interest-bearing savings account, or sometimes known as an interest only bank account, is one in which there is an initial deposit of funds and a corresponding monthly withdrawal that must be repaid within the specified period. If you do not repay the loan amount on the date it is due, the interest will accrue, and eventually, your remaining statement balance will be reduced by the amount of accumulated interest you have to repay.
Interest only accounts, as their names imply, are interest only. The interest that accumulates on your account will have to be repaid, before any additional interest can accumulate. This can be a very effective way to save money, because while the interest will begin to build up over time, if you do not repay the balance owed, then the interest that is already accumulating is not paid out.
When you make your first deposit, a set rate of interest will be applied to your account. The interest will increase every year until your account balance reaches a preset amount, and then a predetermined percentage rate will apply.
To calculate the interest you owe for the year, you take the amount of money deposited and divide it by twelve, then multiply by the fixed interest rate, and divide this by twelve. The result of this calculation is your total interest for the entire year, which you have to pay off before your interest rate is reset.
Most banks offer interest only accounts for many reasons, and they include reducing the amount of money they have to lend out each month, or as a means to avoid paying out more than what is due. Also, some people choose to make interest-free payments every month on their savings account to improve their credit rating. But whatever your reason, it is important to pay off your balance as soon as possible, so that the interest does not continue to accrue.
Once your account is paid off, you will have to close the account so that you do not accrue interest. Your statement balance will remain, however, and this can serve as collateral when you are making another deposit to the same account, allowing you to continue making the interest-free payments.
It is also possible that you may get into a situation where you need to make additional payments to the bank or financial institution, but because your account is already maxed out, you cannot make any further deposits. In this case, it may be possible to open another account, although usually you would want to close the current account and use the money for something else.
If you choose to keep your balance to open, you should make sure that you always make all your payments on time to avoid accruing interest, because any additional money that is not repaid will accumulate and become larger every time you make a payment. Once your balance is reached, it is wise to close the account so that you do not have to worry about the possibility of adding to your debt each time you open an account.