Interest accounts are a specialized form of deposit
account. One would still deposit money into an interest account and would still
retain the right to withdraw money from such an account. But interest accounts
benefit from additional terms. Specifically, an interest account allows account
owners to profit from the accrued interest of the account as it builds over
time. Often, the price that interest account owners pay for this accrued
interest is ease of withdrawal, but for some, this is a worthwhile price if the
account will exist for a long enough time period.
A savings account is a primary example of a type of
interest account. In a savings account, the account owner deposits money into
the account, but cannot access that money as easily as if it were in a checking
account, for example. The account owner would not be able to treat whatever
funds were in the savings account as if they were directly available assets.
This is primarily represented through a greater cost on a withdrawal from a
savings account, along with a greater amount of time required to file the
withdrawal. But the benefit of a savings account lies in that the interest
rates for such accounts are normally high enough that the accrued interest over
long periods is significant.
Some checking accounts are actually interest accounts in
that the money within the checking account is earning interest at some rate.
But the rate of interest is usually so small that for the accrued interest to
have any significance,
it would take a tremendous amount of time or a large amount
of money in the account. Checking accounts fluctuate in amount consistently,
however, which would mean that they are unlikely to have such a large amount as
to generate significant accrued interest, even if they are interest accounts.
Money market accounts are yet another form of interest
account. Using a money market account, one might be able to make a fair amount of
money through accrued interest. The primary flaw of a money market account is
that they require a certain balance in order to make money and, in fact, may result in
charges if the balance within the account dips too low. They do offer fairly
high interest rates, however, and though they are legally treated in much the
same fashion as are savings account, the account owner can usually draw checks
on a money market account.
There are some restrictions to the account, such as the
fact that only six withdrawals to third parties are allowed per month from a
money market account, but these restrictions are usually compensated easily by
the potential for high accrued interest. As long as one keeps a money market
account relatively full of funds, then one can avoid most of the problems of a
money market account, while still generating a great deal of interest.
The primary advantage of interest accounts is that they
allow money which would otherwise be doing nothing to be growing and creating
accrued interest. If the money were in a non-interest checking account, then it
would be available and protected, but it would not be growing at all. Interest accounts allow for growth, while continuing to offer a fair degree
of protection. Some would advocate investment into the stock market as a better
means for generating accrued interest on invested money, but most would also
acknowledge that the stock market is a substantially riskier way to generate
interest.
