Individual Development Accounts
In this topic, we cover:
- Why certain organizations match the savings of low income individuals.
- Specific purposes that qualify for savings matches, from education to starting a business.
- How to find an Individual Development Account program and determine if you may qualify.
Individual Development Accounts (IDAs) are matched savings accounts. When an account is matched, it means another organization, such as a foundation, corporation, or government entity agrees to add money to your account. Why would an organization do that?
Organizations will match the money people save in IDAs to encourage low-income families to save money on a regular basis. IDAs are based on the concept that asset building is necessary to break the cycle of poverty and to help families become financially independent. Asset building refers to people purchasing or holding items that will help them financially in the future. Organizations involved in IDA programs want to help low-income families achieve self-sufficiency.
What can you use IDAs for?
If you open an IDA, the money must be used for a specific purpose. Allowable purposes include:
- Job training
- College education
- Small business start-up
- Down payment for a home
There are a few programs that allow you to save for other purposes. However, most programs will only offer accounts for the purposes listed here because these are likely to increase your future financial security.
How do IDAs work?
Each IDA program is a little different, so you must ask the person who runs the program in your area about the details. However, all IDA programs have many similar features.
- IDA programs are generally run by local community-based organizations. They help to recruit eligible people into the program and usually organize the required training sessions for the participants.
- Most programs require that the participants take a certain number of financial education courses. Community group teachers or volunteer bankers might teach these classes.
- Depending on what you decide to save for, you might be required to take additional classes. For example, if you are saving for a down payment on a house, you will usually have to take homeownership classes.
- If you are saving money to start a business, you will usually take classes to help you understand business concepts and develop a business plan.
- If you are in an IDA program, you must deposit some money into a special savings account at a participating bank. You will need to make a deposit at least once a month for the entire length of the program. A program might last 12-36 months.
- Your reward for saving is the education you receive throughout the program and the money that gets added into your account at the end of the program. When you have completed the program, the organization will help you with the next steps.
How do you open an IDA?
The concept of IDAs is still fairly new, although it is becoming more popular. If you are interested you can check this website to search for programs in your state.