DEFINITION of 'Microsavings'

Microsavings is a branch of microfinance, consisting of a small deposit account offered to lower income families or individuals as an incentive to store funds for future use. Microsavings accounts work similar to a normal savings account, however, are designed around smaller amounts of money. The minimum balance requirements are often waived, or very low, allowing users to save small amounts of money and not be charged for the service.

BREAKING DOWN 'Microsavings'

Microsavings plans are usually offered in developing countries as a way to encourage saving for education or other future investment. People who invest in these plans are better prepared to cope with any unforeseen expenses, which would usually harm lower income individuals.

How Microsavings Accounts Are Structured

Many microsavings programs either require small or no fees to use the service. The goal is to encourage the account holder to set aside funds even in small increments to build up their savings over time. Such programs may be offered by nontraditional institutions, including numerous startups that develop associated apps to keep the user abreast of their savings habits. Some of services automatically rounding everyday purchases to the nearest dollar and diverting the spare change from those purchases to a microsavings account. For example, if a consumer buys an item for $5.75 with a debit or credit card, such a service would deposit 25 cents into a microsavings account.

The development of microsavings accounts stems in part from an effort to change a trend of the populace tending to consume and spend more than it saves. It is also a way to reduce some of the barriers to entry that may exist with traditional savings accounts. For some individuals and households, banking institutions may not be conveniently located or accessible for them to visit in order to open an account.

The terms of traditional savings accounts may also limit the ability of individuals with small funds to open such accounts, particularly if they do not have the minimum amount to get started. The stipulations of traditional savings might make the benefits of starting such an account limited or nonexistent for someone with a small amount to get started. For instance, a traditional savings account might incur regular fees if a minimal balance is not maintained. Further, the account might generate negligible interest if the balance is does not meet a certain threshold. The process of opening a traditional savings account could also prove to be intimidating to individuals who have little to no experience with banking institutions.

  1. Bank Deposits

    Bank deposits are money placed into a deposit accounts at a banking ...
  2. Call Deposit Account

    A call deposit account is a bank account for investment funds ...
  3. Money Market Account

    A money market account is an interest-bearing account that typically ...
  4. Deposit Interest Rate

    The deposit interest rate is the interest rate paid to deposit ...
  5. Trading Account

    1. An account similar to a traditional bank account, holding ...
  6. Account Statement

    An account statement is a periodic summary of account activity ...
Related Articles
  1. Personal Finance

    The 5 Best Alternatives to Bank Saving Accounts

    Find out about some of the most profitable available alternatives to depositing money in a traditional bank passbook savings account.
  2. Personal Finance

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  3. Investing

    Money Market Accounts with the Highest Interest Rates

    Money market savings accounts can offer higher interest rates than regular or even high-yield bank savings accounts – and perks like these.
  4. Personal Finance

    Get the Best Savings Interest Rates For You

    How do you choose between market deposit accounts, CDs and traditional savings accounts?
  5. Personal Finance

    The 7 Best Places to Put Your Savings

    You work hard to put your money away for the future, but where should you keep it?
  6. Personal Finance

    These Savings Accounts Have the Highest Interest Rates

    Don't expect interest from a bank savings account to make you rich. You can do better, however, than the paltry 0.08% average paid in 2015.
  7. Retirement

    How to Start Saving For Retirement

    If you establish these money-saving habits and patiently allow your wealth to build, you will be taking some huge steps forward in making your financial future more secure.
  8. Personal Finance

    The Key to Financial Independence? Saving Money

    If you struggle to save money consider these steps to get started.
  9. Financial Advisor

    Where should I keep my down payment savings?

    Learn what to do while saving up for a down payment, where should you keep your money. A bank, online bank, or the stock market? It all depends on your timeline.
  1. What economic factors affect savings account rates?

    Find out how supply, demand and central bank policy all affect savings account rates offered by banks for extra deposits ... Read Answer >>
  2. How liquid are money market accounts?

    Understand the characteristics that distinguish money market accounts from checking, savings account and money market funds ... Read Answer >>
Trading Center