Installment savings accounts and club accounts have defined maturities. Regular deposits are usually required with a preset date to withdraw the funds. They are used for saving for special occasions such as holidays or vacations.
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Installment Savings Accounts
Installment savings accounts have defined maturities and are offered by institutions to help consumers save for specific goals or special occasions. Much like CDs, these accounts are opened for a period of time, usually a year, and incur penalties when withdrawals are made before the end of that period. One example is a Holiday Club Savings account that can be opened at any time of the year and automatically distributes accumulated funds on October 1st of each year, just in time for the shopping season. Other examples include a Kids’ Savings account, a Christmas Club Savings account, and Vacation Savings accounts.
The idea behind an installment savings account is that it helps guarantee a time deposit for the financial institution and provides a discipline mechanism for people trying to save up for a particular event or season. There are many certificate of deposit options that could perhaps fulfill the same purpose, but the main difference between CD and installment savings offerings is fixed interest regardless of time. The interest rates on CDs decrease as the time period gets shorter, while installment savings accounts offer the same interest rate regardless of how long or short the time period is before funds are distributed.
One drawback is that a lot of installment savings accounts have account requirements that must be satisfied in order to earn the fixed interest. Those requirements may include fixed monthly payments, which could be a hassle considering the account will likely not be an essential focus. Check out some of the various installment savings account offerings in the rate table above.