What is Individual Development Account?
The Individual development account (IDA) is a kind of savings account that is created to help individuals with low income achieve financial stability, realize long-term self-sufficiency, and build assets. Account holders can use this account to save money for home purchase, small-scale business development, secondary education payment, or automobile costs.
How does the individual development account work?
If an individual wants to apply for the individual development account, he or she has to first finish a free financial literacy training. The training will mainly teach subjects such as debt reduction, money management, and investing. Besides, people have to meet particular criteria, including income, employment, and assets to qualify for the account.
Since there are various IDA programs, the eligibility criteria can vary from program to program. Generally, the income of an applicant should be less than two times the federal poverty level. Other programs may require you to have citizenship, a legal resident status, or a credit.
Once becoming qualified, the participants can open the IDA accounts and start making deposits. The savers or account holders then make monthly contributions to the account. Most of the money is generated from the earnings of their work. Then, the savings are matched by donations usually at a rate ranging from 1:1 to 3:1.
The donations for matching generally come from lots of different places like government agencies, churches, local charities, and private enterprises, although any individual, business, or organization can also donate.
Every month, the participants of the IDA will receive a report that informs them of the amount of money accumulated in the IDA. The money includes individual savings, matched dollars, and interest. The individual savings will not be mixed with the matching deposits. Once the account holder has accumulated enough money to purchase the asset and has finished the required financial education training, payments will be made directly to the asset provider.