What Is a Passbook Savings Account and Can You Still Open One?

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Updated on Thursday, July 18, 2019

If you’ve never heard of a passbook savings account, you’re not alone. These banking products used to be run-of-the-mill, but today they’ve become relics that are no longer promoted much by banks.

Yet passbook savings accounts still exist, more often than not at regional banks. A passbook savings account is a type of savings account that allows you to earn a competitive interest rate and comes with a physical notebook, called a passbook, that helps you track the flow of funds into and out of the account.

It’s undoubtedly an old-school approach, and you might even find a passbook among other paper records in the belongings of, say, an older or a late relative. But whatever your age, you may be intrigued by its unique, analog attributes. Here’s what to know if you’re thinking about getting a passbook savings account.

How does a passbook savings account work?

Passbook savings accounts work the way a lot of banking used to function. Before computers, the internet, online bank statements and text message alerts, customers had to rely on paper-based records to keep up with their finances and their bank balances. When it came to savings accounts, your passbook was a key tool. Physical checkbooks played a similar role for your checking account.

In fact, traditional savings accounts were once known as passbook accounts. Bank tellers recorded deposits along with earned interest in these paper notebooks, which you would store at home for safekeeping. While the digitization of so much personal banking has pushed passbooks to the edge of obsolescence, they’re still an enjoyable way to save for some.

Passbooks haven’t changed much with time. Banks may require you to visit a branch in person in order to use them, given the books’ analogue nature. There’s also generally no ATM access available with this type of savings account, although you may be able to look at your balance online.

As with any other type of savings account, there may be a minimum opening balance requirement, which varies based on the bank. For instance, First Republic requires $500 to open a passbook account. Meanwhile the regional Union Bank in North Dakota only requires $100, unless you’re a minor, in which case there is no minimum.

Do passbook savings accounts offer good interest rates?

The annual percentage yield (APY) on your passbook savings varies based on the bank. But you shouldn’t expect a high yield especially compared with accounts like a certificate of deposit (CD). Still, it’s important to compare the APYs among different banks to maximize your yield.

Similarly, how often interest is compounded or how often a bank pays out the interest on a passbook account can make a difference to your returns. Interest could be compounded daily or sometimes monthly. The more regularly the compounding, the better off you are.

Fees may apply, but it’s possible that they will be lower than those for regular savings accounts. For example, Investors Bank has decreased fees and balance requirements on its passbooks, charging a $3 monthly fee that can be avoided entirely if you keep a $50 minimum balance.

In any case, the Federal Deposit Insurance Corporation (FDIC) insures deposits made into a passbook savings account so you can have peace of mind about your dollars.

Who should get a passbook savings account?

These days, passbooks make sense for a very select audience. Those who insist on a paper trail for all their financial record keeping ?— or simply love the retro quality of these kinds of booklets? — are obvious candidates for a passbook savings account.

However, the main audience for these savings accounts are parents with young kids. When they advertise passbook savings accounts at all, banks like to showcase them as a way for kids to learn how to start saving.

One such company is American National Bank, based in Virginia and North Carolina, which promotes passbooks as part of its youth savings program for those 12 and younger. If you have a young child and want to instill smart financial practices early on, the old-fashioned method is ideal. Plus, kids tend to appreciate the simpler pleasures of print records. A nice perk: American National Bank gives kids a prize when they’ve filled up their passbook.

Pros and cons of passbook savings accounts

Passbooks aren’t for everyone. Here are some advantages and disadvantages to consider before jumping into this type of account.

Pros:

  • These accounts are a great way for young children to learn the habit of savings early on in their lives.
  • You get a physical notebook — the passbook — that you can easily consult. For kids, this helps make the somewhat abstract nature of savings more comprehensible.
  • There’s no need to worry about the loss of an ATM card or the possibility of young savers draining the account to buy things without oversight.
  • Fees and minimum balance requirements may be lower than those for other types of savings.
  • They offer decent interest rates.

Cons:

  • You won’t get the same amount of digital access or convenience as with a regular savings account.
  • Passbooks often require in-person visits at a bank branch for transactions.
  • Not all banks still offer passbook savings as an option.

Some advice on how to build savings

Whether you’re exploring a passbook account or some other type of savings, one rule holds: The more you save, the better.

That can be hard for anyone, especially with so many temptations to spend. But a savings account into which you deposit money without looking at it much (as you might if it’s directly tied to your checking account) can help you avoid the pitfall of transferring funds for unnecessary expenses. Of course, a higher interest rate is also always desirable.

A passbook can help in this case since it’s digitally limited and geared more toward building savings over the long haul. But other options exist to help you figure out a sensible way to build a nest egg. It’s all about finding what works with your financial habits and lifestyle.

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