Savings Account Basics

Just like the name implies, a savings account helps you reach your savings goals.

Saving Made Easy

A savings account is one of the most common and useful accounts at a financial institution. That’s because you can withdraw from it at any time, and the money in the account earns interest (we’ll get into that a bit more later). Savings accounts are a great place to save toward a big purchase, build an emergency fund, and track your future goals.

Most banks and credit unions offer a variety of savings accounts. Some popular savings options beyond a basic account include money market accounts and certificates of deposit (CDs).

Getting Interested

With a savings account, you earn interest. Interest is a percentage of the money in your account that gets added to the balance. So, let’s say you have $100 in your account and an interest rate of 1%. Because 1% of 100 is 1, you would earn $1 in interest. That would bring your account total to $101. Basically, when you’re earning interest, your money is always growing, even if it’s just a little.

Your interest rate and how often interest is added to your account depends on the type of account, the financial institution’s interest payment schedule, and the interest rates other financial institutions pay. Interest could be added daily, monthly, yearly, or anywhere in between.

Savings accounts have variable interest rates. That means the interest rate can change at any time based on changes to the economy, baseline interest rates, and other rates the financial institution is offering. You’ll always earn whatever the current rate is. So, the same account that once earned 1% could earn 1.5% the next time and 0.5% the next.

You’ll usually earn interest on a regular savings account only if you keep at least the minimum required amount in the account. If your balance is lower, some financial institutions don’t pay interest and others may charge a fee for holding your money. The only way to guarantee you’ll avoid these penalties is to keep at least the minimum in the account, get an account without a required minimum, or qualify for waived fees, like if you’re a full-time student.

How Much Can You Save?

Adjust the inputs to see how much your monthly savings contributions grow with interest.

Limited Transactions

There’s one last important thing to know about a savings account: it’s not a transaction account. While you can withdraw the money whenever you want, you can’t buy things directly from it like you can with a checking account. To get your money, you’ll need to go to an ATM or visit a branch and make a withdrawal. Most institutions will also allow you to transfer the money from your savings account to a checking account through their website or app. Be aware, though, that some institutions limit the number of times you can move money out of a savings account to 6 per month. If you try to do more than that, you may be charged a fee or face other consequences.