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These priorities shape the way we develop savings programs and tailor are developed with savings products being tailored to meet client demands. Building a safe and sound savings institution involves establishing sound financial disciplines that will protect the value of savings. The effective design and management of savings products provides savers the convenience and return they seek.
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For institutions that have not offered savings services previously, the introduction of a savings program presents a new set of risks. Savings institutions should establish policies and procedures for liquidity management, cash management, and implementation of internal controls to address the new risks.
Savings Products
Savings products are built in three ways. Products are designed to balance the trade-off between liquidity (access) and return (compensation). Savings products are tailored to respond to the demands of particular market niches; for example, farmers who save in large amounts after a harvest and withdraw savings gradually through the year, or youth who save in small amounts due to limited incomes. Products are adapted to the purposes for which clients save; for example, to pay education fees or to purchase large expense items such as appliances or homes. In any case, products should be designed to satisfy local client demands for savings services.
Savings products exist along a continuum of trade-offs between liquidity (access) and return (compensation). Some products offer complete access to deposits (withdrawals whenever the saver wishes) with relatively low returns. Other products restrict liquidity (withdrawals), but offer higher returns.
Savings Products Matrix
The base rate mentioned in 'interest rate' column is the minimum rate offered by savings institute.
| Product |
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| Characteristics | Comments | Advantages & Disadvantages | |
|---|---|---|---|
| Passbook Savings |
| Some credit unions establish a minimum passbook balance before interest can accrue. Accounts below the minimum balance do not earn interest. This allows an institution to offset the maintenance costs of smaller accounts, where transaction costs are high relative to the balance of the account. At the same time, it offers the smallest savers a store of value for their savings as well as the opportunity to build their accounts over time from small amounts to larger ones that do earn interest.
Withdrawal policy. As fully liquid products, passbook accounts generally allow unlimited withdrawals. Some credit unions have experimented with semi-liquid variations of passbook accounts that limit the number of withdrawals per month or charge fees for withdrawals over a certain number. Such limited passbook accounts have proven to be less popular than basic passbook products; | Advantages:The advantages of the passbook account for the client are twofold:
For the savings institution, the passbook savings product can be an abundant and low-cost source of funds. It is also the master account that supports other financial services and products. For instance, passbook accounts can serve as the crediting accounts for loan disbursements, as the receiving accounts for wire transfers, or for the liquidation of fixed-term certificates of deposit when they mature. Disadvantages: The drawbacks of this account for a savings institution are:
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