Individual development accounts are the best way to save

What is an individual development account (IDA)?

An Individual Development Account (IDA) is a special type of savings account. Its goal is to help low-income individuals build long-term financial stability and independence.

When you deposit money into IDA, your money is matched. This means you can receive $1 more for every $1 you put into the account. Some IDA programs will give you a $2 match.

For example, if you invest $10 into your account, some programs will match it with $20. This is amazing.

How does an IDA account work?

Most IDA’s are offered through non-profit organizations. These non-profit organizations are known as account individual development account sponsors.

The sponsors typically recruit participants and offer financial literacy classes. Participants receive counseling and training on efficient saving practices, budgeting, and money management.

After enrolling in the IDA program, each participant must open an account with a partner bank. At which point, participants will have to set up a personal spending budget.

The bank or credit union processes all transactions to and from the IDA. The program sponsor also ensures that participants meet certain requirements as outlined below:

  • Earnings: All or part of earnings must come from a paycheck, welfare earnings, social security, or unemployment.
  • Credit history: IDA’s will verify credit history before allowing individuals to join. Too much debt or bad credit history may make a person ineligible for an IDA.
  • Net worth: Some IDA programs also review household assets. They will review participants’ car and home values, and the savings accounts. This allows them to assess whether a person is eligible for the program. If you have assets worth more than $5,000, you may not take part in the program.
  • Income: Most IDA programs specify a maximum household income level for applicants. Maximum income levels are most commonly a percentage of federal poverty guidelines. This is typically 200% or the region’s median income range between 65% and 85%.

What are the benefits of getting an IDA account?

  • They provide participants with free financial literacy training.
  • Individual development programs provide psychological orientation to their members. This encourages the participants to save and plan.
  • Participants may also be homeowners because their monthly savings are rewarded.
  • More money in the community may attract new businesses.
  • Having assets such as those made possible by an IDA account gives an individual more wealth.
  • The programs also provide economic security to their members.

How much can you earn from IDA?

Most IDA programs provide participants with a match of $1 for every $1 saved. Matches are allowed up to $2,000 for individuals and $4,000 for households.

Where can you open an individual development account?

You can find IDA’s in public housing authorities, public and state-controlled institutions. Other places like colleges, and county, city ownership governments have them too.

Prosperity Now is a great resource to find local IDA programs.