A savings account is a safe place to keep money you may need soon, while earning a little interest.
How it works
You deposit money at a bank or credit union, and it pays you interest, shown as an APY. You can usually withdraw any time, though some accounts limit the number of transfers. Deposits are insured: up to $250,000 per depositor, per ownership category, by the FDIC at banks or by the NCUA at federally insured credit unions.
Types of savings accounts
- Traditional savings: often at a big bank, convenient but frequently paying very little interest.
- High-yield savings: often at online banks, typically paying much more.
- Money market accounts: savings accounts that may offer check-writing and higher rates, sometimes with higher minimums.
Who it may suit
- Everyone needs one for an emergency fund.
- Short-term goals in the next one to three years, like a car, vacation or home down payment
- Money you can’t afford to lose
What to watch for
- Inflation. If your rate is lower than inflation, your money loses buying power over time.
- Fees and minimums that eat into small balances
- Variable rates that can drop at any time
The bottom line
A savings account is the foundation of a healthy financial plan, ideal for your emergency fund and near-term goals. It isn’t designed for long-term growth. If yours pays little interest, shopping for a better rate can be an easy win.
See how your emergency savings compare with the national average. Get your Wealth Report Card.
Source: FDIC and NCUA deposit insurance rules. For educational purposes only. Workable Financial Solutions does not offer bank products.