A savings account is an interest-bearing deposit account at a bank or other financial institution. While these accounts typically pay modest interest rates, their safety and reliability make them an excellent choice for storing cash for short-term needs.
Savings accounts have some limits on how often you can withdraw money, but typically offer extraordinary flexibility and are great for building an emergency fund, saving for short-term goals like buying a car or vacation, or just clearing out excess cash. You don’t need it in your checking account to earn more interest.
What is a savings account?
A savings account is a basic type of financial product that allows you to deposit money and usually earn modest interest. Commonwealth insures up to $250,000 per account holder, and these accounts provide a safe place to invest while earning interest.
You can find savings accounts at banks and savings banks. You don’t need a lot of money to open a savings account, and you can easily access your money, although you may not be sure how many times you can access it each month.
How do savings accounts work?
When you put money into a savings account, it’s insured by the Federal Deposit Insurance Corporation (FDIC). If there’s a problem with the institution where your money is deposited, you can get it back – up to a certain limit.
Most savings accounts offer compound interest as an incentive to save. When you deposit funds, it earns interest, which is deposited back into the account. New balances earn interest and more.
use your account
In most cases, you can use your savings account to:
- Deposit or withdraw cash: The traditional way to deposit and withdraw cash is to go to a bank to deposit or withdraw cash, or use an ATM.
- Deposit Checks: If your bank allows it, you can deposit checks directly into a savings account. Your bank may also allow checks to be deposited into savings accounts through a mobile app.
- Transfers to and from a checking account (internal): If you have a checking account, you can transfer funds into and out of your checking account within the same bank, usually instantly.
- Electronic funds transfer (bank-to-bank): You can also make electronic deposits and withdrawals from a savings account at another bank.
- Direct Deposit: If your employer pays by direct deposit, you can have the money deposited directly into the account.
- Request a check: In some cases, you may want your bank to print a large denomination check using funds in your savings account.
There is no limit to how much money you can put in a savings account, and you can make as many deposits as you want.
The Fed previously limited withdrawals from savings accounts to six per month under a rule known as Federal Regulation D. The Federal Reserve suspended the rule in April 2020. Unless your bank has a limit, you can withdraw money from your savings account as you want until the Federal Reserve reinstates that rule.
If the rule goes into effect, it’s important to note that only certain types of transfers will count. Personal transfers, mail transfers, or ATM withdrawals will not violate the six transfers per month rule, nor will they affect the status of your savings account.
Actions that count towards the six transfer limit are:
- Transfer to another account of yours
- Third-party payments via pre-authorized, automated or phone transfers
- Withdrawal of funds from third parties by check, debit card or other similar payment methods
Most banks will send you a notification when your account is approaching the transaction limit.
How to Open a Savings Account
Opening a savings account is easy. The first priority is to make sure you find the account that best suits your needs. Here are some tips to help you find the right savings account:
- Think about your savings goals: For example, you want to build an emergency fund or save for the holidays. Knowing your goals can help you decide which savings account is best for you.
- Shop around — not just the big banks: Online banks, credit unions, and community banks often offer more competitive rates than larger retail institutions. And don’t forget to check out monthly maintenance fees, minimum balance requirements, and transaction fees.
- Make sure the account is insured: If it’s a bank, make sure the account is FDIC insured, and if it’s a credit union, make sure the account is NCUA insured.
Once you decide on a savings account, how to set it up varies by bank or credit union. Regardless, some general information required to open an account includes a driver’s license or state ID card, your social security number, address, date of birth, and other personal information.
Ready to open a savings account? Here’s a step-by-step guide.