8 Things to Know About Savings Accounts

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Having a savings account is a key part of financial wellness. It allows you to save for specific financial goals while earning interest on your money. It also keeps your savings out of your checking account, where you might be tempted to spend it.

As common as savings accounts are, you may not know some of their key features. Understanding how they work can help you get the most out of your account—and maximize your savings. Here are eight must-know facts about saving money.

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1. There Are Different Types of Savings Accounts

The right type of savings account for you will depend on your savings goals and how accessible you need your funds to be. Below are some options.

  • Traditional savings accounts: These savings accounts are typically offered by banks and credit unions, and they tend to have low annual percentage yields (APYs). As of June 2024, the average interest rate on a traditional savings account was 0.45%. On the upside, it should be easy to access your money, though you may run into bank fees.
  • High-yield savings accounts: These accounts offer higher APYs than traditional savings accounts. As of June 2024, some rates were as high as 5.30%. The best APYs are often available through online banks.
  • Certificates of deposit (CDs): A CD offers a fixed interest rate for a set amount of time. After making an initial deposit, your money will be locked into the account until the CD matures. Pulling your money out before then usually triggers an early withdrawal penalty. As of June 2024, some CD rates are well over 5%.
  • Money market accounts: Think of a money market account as a mix between a checking account and a savings account. Your money will earn interest, but you'll also have a debit card or checkbook to easily make withdrawals.

2. Some Savings Accounts Require a Minimum Deposit

It isn't uncommon for banks and credit unions to require a minimum opening deposit. This amount varies from one financial institution to the next—and some accounts don't require it at all. Opening deposits for brick-and-mortar accounts usually range anywhere from $25 to $100. Most CDs require $500 to $2,500 or more to get started.

3. Savings Accounts Are Insured

When you put money into an investment account, normal market activity can cause your balance to bounce up and down. Savings accounts offer much more stability. The Federal Deposit Insurance Corp. (FDIC) insures bank savings accounts for up to $250,000 per depositor, per insured bank and ownership category. The National Credit Union Association (NCUA) offers similar protection for accounts at credit unions.

4. Convenient Withdrawals May Be Limited

Some financial institutions charge fees if you make more than six electronic transfers or withdrawals per month. These policies are designed to discourage consumers from withdrawing their funds. If you've met your monthly limit, you might avoid a fee by making an ATM withdrawal. However, ATM access may be limited if your account is with an online bank.

5. You Might Run Into Fees

Savings account fees vary depending on the financial institution—and some charge low fees or none at all. Some common fees include:

  • Monthly maintenance fees
  • Stop payment fees
  • Return item fees
  • Wire transfer fees
  • Inactivity fees
  • Overdraft fees
  • Nonsufficient funds fee

Shopping around and comparing different savings accounts can help you avoid unwanted fees.

6. They Can Help You Save for Different Financial Goals

Since savings accounts earn interest, they can help you supercharge your savings and reach your financial goals faster. You can use a savings account to:

You can use a mix of different types of savings accounts. For example, you might put your emergency fund in a high-yield savings account and your home down payment fund in a six-month CD. This allows you to keep money for different goals separate and earn higher yields on money you expect to keep socked away for longer periods of time.

7. Retirement Accounts Are Different

Retirement accounts offer benefits that aren't available with savings accounts. The main ones are:

  • Tax benefits: Traditional individual retirement accounts (IRAs) and 401(k)s allow for tax-deductible contributions, which can reduce your taxable income. Roth accounts don't, but they do open the door for tax-free withdrawals in retirement, along with other tax perks.
  • The potential for an employee match: Many employers offer a 401(k) match. If yours does, they may match some or all of your contributions, which is basically free money.

8. Knowing How to Save Can Make a Big Difference

Funding your savings account might not always feel easy. Here are some common hurdles to saving—and how to get over them.

The Bottom Line

You can use multiple savings accounts to boost your cash reserves. No matter what your strategy looks like, be sure to understand all account fees and deposit requirements. That can help you avoid unwanted surprises and get the most out of your savings.