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Definition of Savings: Advantages and Disadvantages and Types of Savings

Timesofummah.com – Savings is not something foreign anymore, now almost everyone has savings. Usually the goal of people saving is to set aside a portion of their income that can be used for the short to medium term, because for the long term, customers often choose to use another investment,Check out a more complete explanation of the meaning, types and advantages and disadvantages of having the following savings.

Definition of Savings

Definition of Savings Advantages and Disadvantages and Types of Savings

In general, we can define savings as a saving of money that comes from income (income) that is not used for daily needs or other interests. In other words, saving is money that we set aside for the future and we can take it at any time.

The most commonly used savings account is the bank. Banks are the places we most often use to deposit our money, besides being safe it is also practical because there is no need to maintain or provide a special place for our money.

Many conveniences are offered by the Bank for prospective customers, one of the conveniences is being able to withdraw cash independently through ATM machines scattered everywhere.

When saving at a bank, generally, customers will get facilities such as ATM cards, Savings Books, Mobile Banking and several other services in accordance with the policies of each bank. There are several things that customers need to do to have savings at the bank, including completing a savings opening form.

To better understand various things about bank financial institutions,  can also read the book Banks and Other Financial Institutions by Dr. Cashmere below, which discusses the practice of Islamic banks and conventional banks.

Include proof of identity and other documents requested. Make an initial deposit according to the minimum amount of bank provisions. Pay administrative fees. There are several factors that contribute to the difference in savings rates:

  • Community Income. The high and low income of the community causes the level of savings that is different for each person.
  • Bank interest rates. Many people pay attention to this bank’s interest rate to decide whether to save or not. Because there are people who do not like the bank interest rates.
  • Level of confidence. The level of public confidence in banks also affects the level of savings.

Advantages and Disadvantages of Having Savings

The money saved in the bank will grow because of the interest on the customer’s savings balance. For Islamic banks, profits are obtained with a profit-sharing system according to the provisions of applicable sharia rules. Basically, every savings product has various very beneficial facilities.

Discussion and understanding related to Islamic banking in the context of the Qur’an, Sunnah, as well as the views of various scholars as well as in the economic context can also be obtained by in the Sharia book below.

In general, the following are some of the advantages of having savings:

  • Have savings that can be used anytime
  • Can be used in the future when you need money
  • Get used to living not extravagant
  • Investment (in certain cases)

Apart from a series of advantages above, savings are not suitable for developing funds or getting profits. The interest rates on most of these products, which only range from 1 to 2 percent, are certainly not able to beat the percentage of inflation every year.

Not to mention, there are a number of administrative costs that must be borne as well. A few tips to get around a small bank interest rate while the administrative costs are quite large, you should separate a savings account for daily expenses and an account for storing funds.

That way, you can choose the right product according to your personal financial goals. For example, for an account whose funds will be withdrawn frequently, you can choose a savings account with a small administration fee even though the interest is also small or almost non-existent.

Meanwhile, for the account used to store funds, you can choose a product that offers a fairly high interest rate. In addition, you can also open a time deposit or time deposit account where funds cannot be withdrawn within a certain period of time.

Types of Savings

Savings is an individual’s or a business entity’s money deposit in a bank with conditions that are in accordance with the provisions of the bank. Savings can be withdrawn at any time without a time limit, including through ATMs (Automated Teller Machines), but cannot be withdrawn via bilyet giro, checks, and other withdrawal tools determined by the bank.

With the rapid development of many banking businesses today, there are also a variety of services available. Therefore, to help understand everything, the book Understanding Bank Business by the Indonesian Bankers Association

Savings are also defined as the part of income that is not consumed and saved for future purposes. Savings has many types and different functions, including:

1. Children’s Savings

As the name implies, this type of savings is specifically for children. The purpose of this savings is to train children to get used to saving from an early age. The basic difference from this savings is the small amount of deposit, because children are usually not given large amounts of money.

2. Foreign Currency Savings

The second type of savings is foreign currency savings or also known as foreign exchange (foreign exchange), these savings are usually often found in banks. The currencies that are often used in these savings are dollars, euros, pounds and several other foreign currencies.

However, for those of you who only have rupiah, you can still invest by exchanging your rupiah and converting it into a foreign currency. The initial deposit from this savings account is quite diverse, however, this savings can provide greater benefits because the conversion value of foreign currency is higher than the rupiah.

3. Conventional Savings

Conventional savings are the most common savings and many people have. As we discussed a little above, customers from this savings account are usually provided with a passbook, debit card and banking services, be it SMS banking, mobile banking or internet banking.

For conventional savings, the profit or interest received is relatively low, because the purpose is only to save money, not to develop funds. Acceptable interest 0% to 2%.

4. Time Savings

Unlike conventional savings, this one is suitable for those of you who have a purpose to save money and several other purposes. Like a vacation or any other purpose.

Interest from term savings is relatively better than conventional savings with savings interest of 3% to 7% per year. It’s just that time savings can only be taken according to the agreement. If you violate what has been agreed upon, then you can be subject to a fine or penalty.

5. Hajj Savings

This savings is often used for those who have plans for Hajj in the next few years. This savings is not much different from term savings, if the nominal required has been reached, the funds can be disbursed and used for Hajj departure costs. The terms and documents that are prepared are usually more than ordinary savings.

Because for this one savings, it is not only a matter of nominal and personal identity that is needed, but a medical history also needs to be prepared. The initial deposit is usually different depending on the policies of each bank. However, the larger the funds deposited, the faster your goals will be achieved.

6. Current Account

This savings is often referred to as a business savings, because the facilities of this savings are intended for business needs such as transfers to several accounts and transactions can use checks and bilyets. Opening a current account can be done for individuals or business entities and the minimum initial deposit starts from IDR 2 to IDR 3 million.

7. Investment savings

Not only for saving funds, banks also have types of investment savings. Here are three of them:

  • Deposits – offer higher interest rates than conventional savings. But customers can’t take funds arbitrarily because there is a time period. Deposits also apply a system of fines or penalties if the customer withdraws funds before maturity.
  • Stock Savings – As the name implies, stock savings are specifically used to buy shares on a regular basis and save profits from stock transactions.
  • Foreign currency savings – People who often make transactions using foreign currencies will usually choose to open this one savings account. This is because foreign currency investment savings take advantage of fluctuations in the domestic currency exchange rate.

Entering the world of stocks and investing yourself is not an easy thing. Therefore, the book Investing Is Easy Stock Analysis Techniques and Strategies for Beginners is here to help  get valuable lessons related to stock analysis and investment techniques!

Deposit Savings Tax

What is determined as income from deposit interest is all income that reaches a percentage of 20% with a minimum savings of IDR 7,500,000. In addition, this tax applies to deposits placed in domestic and foreign banks. The applicable legal basis is:

PPh on deposit and savings interest as well as discount on SBI as regulated in PP 131 of 2000, effective from January 1, 2001 and stipulated through SE-01/PJ.43/2001 Withholding of PPh on interest on deposits and savings as well as discount on SBI as regulated in KMK-51 /KMK.04/2001, effective January 1, 2001 Deposit interest rates at each bank will change within a certain period of time.

To get a profit, customers will generally choose a bank that offers high interest rates. Deposit tax is calculated at 20% of the total interest received by the customer. This means that the tax calculation is carried out directly on the interest rate, not on the total deposit amount.

Savings interest tax is a fee that must be paid by customers on income in the form of interest on deposits and savings as well as a discount on Bank Indonesia Certificates (SBI) deducted by income tax (PPh). The Directorate General of Taxes quoted from tax.go.id based on PPh article 4 paragraph (2), regarding the percentage of the fee for the imposition of Income Tax on interest is as follows:

  • Final tax of 20% of the gross amount for domestic taxpayers and permanent establishments.
  • Final tax of 20% of the gross amount or based on the Double Taxation Avoidance Agreement applicable to foreign taxpayers.

Interest tax payments do not apply to conditions of Interest with the total amount of time deposits and savings and Bank Indonesia Certificates not exceeding Rp. 7.5 million and the amount not being divided, Interest rates on deposits and savings and discount certificates of Bank Indonesia received or obtained from Pension funds, Savings interest for the purpose of owning a house, ready-to-build plot, or flat in accordance with the applicable provisions for self-occupation. The tax will then reduce the interest rate earned by the customer. The higher the interest rate earned, the higher the tax automatically.

Tips for Choosing a Time Deposit

In addition to saving in the bank, you can also save in the form of a time deposit. Deposit is a form of investment with relatively small risk compared to other types of investment. Some of the things you need to pay attention to include:

1. Choose the type of deposit that suits your needs

Adjust the type of deposit based on your needs. There are at least 3 types of deposits in Indonesia, including time deposits, on call deposits, and certificates of deposit. Each type of deposit certainly has its own characteristics. Time deposits, which are the most popular types of deposits, usually have maturities ranging from 1 month to 24 months. Later interest will be paid at the end of the period you have chosen. This type of deposit is the most popular

The second type is on call deposits, where if you want to withdraw funds, you need to give a few days notice to the bank. The last type is a certificate of deposit. The system is similar to a time deposit, except that the certificate is transferable. However, if the certificate is lost and found by non-owners, the certificate of deposit can be easily withdrawn by anyone.

2. Choose a Trusted Bank

The next tip is to choose a credible bank or a trusted bank. We can find out the track record of the bank that provides the deposit service. In addition, we can also check at OJK whether the bank is registered or not, if it is not registered, we need to be careful.

In addition, choose a bank that offers high interest rates. The higher the interest, the greater the profit you will get. But don’t be in a hurry, find out what is the maximum limit the bank provides interest rates for deposits. As is known, the deposit interest rate is set by the Deposit Insurance Corporation (LPS) as a government agency that regulates and supervises customer deposits in banks.

3. Choose a deposit with a time period according to your needs

You also have to determine the deposit with what period to choose. Make sure it suits your needs, if you have a lot of other savings and don’t need money in the near future, you can choose a time deposit with a period of 2 years. But if your savings are running low, choose short-term deposits only. Because when you withdraw sooner than the agreed time, there is usually a penalty fee to be paid. Not profit but loss

4. Adjust the Time Period

What distinguishes savings from deposits is the time period. Deposits have a certain period of time in which your funds are held and can only be withdrawn after that period has expired. This is what you need to underline, don’t choose to invest funds through deposits but you want to withdraw funds when the time period is not over.

5. Choose a bank with a wide range of services

It is not impossible for you to change your domicile during the current deposit period. To facilitate the disbursement of funds, you should choose a bank that covers a wide service area. This is so that you can continue to monitor and manage the disbursement of funds even though you are not in the city where you opened a deposit account.

In addition to knowing how to calculate deposit taxes and tips on choosing a good time deposit, also learn about interest management offered by banks. This will determine whether the deposit interest can be taken directly at the end of the period or can be included in the deposit period of the following year.

For who just want to start investing, especially in today’s modern era where technology has made it easier for us to do everything, the #MillenialInvestor book is available for you!

Recommended Books and Related Articles

1. Introduction to Micro and Macroeconomics Revised Edition

2. Introduction to Macroeconomic Theory

3. Easy to Understand and Implement Macroeconomics with

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