As a money management tool, a savings account is one of the essentials—a fundamental part of your financial toolbox. Chances are you have one already, but it’s a good idea to review the basics periodically. Understanding savings accounts can help you use them more effectively to meet your savings goals.

Savings accounts at a glance

Take a look at this chart to get a big-picture version of a typical savings account, then read on for more detail.

Savings Accounts
Pay interest on your deposits—rates vary from bank to bank Pay interest rates that tend to be lower than those of CDs or money market accounts
Are easy to open and access Are subject to transaction limits
Are secure May charge fees


Savings accounts earn interest 

The most obvious feature of a savings account is that deposited funds accrue interest over time. Money under your mattress or in a home safe is missing out on valuable earning potential, but the rate you earn depends on the terms of your account and where you open your account. Note that online banks tend to offer more competitive interest rates because their overhead expenses are lower than those of brick-and-mortar banks.

Compared with certificates of deposit and other, higher-interest bank products, savings accounts generally pay a lower rate of interest. It’s important to shop for the best savings account terms and rates, but no matter what rate you find on a savings account, it could still be lower than that of other types of accounts. For example, if you’re willing to keep your money deposited for a specific time period—anywhere from a few months to a few years—you generally can earn more interest with a CD.

Savings accounts are easy to open and access

You generally can open a savings account in just a few minutes online, over the phone, or in person. In addition, you can make regular deposits and withdrawals (within federal limits) without committing to a term length or worrying about withdrawal penalties.

Online banking, in particular, makes it simple to access your funds 24 hours a day from wherever you have an internet connection. You also can link your savings accounts to other accounts, like checking accounts and money market accounts, and transfer funds.

Savings account transactions are limited by federal law

While it’s easy to transfer funds to and from a savings account, there are federal limits on the number and types of withdrawals allowed per statement cycle. You can make as many deposits as you wish, but federal law limits certain types of telephone and electronic withdrawals (not including ATM withdrawals) and transfers to six per statement cycle.

Savings accounts are a secure way to save

Savings accounts are great for money you don’t want to take risks with, like your emergency fund, for example. When you deposit your money in a member-FDIC bank savings account, the Federal Deposit Insurance Corporation (FDIC) insures it up to the maximum amount allowed by law.

Some banks charge fees on their savings accounts

It goes without saying that you don’t want maintenance fees eating into your earnings. If you already have a savings account, it’s a good idea to review the terms and conditions periodically. If you’re shopping around, be sure to compare and understand the terms of each account you consider. Look for banks that offer savings accounts with no minimum balance requirement or monthly maintenance fees, like the Ally Bank Online Savings Account.

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