What Is A Savings Account?

Whether you’re looking to grow your emergency fund, save for a down payment, or reach your savings goals, a savings account is one of the best personal finance tools for that.

Savings accounts come in all shapes and sizes – each of which serves a particular goal and purpose.

You can leverage savings accounts to reach different financial goals. Understanding how they work is crucial in helping you make sure that you choose the right one.

In this article, we’ll cover everything you need to know about savings accounts before answering some of the most asked questions about this type of account.

What Is A Savings Account?

A savings account is a type of interest-bearing bank account that is used to save money. There are different types of savings accounts. However, they are all used to save money.

The different types of savings account are used to save for different things, with each type of savings accounts having its own set of pros and cons.

Savings accounts typically differ from other accounts in 2 ways – they earn interest and have limited withdrawals.

Money saved in a savings account earns interest, which we cover in greater depth with the Savings account features section of the article.

Different savings account earn different interest rates – something we’ll discuss in the Different types of saving account section.

Savings accounts can also come with withdrawal limits. Thanks to Regulation D – a federal regulation that limits withdrawals from savings accounts to 6 a month.

The regulation was deleted back in April of 2020. However, some banks and credit unions kept this rule.

Why Open A Savings Account

Opening a savings account is one of the safest ways to save money, whether it’s for the short-term or the long-term.

This safety comes from FDIC insurance (Federal Deposit Insurance Corporation), which we will discuss in more depth later in the article.

A savings account isn’t ideal for paying living expenses due to the withdrawal limits. However, it doesn’t have many of the fees associated with other accounts, like overdraft and no NSF (Insufficient Funds) fees.

With many people across the US finding it difficult to save money, opening a savings account might very well be the push you need to start setting money aside.

Savings Account Features

Savings come with several different features. Not all accounts come with all features, and financial institutions offering this type of account will typically focus on one feature or set of features more than others.

Understanding what these features are can help you choose the right account for you.

You’ll know what is and isn’t essential to you, so then you can pick the account that best matches your requirements.


Savings accounts are insured either by the FDIC (Federal Deposit Insurance Corporation) as banks are members of the Federal Reserve. Credit union savings accounts are insured by the NCUA (National Credit Union Administration).

FDIC-insured savings accounts are typically insured for up to $250,000 per account holder per category per financial institution.

With that in mind, you might need to open more than one savings account if you exceed this limit.


Savings accounts earn interest in the form of APY (Annual Percentage Yield). This type of interest is also known as compound interest and what this means is that interest compounds over time.

With compound interest, the interest you earn is added to the principal (the money you deposit) to earn interest.

While you will not see the returns usually associated with investment accounts, you can still see substantial growth.

However, do keep in mind that this works best over longer periods of time – an incentive to keep your savings account balance as high as possible.

Compared to investment accounts, savings accounts also offer better liquidity, with your money insured by the federal government.

Debit Card

Some savings accounts (albeit not all) come with a debit card that you can use to withdraw money and make payments. It isn’t a common feature, but it does exist.

How important is it? In reality, not much – mobile banking apps allow you to transfer money from your savings to your checking account in an instant.

Also, remember that most savings accounts come with restricted withdrawals. So, even if your account comes with an ATM card, you’ll need to be very careful about how much you use it.

Mobile App

Mobile banking apps come with virtually any bank account, and this also includes savings accounts.

Generally speaking, mobile banking apps allow you to do bank transfers, check balances, set up alerts, and a host of other things.

Doing all of this on your app allows you as the account holder to reduce your visits to the bank, making everything more efficient and ultimately accessible.

Internet Banking

If you do not have a smartphone, access to internet banking can provide you with the same level of access from your computer or laptop.

At the same time, you might not be able to use internet banking while out and about. You can still take care of your banking needs from the comfort of your own home.

Be sure to pay extra attention to which network you connect to when using the mobile banking app or internet banking. While communication is encrypted, no system is 100% safe.

It’s best to avoid using public Wi-Fi and always make sure nobody can look over your shoulder.

Savings Account Fees

Bank fees are one of the biggest considerations many of us take into account when choosing an account.

The good news here is that savings accounts don’t have as many fees as other types of accounts (say checking accounts).

That’s because savings accounts are meant to act as containers where we deposit money for extended periods of time.

Because of this, savings accounts earn us money rather than cost us money. Even so, there might be some fees, which you can generally easily avoid.

Monthly Maintenance Fees

The monthly maintenance fee, also known as a service charge or simply a monthly fee, is a fixed monthly charge charged to account holders. This fee is meant to cover the bank’s expenses incurred in keeping your account open.

Usually, this fee is waived if you meet a daily or monthly minimum balance requirement as stipulated by the bank or make monthly direct deposits into your savings account. The minimum deposit requirement can be either by value or by the number of direct deposits.

Speaking of fees, many savings accounts also come with an initial deposit requirement (a minimum amount of money you’ll need to deposit to open an account).

These are different from the minimum balance requirements tied to the account. In most cases, the amount will also be different.

Statement Fees

Many banks charge a fee (albeit a minor one) for receiving printed paper statements at home.

You can avoid this fee by choosing e-Statements instead and access them through your mobile banking app or internet banking.

Types of Savings Accounts

As we discussed earlier, savings accounts come in all sorts of different flavors. These different savings accounts are there to help you save for different things, although it has to be said that there can be some overlap.

Even so, financial and savings requirements can vary a lot from one person to the next, which is why these different accounts exist.

After all, if there weren’t sufficient demand for them, financial institutions would have phased them out already.

Traditional Savings Accounts

Traditional savings accounts are the vanilla version of savings accounts. This deposit account comes with an APY interest rate and a limited number of withdrawals per statement cycle in a lot of cases.

High-Yield Savings Accounts

A high-yield savings account is, in a lot of ways, just like a traditional savings account. The one key difference here, as the name suggests, is that they have higher interest rates.

Interest rates tend to vary from one bank or credit union to the next, with no rule that imposes a minimum rate available.

Because of this, it’s important to shop around as rates can vary widely from one account to the next, which will make a substantial difference if you plan to hold on to your savings for an extended period of time.

Money Market Accounts (MMA)

Money Market Accounts, also known as MMAs for short, are a special type of savings account with features of a traditional savings account and a checking account.

From the traditional savings account, it borrows interest and limited withdrawals, while from checking accounts, it borrows debit cards and, in some cases, the ability to write checks.

MMAs will typically have a lower interest than a traditional or high-yield savings account. However, no rule states that it must be lower.

With so many banks and credit unions around, we wouldn’t be surprised to find a Money Market Account with an even higher interest rate.

Certificates of Deposit (CD)

Certificates of Deposit, most commonly referred to as CDs for short, are a type of savings account with a fixed principal and a fixed term.

When taking out a CD, you need to decide how much money you want to save (the principal) and for how long you want to save it for (the term).

With CDs, you make one deposit at the beginning of the term with no further deposits possible until the term expires. Terms are pre-set and vary between 3-6 months, all the way to 5 years or more.

Early withdrawals (i.e., withdrawals before the term expires) usually incur a hefty fee that can wipe out any interest earned – and even a chunk of your principal.

Individual Retirement Account (IRA)

Individual Retirement Accounts, also known as IRAs for short, are a special type of savings account used to save money for retirement.

There are different types of IRA account to choose from, depending on your situation and status.

If you qualify as an individual taxpayer, you can choose between a Traditional IRA and a Roth IRA. In contrast, business owners and self-employed persons can choose between a SEP IRA and a SIMPLE IRA.

Early withdrawals, which typically mean any withdrawals before you, as the account holder, reach the age of 59 and a half years, may be subject to a penalty that can go as high as 10%.

There are limits to how much money you can deposit and tax advantages, depending on the type of IRA you choose.

Who Offers The Best Savings Accounts?

Both banks and credit unions offer savings accounts. It can be difficult to choose between the two since no savings account will be the best for everyone.

We all have different requirements and financial goals, so what is best for one person might not necessarily be the best for someone else.

Online banks and credit unions typically offer higher interest rates than traditional banks; however, you might have to give up on a few things, such as online banks have no branches you can visit, and credit unions do not have mortar banks.

Online savings accounts offered by banks and credit unions will also have higher than average interest rates.

Still, they may come with limited features – depending on the financial institution that it’s held with.

How To Open A Savings Account

Opening a savings account is easy – typically, you won’t even need to visit a local branch. That’s certainly the case if you choose an online bank or an online savings account.

Once you’ve decided which bank or credit union you’d like to open your account with, head to their website or branch if they don’t offer online tools (though that’s highly unlikely).

You will typically need your SSN (Social Security Number) and some form of photo ID, such as your driver’s license.

Other requirements include being at least 18 years old and a resident of the United States. Remember to check all of the requirements beforehand to ensure you have everything you need when opening the account.

If there is an initial deposit requirement, check which forms of deposit are accepted by the bank. Usually, you can either do a transfer or mail in a check. Once you do this, the account is open, and you can start saving money.

Remember to check if the account comes with a monthly fee and, if so, what you can do to avoid it. If there is a balance requirement, try to transfer enough money to cover it. If there is a minimum deposit requirement, you can do this instead to avoid paying the fee.


What is a savings account, and how does it work?

A savings account is a type of bank account used to save money. There are several different savings accounts, including traditional savings account, MMAs, CDs, and IRAs.

Even so, they all earn interest, and most of them have limits to how much money you can withdraw and when.

What does a savings account mean?

A savings account means a type of bank account used for saving money. Different types of savings account can help you save for both short-term as well as long-term goals.

How do savings bank accounts work?

Savings accounts are very straightforward – you deposit the money so that it earns interest. Traditional savings, high-yield savings, and MMAs allow you to deposit money whenever you want.

In most cases, you can only make six withdrawals per month. CDs allow only one deposit at the start of the term, and you can only withdraw your money once the term is over to avoid paying the penalty.

With IRAs, you make deposits in the form of contributions up to the maximum allowed, depending on the type of IRA you choose.

What are the three types of savings accounts?

The three types of savings accounts are:

  • Traditional and High-Yield Savings Accounts
  • Money Market Accounts (MMAs)
  • Certificates of Deposit (CDs)

Individual Retirement Accounts (IRAs) are another type of savings account that lets you save money for your retirement.

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