Advantages and disadvantages of savings accounts

Before deciding if a savings account is right for you, weigh the pros and cons.

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If you’re saving for a rainy day — or just a vacation — stashing your money under the bed isn’t the only way to reach your goals.

Most banks offer multiple types of savings accounts that can keep your money safe while paying interest to help you reach your goals sooner. With so many options out there, it’s important to weigh the pros and cons before choosing.

What are the advantages of a savings account?

  • Start with a little. In most cases, you don’t need any money to open a savings account. There’s often no minimum balance requirement and you can make deposits of any size as often as you’d like.
  • Set up an automatic savings plan. This feature automatically transfers a small portion of your paycheck into your savings account when you get paid so that you can “pay yourself first” and develop a habit of saving.
  • Joint accounts. You can open savings accounts with your partner so that you can save together.

Compare joint savings accounts and meet family goals

  • Easy access to your money. Many savings accounts offer easy access to your account with multiple bank branches, ATM cards, mobile apps and online banking platforms.
  • Earn interest on your savings. Financial institutions pay you interest on your savings account balance, and many accounts offer compound interest, meaning your money can earn its own money. You can also keep switching savings accounts to take advantage of attractive introductory interest rates for new accounts, though most institutions will only allow one introductory offer per customer.
  • Savings accounts are free to open. Most savings accounts cost nothing to open and have no monthly fees.
  • No lock-in period. You’re not locked in for any period of time and you can switch savings accounts as often as you like.

Learn how compound interest can help you save even more money

  • Protect your checking account from overdraft fees. If your savings account and checking account are with the same bank, you may be able to link the two. In the event that there isn’t enough money in your checking account to complete a transaction, funds will be transferred from your savings to avoid overdraft fees.
  • Your money is safe. Banks are known for their well-protected vaults, and if your financial institution goes bust, the FDIC will guarantee your savings account balance up to the value of $250,000.

Learn how banks protect your money

What are the disadvantages of a savings account?

  • Rates can change. One key disadvantage is that savings account interest rates are variable, meaning that financial institutions are free to set and change interest rates as they wish. High-interest savings account rates will stay largely in line with the movements of the federal rate.
  • Temptation to spend. Savings accounts are on-call products, meaning you can access your money whenever you want. While it’s nice to have financial freedom, a time deposit may be a smarter option if you’re tempted to dip into your savings.
  • Six-withdrawal limit. Due to Regulation D, savings accounts are limited to six outgoing withdrawals per month. While you’re technically allowed to access your money whenever you want, every transaction above this limit will be accompanied by a penalty fee.
  • Inflation. If your savings account doesn’t pay a competitive interest rate, inflation could be eating up the value of your earned interest, leaving you with an account balance that’s worth less a year from now than it is in today’s dollars.

Advantages and disadvantages at a glance

Interest earnedWith a high-interest savings account, the interest earned on your balance could add up, especially with compound interest.On the flip side, a savings account comes with variable interest rates, which are subject to change. If the Federal Reserve decides to drop interest rates, you could be earning less interest than if you’d deposited your money into a CD or other time deposit.
Easy accessSavings accounts allow you to access your funds whenever you need it – a reassuring feature should you run into emergencies.The ability to access your savings at any time may increase the temptation to spend it. Plus, withdrawals are limited to six per month, so if you go over that limit, the fees can reduce the amount you’re saving.
No lock-in periodYou’re not locked in for any period of time, which means you can switch savings accounts as often as you like.With no lock-in period, there is potentially no incentive to commit to any minimum monthly deposits.

Compare savings accounts

Name Product Interest rate (APY) Fee Minimum deposit to open
Earn 20x the national savings account average with no fees or minimums.
Enjoy no monthly fees and a competitive APY with this online-only savings account.
$15 per month
(can be waived)
Earn one of the highest annual percentage yields (APYs) if you live in one of 42 eligible states, and access your money by ATM, check or bill pay.
A super-high interest rate if you're in the habit of saving at least $100 per month or have $25K in the bank.
$5 per month
(can be waived)
Get a $150 bonus when you open a new Chase Savings account, deposit a total of $10,000 or more in new money within 10 business days and maintain a $10,000 balance for 90 days.
Earn a competitive rate with a balance higher than $10,000.

Compare up to 4 providers

Bottom line

There are a number of benefits to having a savings account, including introductory interest rates, savings plans and online access. Be sure to look at the different ways you can grow your savings before applying for a product. Set-and-forget investments such as CDs can be a handy product to use alongside an on-call savings account.

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