How Do an SSC and a Savings Account Differ?

KEY POINTS

  • A small saver certificate (SSC) is a savings account with a low minimum balance or no minimum at all.
  • SSCs are commonly used by children or young adults.
  • They offer either a fixed or variable interest rate.
  • The most common terms for SSCs are three, six, 12, 18, or 24 months.
  • SSCs are less popular compared to certificates of deposit (CDs).
  • They are helpful for young individuals to start saving before moving on to more complex investments.
  • SSCs were introduced in the 1980s to compete with money market funds.
  • Some credit unions still offer SSCs with comparable rates to CDs.
  • Recurring deposits can be set up for SSCs, and they often come with no monthly fees and federal insurance.
  • Some SSCs offer features like mobile and online banking, paperless statements, and photo deposits.

SSCs play a crucial role in assisting young individuals who are embarking on their first job to develop the habit of saving for specific periods. Some individuals who begin saving through SSCs eventually progress to investing in CDs and other types of investments that require higher minimum amounts.

As a result, SSCs enable banks to cultivate potential long-term customers from an early stage. For instance, some encourage young investors to monitor interest rates, providing them with the opportunity to increase the interest rate of a certificate once during a specific term.

Nevertheless, there are drawbacks to these certificates. They intentionally commence with a lower rate compared to what they would typically offer. Additionally, it is important to be vigilant about SSCs that automatically renew, as some may do so at lower rates.

Certain SSCs are more competitive than others and offer rates similar to regular CDs with comparable maturity periods. However, it can be challenging to compare options, as not all banks and credit unions provide these certificates. Despite their relative rarity, this is not a significant disadvantage, as young investors can easily find CDs that serve the same purpose and offer similar returns. CDs are available at nearly every bank.

Overall, SSCs are instrumental in helping young individuals develop early money management skills and comprehend the advantages of locking up funds to generate future returns. This educational experience empowers young adults to become more knowledgeable in their investments before venturing into the purchase of stocks and other advanced financial securities as they mature.