Savings Accounts

One of the oldest places where you can put your money. Companies who want to offer savings accounts need to have a banking license in all jurisdictions.

A saving account works in that you can deposit any amount of money and the bank pays an interest on the total of your deposit. Generally speaking the interest is not high and in addition in most countries you have to pay tax on the interest.

There are, however, some interesting variances between countries, banks and offerings. We recommend that you inquire directly with your bank to find out about the "fine print".

Here is what you should be looking for.

How Long is a Month?

This is an interesting question. Referring to the calendar is not sufficient. For the purpose of calculating the interest on you savings account it is important to know how long a month is. Some banks assume that all months have exactly 30 days. From a customers perspective this is ok as long as the month doesn't have more than 30 days.

However, if a month has 31 days then this basically means that the bank doesn't have to pay you interest for one day. In the entire year the bank can work with our money without paying interest for 5 days (or 6 days in a leap year).

Example: Let's assume you have put $1,000 in a savings account that pays a yearly interest of 5%. If a month is only 30 days, your interest will be $50 / 365 * 30 = $4.11. If the month has 31 days your interest will be $50 / 365 * 31 = $4.25. The difference is $0.14.

You might say this is not a lot. A single sheet of paper is not thick either. But how thick are 500 sheets of paper? If you really want to get the optimum out of your investment you should look for these minor differences as well.

Credit and Debit: Why the Date Matters

Interest is paid on the balance of your account. When you make a deposit the amount will be credited to your account. When you get you bank statement it will typically show the dates of your deposits as well as of the withdrawals. However, the interest for your deposit might only start next day while for withdrawals the interest may stop being paid for the day when you make the withdrawal. Sounds complicated but is realitive easy to understand with an example.

Example: Let's assume you have a savings account with a balance of $1,000 as per March 31. Interest is 5% per year, so that's 0.0139% per day. Let's assume, you deposit $500 on April 10 and withdraw $1,000 on April 20. As of April 30 your account would therefore have a balance of $500. The interesting question is now, how much interest do you get? Let's create a table:

Now let's compare this ($4.09) with a savings account where the bank debits any withdrawals immediately but credits any deposits with one day delay:

Again the difference seems to be small, just 7 cents. But think of hundreds and thousands of savings accounts. And this is just one month not 12. So from a banks perspective it makes perfect sense as the individual customer usually doesn't complain - it's a small amount after all! - and for the bank it makes quite a difference.

As above: You need to decide for yourself whether you want to keep this money for youself, or whether you are happy for the bank to have it.