What Is a Savings Account: Its Benefits and Features

A savings account is a type of bank account designed specifically for storing and accumulating money over time. Unlike a checking account, a savings account is intended for keeping your money safe and earning interest on your deposits.

These accounts typically offer a modest annual percentage yield (APY) or interest rate, which allows your money to grow gradually. Savings accounts are federally insured up to $250,000 per account owner, per financial institution and per ownership category at FDIC-insured banks or NCUA-insured credit unions.

To open a savings account, you'll need to provide personal identification and an initial deposit. You can then make additional deposits anytime through cash, check, wire transfer or bank transfer. Your money remains liquid and accessible in the account for withdrawal when needed.

Interest in a savings account is compounded and credited monthly based on your average daily balance and the stated APY. Higher balances will earn more interest over time.

Standard savings accounts provide convenient access to cash, allowing for approximately six withdrawals per statement cycle, excluding ATM transactions and in-branch cash withdrawals.

As a result of the COVID-19 pandemic, the Federal Reserve Board eliminated withdrawal restrictions, known as Regulation D. While some banks lifted these restrictions, many savings accounts still only allow six withdrawals per statement period. Read the fine print or speak to your bank directly to understand the limits of its particular accounts.

Traditional brick-and-mortar banks often offer low savings rates, sometimes as little as 0.01% APY. These accounts also frequently require maintaining minimum daily balances, like $500 or more, to avoid monthly fees.

By contrast, online banks tend to offer high-yield savings accounts with APYs over 4%, no minimum balance requirements and no monthly fees. This allows you to open an account with any initial deposit while still earning very competitive interest rates. Despite being offered by online-only banks, these high-yield savings accounts are FDIC-insured just like traditional bank accounts, ensuring your deposits are federally protected up to $250,000 per account ownership category.

Here are some of the most common savings account options available at financial institutions. Some are more specialized than others, and not all banks will offer the full suite of opportunities. Since some institutions offer extra benefits if you hold a different type of account with them, keep this in mind as you decide what bank or credit union will serve you best.

• Regular or Basic Savings Account: These accounts are straightforward and offer a safe place to deposit money while earning a modest interest rate. They often have minimal requirements and are suitable for those looking for a simple savings solution.

• Online Savings Account: Online savings accounts are provided by digital banks, offering convenience, competitive interest rates and often lower fees than traditional brick-and-mortar banks.

• High-Yield Savings Account: High-yield accounts provide higher interest rates compared to traditional savings accounts, but they may have specific conditions or restrictions.

• Certificate of Deposit (CD): CDs are time-bound savings accounts that offer fixed interest rates for a specific period (the “term”). They typically have higher interest rates than regular savings accounts but require the funds to be locked in for the agreed term.

• Money Market Account: Money market accounts have qualities of both savings and checking accounts, offering higher interest rates than standard savings accounts alongside check-writing capabilities.

• Individual Retirement Account (IRA): IRAs are specialized savings accounts designed for retirement savings, offering tax advantages and various investment options. IRAs are suitable for planning for retirement and growing savings in a tax-efficient way.

• Student Savings Account: This is an account tailored for students with no minimum opening deposits or monthly fees.

Maximizing your interest involves strategic research and balance against your financial needs. In general, you can maximize savings account interest with a large initial deposit into an account with few withdrawal penalties and maintenance fees. Some banks tier their interest rates depending on the overall balance of the account.

Account holders can optimize their savings interest by considering the following:

The following table summarizes the average interest rates for a variety of savings account types. These rates can vary by location, institution and account type — you may need to consider banks or credit unions without physical offices to get the highest rates possible.

Savings accounts have advantages and drawbacks. These accounts are meant for safe, long-term growth of deposits and encourage building funds for future needs — like emergencies or planned expenses such as vacations.

When selecting the ideal savings account, explore all your options to maximize your savings potential.

We compiled answers to some frequently asked questions about savings accounts.