What is a savings account?
A savings account is a type of bank account that accumulates interest. Unlike checking accounts, most savings accounts don’t include checks for accessing the funds and limit the number of withdrawals from them. Although useful as a rainy-day fund, savings account interest rates are pretty tiny and don’t lend themselves to serious investing.
You can open a savings account with your bank or credit union, usually with a minimum deposit. The amount of interest account holders can expect to earn depends on the terms set by the institution.
Depositing money works the same way as a checking account. Just indicate how much you want to deposit and direct the funds toward the savings account instead.
Although you’re allowed by law to make just six transactions per month, with some exceptions for in-person transactions, that still makes savings accounts easier to access than other investment instruments like CDs and money markets. However, the trade-off is a much smaller interest rate.
Some savings accounts do have monthly maintenance fees, but most don’t. There may be fees if you draw on the account over the six-transaction limit, and some banks even require a notice in advance of withdrawal. Both checking and savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC).
Ready to start your own? Bankrate can help you choose the best savings account for you.
Savings account example
Ansel wants to save some money toward a new camera. He knows he has a lot of options for investing his money, but he wants to be able to access it easily if there happens to be a camera sale. He decides to invest $1,000 in a savings account. The interest rate is low, but he makes a small deposit every month. By the time camera prices come down he has enough to afford one.