A savings bank is a financial institution that accepts deposits of savings from members of the general public who want a safe place for their extra earnings so they will be available when needed. The bank invests the money, paying out interest on the deposits and using the rest to generate profits for the owners. A true savings bank just accepts deposits, while a savings and loan also extends loans, using the loans as investments.
The origins of the savings bank appear to lie in the 18th to 19th century. In some cases, the bank has private ownership, while in others, it may be publicly traded, offering shares to members of the public. At a mutual savings bank, the depositors own the bank, with shares based on the amount of money they have on deposit. The shareholders receive periodic dividends from the bank, and these may vary in size depending on the amount of money it earns.
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Depositors have the option of placing a time deposit or demand deposit at a savings bank. In a time deposit, the customer loans money to the bank for a set period of time, agreeing not to use it, and receives a higher interest rate in exchange. On a five year certificate of deposit, for example, the bank has exclusive use of the money for five years. In an emergency, the customer can access it, after paying a penalty fee. Demand deposits allow customers to withdraw money at any time.
In a traditional savings bank that just takes deposits and invests them, no other financial products are available. A savings and loan provides loans, usually home loans, although sometimes personal and vehicle loans are available as well. It may also be able to refinance existing loans. Some banks expand their financial services to offer financial advice, debit cards, and similar services, and the line between a savings bank and other kinds of depository institutions can be blurry.
Savings banks provide a very safe, reliable form of investment. Deposits are insured and depositors will not lose the money they leave with the bank. The interest earnings are also lower than with other kinds of investments, reflecting the lower risk. When making decisions about where to invest to build up a stock of capital for the future, it can be a good idea to place some money in savings where it will be safe, and to consider holding some back for riskier investments that may yield a higher return.