12 common savings terms explained
In this guide, we define the most common terms you will meet when opening up or handling a savings account.
Opening a savings account is a responsible way to ensure your finances are kept in order.
However, oftentimes, the terminology associated with these deposit accounts can be a bit confusing and difficult to wrap your head around.
That’s why we have defined the most common savings account terms for you in this guide in an easy to understand manner.
A deposit account
This is another name for a savings account.
Regular monthly saver account
It is a savings account where a set amount of money is deposited monthly. You have instant access to the money in this account.
A popular way to ensure you are regularly depositing savings into this account is to set up a monthly standing order from your current account.
For instance, you could create a standing order which deposits €100 from your current account into your savings account once you get paid.
Lump-sum saver account
This account type is used by savers who need to deposit a large sum of money such as inheritance or retirement funds into their savings.
There are three different types of lump-sum accounts: easy access, notice, and term deposit accounts.
Easy access accounts
You are free to withdraw funds from this account at any time.
However there may be a limit to the number of times you can withdraw money annually, and the amount that can be withdrawn at any one time.
As the name implies, this account requires you to give notice to the financial institution holding your savings before you can make a withdrawal.
Although it may be possible to make withdrawals without notice, you could be subject to a penalty fee as a result.
Typically the notice period required usually ranges from 7 to 60 days. However, this will differ depending on the account.
Term deposit account
With this account, your money is put away for a set period, meaning you cannot access it until the term has been reached, e.g. 3 months, 10 years, etc.
These accounts tend to have higher, fixed interest rates, meaning you’ll make a larger return on your savings.
However, it's important to be aware that additional deposits are not usually permitted, and withdrawals before the end of the term can incur a penalty and may require notice.
A minimum lodgement
This is the smallest amount of money that you can deposit into your savings account at one time.
A demand deposit
This is money that has been placed into a savings account, that can be withdrawn ‘on-demand’ or at any time without having to give the financial institution holding the money notice.
This account feature means you can withdraw your money at any time, and you will receive your funds straight away.
This is the amount of money a financial institution will pay you for depositing your savings into their account.
The interest rate on your savings account will determine the return (money earned) you make on the money you have placed into this account.
The rate of interest on your account will either be at a fixed or variable rate.
Any interest you earn on your savings will be subjected to a Government tax called Deposit Interest Retention Tax, also known as DIRT.
Annual Equivalent Rate (AER)
This is the amount of interest earned on your savings in a year.
AER takes compounding into account. This means it acknowledges the interest that has been previously earned and added to your account, therefore the next time the interest on your savings is calculated it increases too.
The higher the AER the more interest you earn on your money.
When selecting a savings account, you can compare the various AERs offered by different accounts to help determine the best one to deposit your money into.
If your money hasn’t been invested into your account for a year, then you may earn less than the quoted AER.
It also does not take DIRT into account.
Currently, the annual equivalent rates available for savings accounts in Ireland are quite low, so you shouldn’t expect to make a large return on your savings.
This is when you earn interest on both the money you deposited and the interest you have earned, therefore you will continue to earn interest each year on the interest you previously earned in years gone by.
For example, if your savings account has an interest rate of 4% per year and it is compounded every 6 months, the financial institution your account is with pays 2% of compound interest on your deposit every 6 months.
This 2% interest paid at the end of the first 6 months, will then earn interest for the remaining 6 months of the year.
This means you will earn more money on your 4% interest that is compounded every six months, in comparison to 4% interest compounded annually.
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Take a look at our other banking articles
If you found this guide helpful, check out our other banking-related guides:
- Learn all about comparing saving accounts on bonkers.ie here.
- Discover the 14 most common savings account questions today.
- Get to grips with general banking terms with the help of this guide.