Micro Savings

Micro Savings: An Overview

The micro savings system is an option available to people with want to build their assets but have limited income to spare. It permits them to save even the smallest amounts of money over time in order to achieve a degree of financial security over time.

Micro-savings accounts first achieved popularity in low-income communities and developing nations. They work much like regular savings accounts but some of the fees are waived, no minimum balance is required, and very small deposits are permitted.

The appeal of micro-savings is by no means limited to developing nations. Services and phone apps have proliferated in the U.S. and many other nations, and have proved to have great appeal, particularly among young professionals who want to get started saving for an unexpected emergency or for long-term goals.

Understanding Micro Savings

Micro-savings accounts evolved in part to serve segments of the population that tend to live paycheck to paycheck and spend as much or more than they take in, whether this is due to an insufficient income or an inability to budget wisely. In developing nations, the problem is often compounded by practical issues such as a lack of conveniently-located banks.

Moreover, conventional banks may make little effort to reach less affluent consumers who, at least for the present, will not make much of a contribution to the bank's bottom line. Banking fees and penalties for below-minimum deposits effectively discourage them from opening accounts.

Advantages of Micro Savings Accounts

Many micro-savings programs require few or no fees on savings. The goal is to encourage the account holder to set aside funds even in the smallest increments in order to build up savings over time.

Such programs are often offered by nontraditional institutions that offer micro savings as an adjunct to other services available in an app.

They tend to pay little or no interest on savings accounts. But, then, the same is true of traditional banks.

Examples of Micro-Savings Services

Micro-savings services are popping up all over, with some attracting a loyal following. Some fold, too, so customers need to choose wisely.

These apps offer little or no interest on your savings but, then, the same goes for traditional banks.

One typical function is the "roundup": An automatic deposit of the change from purchases made through the app, rounded to the nearest dollar amount. Another is bonus cash for purchases from participating partners.

It should be noted that most of these accounts offer little or no interest on savings, they're not entirely fee-free, and some encourage shopping as much as saving. But they are a valid option for people who want to improve their financial standing and find the traditional banks closed to them.