What Is A Passbook Savings Account? – Forbes Advisor – Technologist

Online banking has made paper records largely unnecessary, but some people still prefer to manage their finances with a pen and paper. Passbook savings accounts provide an alternative to digital accounts by offering hands-on record-keeping and account management.

These accounts are not very common or good for maximizing interest. However, if you like the idea of banking in person and keeping a book of your transactions, a passbook savings account could be for you.

What Is a Passbook Savings Account?

A passbook savings account is a savings account that comes with a physical notebook known as a passbook. To make a deposit or withdrawal with this kind of account, customers have to visit their bank. After the bank completes and verifies transactions, customers have a record of them in their passbooks. Both parties maintain a ledger of transactions and balances.

In the past, bank tellers would stamp customer passbooks to mark transactions as complete. Nowadays, customers still visit their banks to manage their passbook accounts, but banks often keep electronic records of passbook histories and may print transactions directly in passbooks.

While online banking has largely replaced passbook savings accounts, they’re still available with certain banks. Some passbook accounts are offered to children as well as adults.

How Does Passbook Savings Work?

A passbook savings account uses a passbook to record transactions. When you open an account, you receive this notebook from your bank. Passbooks tend to be roughly the size of a U.S. passport. You’ll visit your bank during business hours any time you want to make a deposit or withdrawal, and the tellers will update your passbook for you and enter your updated account information in their records.

To fund a passbook savings account, you can deposit cash or checks and often make transfers from checking accounts. You may be able to check passbook savings account details online, depending on your bank, and will receive account statements when you make electronic transfers. You can’t make ATM withdrawals from a passbook savings account or spend with a physical card.

Passbook savings accounts share a few similarities with regular savings accounts. For example, passbook deposits receive FDIC insurance of up to $250,000 per depositor at covered banks. Furthermore, passbook savings accounts can earn interest, enforce transaction limits and carry service fees like regular savings accounts. Still, they’re less common than other savings accounts.

Passbook Savings Rates

Many passbook savings accounts earn interest. These rates vary by institution and may depend on your balance. However, passbook savings rates often aren’t competitive with high-yield savings accounts, with many earning less than 2.00% APY. By contrast, there are several 5.00% interest savings accounts out there.

What Banks Have Passbook Savings Accounts?

With the rise of online banking, passbook savings accounts are hard to find, but they’re not yet a thing of the past. Generally, small regional banks and credit unions are more likely to offer these than national banks. That said, the following banks currently offer passbook savings accounts:

• Cathay Bank
• Dedham Savings
• Dollar Bank
• First Republic
• Middlesex Savings Bank
• Ridgewood Savings Bank
• Spencer Savings Bank
• Territorial Savings Bank

Minimum opening deposit requirements for these accounts range from $1 to $500. Many of these banks have small branch networks and footprints.

Passbook accounts are becoming less common, and you might have trouble finding a bank in your area that offers one. If you’re interested in this type of savings account but can’t find one you like, you can create your own paper ledger or use budgeting apps to stay on top of account balances.

Pros and Cons of Passbook Savings Account

For all the benefits they can provide to savers who prioritize physical banking, passbook savings accounts also have drawbacks.

Pros

• Physical records may make for easier budgeting and savings goal-tracking.
• Low minimum balance requirements and fees.
• Useful for teaching financial management to children and teens.
• Difficult to make impulse purchases since you need to bank in person.

Cons

• Passbook savings rates are generally lower than high-yield savings account rates.
• Few banks and credit unions offer these accounts.
• Customers can lose passbooks and will need to request new ones.
• You can’t withdraw cash from ATMs or make deposits online.

Passbook Savings Account Alternatives

A passbook savings account can be worth using if you don’t mind the restrictions, but they aren’t for everyone due to their limited features and low interest rates.

Here are a few alternatives to consider if think you fall into the latter camp.

High-Yield Savings Accounts

High-yield savings accounts are far better than passbook savings accounts for earning interest on deposits. Many of the best accounts earn at least double what the best passbook savings accounts pay. Plus, these accounts are typically much more flexible, letting you manage your account and spending online rather than in person. Furthermore, many leading high-yield savings accounts don’t charge monthly account fees and have no minimum deposit or balance requirements.

If you’re comfortable managing your finances online and don’t require paper record-keeping to budget, a high-yield savings account is likely the better choice.

Money Market Accounts

A money market account (MMA) is a special type of savings account that pays interest on deposits while providing better cash access than a typical savings account. Many MMAs have check-writing privileges and a debit card for easy spending, giving you more flexibility.

The top advantage of MMAs over passbook savings accounts is the potential to earn more interest. Currently, top money market accounts are paying 4.00% APY to 5.00% APY or more. However, MMAs often have higher minimum deposit requirements and monthly fees.

CDs

Certificates of deposit (CDs) are low-risk deposit accounts that pay fixed interest for a predetermined amount of time. CDs are commonly offered by banks and credit unions, and term lengths range from a month to 10 years or more. Like savings accounts and MMAs, CDs are FDIC- or NCUA-insured. The top CD rates are significantly higher than the average passbook savings rate.

The main downside of CDs over savings accounts is that they have fixed terms. You’ll typically pay steep early withdrawal fees if you remove funds before maturity. No-penalty CDs are the best choice if you think you might need your deposits before your term is up.