What Is a Passbook Savings Account? - SmartAsset

Millennials probably can’t imagine banking without their computers or cell phones. Members of older generations, however, might recall a time when they had to visit a branch to access their accounts. To some people, the passbook savings account is a thing of the past. To others, there’s still room for it, even in our high-tech society.

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How a Passbook Savings Account Work

Passbook savings accounts have been around for over 100 years. Each person who had this kind of account received a small booklet, called a passbook. With a passbook, a consumer always knew the status of his or her bank account.

If someone with a passbook savings account needed to make a deposit or take money out of their account, that person had to physically enter a bank to complete the transaction. And each time, their passbook received a stamp as proof of what had taken place. The teller also wrote down the current account balance amount. The bank had information about each of its customers stored in its files and the passbook made it possible for consumers to manage their own savings.

Passbook savings accounts were all the rage in the old days, and they might still exist today at certain local and national banks. But if you’re looking online, you might have a tough time finding a place that offers them. These type of accounts are likely best found in the regional credit unions of smaller cities and towns.

How Passbook Savings Accounts Have Changed

Although they’ve managed to withstand the test of time, current passbook savings accounts aren’t exact replicas of the ones previous generations used. Instead of making handwritten notes about deposits and withdrawals and leaving stamps inside of the passbooks, bankers type this information into their computers. Then, they use a special printer that copies that information directly into a customer’s passbook.

At some banks, the passbook itself is bigger than it was in the past. In some cases, deposits can be made electronically before a customer arrives at the bank.

Advantages of Having a Passbook Savings Account

Besides the passbook itself, the accounts are generally no different from the other kinds of savings accounts that are more widely used.

However, one of the most notable benefits of having a passbook savings account is its simplicity. If you were to stop and compare different checking and saving accounts, you would find that many of them come with pages of terms, rules and conditions. Plus, they often have a variety of fees that consumers sometimes don’t understand until they’re hit with charges.

Passbook savings account holders avoid all of that drama. These accounts usually don’t come with tons of fees. If there is a minimum balance requirement, (and there often isn’t one) it’s typically on the lower end of the spectrum, making the passbook savings account a good fit for Americans of all ages and income levels.

In fact, for many folks, the passbook savings account was their very first bank account. It can be a great tool that teaches children and young adults how to be responsible with their savings. Overdrawing your account is out of the question since you have to get a banker to sign off on your withdrawals. And because you have to stop by the bank to get access to your savings, impulsively spending it is a lot less likely.

Drawbacks of Passbook Savings Accounts

Passbook savings accounts might seem great to people who like having something that they can hold in their hands and review to keep track of their savings. At the same time, though, they can be somewhat inconvenient for both consumers and banks.

People tend to label these savings accounts as outdated because even with the ability to deposit payments electronically, account holders must visit a bank at some point to update their passbooks. Not all banks send their clientele electronic or paper bank statements. So until you have time to make the trek to your nearest branch, you might not have an accurate account of how much money you’ve saved.

With a passbook savings account, you can’t review your account details online or on your phone. And if you lose your passbook, you’ll have no clue where your finances stand. In addition to those drawbacks, passbook savings accounts offer rates of return that are usually lower than the ones attached to other savings accounts. On average, interest rates sit at around 0.09%.

From a bank’s standpoint, these accounts can be expensive to maintain. Besides paying for the passbooks, the banks also have to pay for the machines that tellers use to transfer electronic data into the passbooks.

Bottom Line

Passbook savings accounts provide a simplified, secure and traditional banking option for adults as well as children. Unlike with other accounts, there are very few barriers to entry and they can be beneficial to individuals who are serious about building their savings or starting an emergency fund.

These savings accounts have their flaws, of course. If you enjoy being able to access your bank accounts from your mobile device or you don’t have time to make routine trips to the bank, a passbook savings account might not be worth opening.

Tips for Building Your Savings

Start early and save often. Budgeting can help you set aside money. Investments can compound over time, so even small amounts can go far in the long run. If you need help with keeping yourself on track, set up a reminder on a digital or physical calendar to automatic deposits timed with your paycheck interval.
Build an emergency fund to build a moat around your investments. Emergency funds can be built with any sort of savings account. Stashing your money in high interest savings account will earn you some low effort interest.
Use a professional to build a plan. A financial advisor can help build a strategy to reach your financial goals. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.