Alternative Money Solutions: Individual Development Accounts

You should save money for goals. You know that, but you should also know that if you can make your money work for you, you can maximize even a small investment. There is a type of savings account called an Individual Development Account, and that type of account can triple your savings in as little as two years. An IDA is an account that is usually sponsored by an agency for the purpose of helping you to achieve a very specific goal. Because the goal is important to the agency, the agency usually matches a certain amount of money that the saver puts into the account.

For example, some IDA's sponsored by some Community Action Agencies require that someone save between $25-$83 a month for two years with a maximum of $2000 saved on behalf of the client. So long as the client uses the money for one of three goals (buy a home, go to school, or start a business), the Community Action Agency will match the money saved by two to one. That means that after having saved $2000, the client will now have $6000 to use for that goal.

To be eligible for an IDA, most people must fall withing some sort of income eligibility requirements. Agencies are looking to sponsor people who might not be able to maximize their earnings, but have the capacity to save the minimum amount of money in order to reach the goal. In most cases, clients must be at least 200% of the Federal Poverty level. That usually means that the family can have one or two full time wage earners. In that instance, a family of four must earn below $44,100. A single person would have to earn less then $21,660. Keep in mind that each agency will have different requirements with regard to income eligibility.

To find out where you might find an agency who participates in an Individual Development Account program in your area, you might contact your local Community Action Agency, United Way, or even some of the banks in your area. Because Individual Development Accounts are held in normal banks, bank employees should be aware of some participating agencies. Check with your local Human Services department or any of the social service agencies in your local area.

To qualify for the program, clients usually have to take a financial literacy class. Sometimes, acceptable classes on budgeting can be taken through the Extension Office in your area, or through a class called Money Smart. IDA participants are also sometimes required to participate in classes related to the goal. For example, if your goal is to to buy a home, you may have to take a home buyers class and present the certificate of completion before using your IDA money for the down payment of your new home.

In short, the IDA can be a very valuable way for low to moderate income families to achieve some of the goals they originally thought were out of reach. Not only can IDA participants save money, but the money they save will have an unusually high return.