What Is a Savings Account: Its Benefits and Features

Banner image
ByAlvin Yam, CFP
Edited byJlyne Ubina
ByAlvin Yam, CFP
Edited byJlyne Ubina

Updated: April 30, 2024

Advertising & Editorial Disclosure

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.


How Savings Accounts Work

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.

Savings Account Withdrawal Limits

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.

Savings Account Benefits


Typical Savings Account Fees and Minimum Balances

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.

Different Types of Savings Accounts

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 Savings Account Interest

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:


Leveraging High-Yield Savings Accounts

These accounts, including those offered by online banks, often provide much higher interest rates compared to traditional savings accounts.


Understanding Withdrawal Limits

Adhering to the withdrawal limits of your savings account will help minimize fees and maximize interest earnings.


Comparing Rates and Fees

Research to compare interest rates, fees and balance requirements across financial institutions so you select the most advantageous savings account available to you.

Savings Account Interest Rates Comparison

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 Account
Banks (National Average Rate)
Credit Unions (National Average Rate)

Regular Savings Account



Money Market Account



Three-Month Certificates of Deposit



Six-Month Certificates of Deposit



One-Year Certificates of Deposit



Pros and Cons of Savings Accounts

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.


Savings accounts are insured by the FDIC or NCUA, protecting your funds up to $250,000 per depositor, per insured bank and per ownership category. This means your money is safe even if the bank fails.

Compared to other investment options, savings accounts offer relatively low interest rates. This means your money won't grow as quickly as it could in other investments.

You can easily access your funds through ATMs, online banking or in-person at a branch.

Some banks charge monthly fees that can eat into the interest you earn.

Savings accounts offer greater liquidity than investments like CDs, allowing you to withdraw your money when you need it without penalty.

Some savings accounts require a minimum balance to avoid monthly fees.

Although interest rates on savings accounts are typically lower than other investments, they still provide a modest return on your money.

Some banks limit the amount of withdrawals on savings accounts.

How to Choose the Best Savings Account

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


Some banks offer cash bonuses when you sign up for a new savings account. Bonuses of hundreds of dollars are not uncommon, so be sure to do some comparison shopping before applying.

Savings Account Frequently Asked Questions

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

How do I open a savings account?
What is a savings account APY?
How does interest work on a savings account?
What is a high-yield savings account?
What is a health savings account?
What savings account will earn me the most money?
Is my money insured in a savings account?
What’s the difference between a savings and checking account?
What are some alternatives to savings accounts?
What savings account type should I use for retirement savings?

About Alvin Yam, CFP

Alvin Yam, CFP headshot

Alvin Yam is a certified financial planner with over 15 years of experience working with individuals and corporations. He is an expert in wealth management and personal banking. Alvin is also the Founder and Managing Partner at Paraiba Wealth Management, an independent registered investment advisor.

Prior to founding Paraiba, Alvin spent five years as a Director at HSBC overseeing retail and wealth products, and was also a Financial Consultant at Charles Schwab, advising clients on investments, retirement planning and banking products.

Shield Insurance

The content on this page is accurate as of the posting/last updated date; however, some of the rates mentioned may have changed. We recommend visiting the lender's website for the most up-to-date information available.

Editorial Disclosure: Opinions, reviews, analyses and recommendations are the author’s alone and have not been reviewed, endorsed or approved by any bank, lender or other entity. Learn more about our editorial policies and expert editorial team.