A savings account is a type of bank account that you use for saving money. Most savings accounts pay interest, which tends to be lower than the interest offered by other types of accounts like money market accounts or certificates of deposit (CDs).
Savings accounts are for short-term or long-term savings goals. These goals can be anything from saving for a new car to saving for retirement. They are also frequently used to store money that you do not currently need for a purchase.
A savings account is an excellent place to store money for an emergency. A savings account does not typically pay much interest, but the money is available when you need it.
Why Use a Savings Account?
You can use the money in savings accounts for shorter-term spending needs. You can access the funds in your account online or at the bank.
Your money is secure in a savings account because it is generally insured, for example, by the Federal Deposit Insurance Corporation (FDIC). If the bank fails, your deposit is still safe up to a certain amount.
If you are saving for a longer-term goal, savings accounts might not be your best option since savings accounts typically offer a lower interest rate than other types of bank accounts.
Types of Savings Accounts
There are multiple types of savings accounts. Each savings account has a different purpose. The interest rate and minimum balance requirements for each type of savings account vary as well.
Basic savings accounts are easy to open, and they typically do not require a minimum balance. Basic savings accounts earn the lowest interest rate of the savings accounts.
Money market accounts offer higher interest rates than basic savings accounts, but they usually require a minimum balance and a certain number of monthly deposits.
Certificates of deposit (CDs) are long-term savings accounts that usually pay higher interest rates than basic savings accounts and money market accounts. They also typically require a minimum deposit and a fixed number of monthly deposits.
How to Open a Savings Account
You can open a savings account at almost any bank or credit union. You can also open a savings account online or by phone at some banks.
How to Use a Savings Account
One way to use a savings account is to keep a small amount of money in a savings account as a buffer for your checking account. You can withdraw money from your savings account as you need it, and it will be available as a backup if you need it.
Another way to use an account is to save for specific things. If you know that you want to buy a new TV in three months, you can save for it in your savings account.
You can also keep it open for unexpected expenses. If you expect to pay for car repairs, you can put money aside in your savings account to pay for it.
Savings accounts are different from checking accounts because you can't write checks to other people out of a savings account. However, you can transfer money from savings to checking accounts if you want to pay for something.
Even if you don't have a lot of money to save, you should still have a savings account. It will help you get used to saving money, and it will be there if you need it.
Savings accounts, especially those offered by online banks, tend to have fewer fees than other types of accounts. Online savings accounts may have some costs, but these are typically lower than brick-and-mortar banks' fees.