small fee to replace it.
Some people prefer having tangible items over digital versions, which is why they might prefer reading physical books to e-books. The same is true for banking, as some customers prefer a physical record of their transactions. However, you might find the low rates or the in-person requirement is too big a trade-off. In that case, there are a few alternatives to consider.
A high-yield savings account is a type of savings account that pays higher-than-average rates on account balances. Often, there are minimal fees and low or no minimum balance requirements. This means your money can grow faster than it would in a passbook savings account.
However, high-yield savings accounts are often provided by online banks, with no option to visit a branch for assistance. For some customers, that’s no problem. But those who prefer to get help in person when needed might prefer opening a savings account at their local bank, even if it pays lower rates.
Read more: The 10 best high-yield savings accounts available today
A money market account is like a cross between a checking account and a savings account. These accounts often pay higher interest rates than traditional savings accounts, and they sometimes have check-writing and debit card options. This makes it easier to access your money, letting you easily make a withdrawal when you need it.
The downside is that money market accounts often come with higher minimum balance requirements; you may lose out on interest or have to pay a fee if your balance falls below the minimum. However, if you have a large amount of savings that you need to access on a regular basis, a money market account could help you earn a higher rate of return.
Read more: The 10 best high-yield money market accounts available today
A certificate of deposit is a type of deposit account that often pays a higher rate than traditional savings accounts. To qualify for the higher rate, you must leave your money in the account for a set period of time, known as the CD term, which can be as little as a few months or as long as several years. CDs with longer terms sometimes pay higher rates to compensate you for keeping your money in the account. However, there can be exceptions based on future interest rate expectations.
The biggest strike against CDs is the requirement to keep your money in the account for the entire term. It’s possible to get your money out sooner, but that usually comes with a penalty. There are no-penalty CDs, too, but they often pay lower rates. Generally, if you’re putting your money in a CD, you should expect it to stay in the account until the end of the term.
Read more: The best CD rates on the market today
