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What is a savings account?

Learn more about account types, features and use cases.

If you’re seeking a safe place to store your extra cash without the risk of traditional investing, consider opening a savings account. Savings account holders enjoy choice features such as FDIC insurance on their funds and interest-earning potential. Plus, most accounts are free to open.

What is a savings account?

A savings account is a deposit account that offers you a secure place to hold your extra money and start earning interest on it. Extra money means cash you’re not putting to immediate use for monthly bills and necessities.

Use your savings account to save for various short- and long-term goals such as:

Short-term goals

  • Vacation
  • Vehicle purchase
  • Funding a wedding
Long-term goals

  • Emergency fund
  • Kids’ college fund
  • Down payment on a home

Types of savings accounts

There are numerous types of savings accounts, all with their own unique features to boast. These include:

Savings account alternatives

Savings accounts aren’t your only option to stash and build up your savings. These interest-bearing accounts can help you achieve a similar goal.

What’s the difference between a checking and savings account?

Checking accounts are everyday transactional accounts intended for immediate spending with low restrictions. Savings accounts are meant to house your savings, or money not meant for immediate or frequent use.

But savings accounts typically have a six monthly withdrawal limit, which is set by the Federal Reserve Board, and they typically don’t come with an ATM or debit card for easy access to your money.

Savings account features

Savings accounts offer a wealth of features, from tools to help you reach your savings goals to high APYs.

Interest rates

Interest is the money you earn on your balance in the savings account. The bank sets the amount that you earn, called the annual percentage yield — or APY. The APY is the rate at which your funds are multiplied, represented as a percentage.

A high APY means high earning potential. Even though this perk is nice to have, be aware of the fine print. The bank may require you to have a specified amount of money in your account to earn interest. Or it may set a cap, such as earning its highest APY on the first $10,000 in your account.

Banks can vary their APYs offered depending on market conditions and rate caps. The current national average rate for savings accounts is set by the FDIC.. If you want a higher rate, look at those offered by online banks. They offer higher yields than brick-and-mortar banks, because they don’t have to worry about overhead costs.

Tiered interest

Some accounts offer tiered APYs. You might earn a set percentage on the first $5,000, then another percentage on the rest of your balance.

Here’s an example of tiered APY based on account balances.

Account balanceTiered APY
$1 to $4,9990.5% APY
$5,000 to $9,9990.2% APY
$10,000 or more0.1% APY

Deposits and withdrawals

Like most bank accounts, savings accounts allow you to make deposits and withdrawals, though you’re limited to six withdrawals monthly.

Nearly all savings accounts accept ACH transfers, with other types of deposits and withdrawals depending on the bank you choose.

  • ACH transfer: Transfer money from a linked checking account
  • Cash deposit: Deposit cash at an ATM or a branch location
  • Check deposit: Deposit a check at an ATM or branch location
  • Mobile check: Use the bank’s mobile app (if it has one) to deposit a check through your smartphone
  • Wire transfers: Transfer money from another bank
  • Direct deposit: Arrange for your employer to deposit some of your pay directly into your savings account
  • ACH transfer: Transfer money from your savings back into a linked checking account
  • Cash deposit: Withdraw cash at an ATM or a branch location
  • Wire transfers: Transfer money out of your savings to another bank
Is there a limit to how much I can keep in a savings account?

No. There’s a $250,000 cap on insurance for each depositor at each institution due to the FDIC. This typically isn’t a concern for the average saver, but anything over this amount is subject to a loss if your bank fails.

FDIC insurance

Most financial institutions are insured under the FDIC — short for Federal Deposit Insurance Corporation. The insurance covers up to $250,000 of your funds per depositor, per institution. The insurance is there as a protective catch if the bank goes out of business or if its funds are stolen.

Although it’s uncommon, not all financial institutions offer FDIC coverage. Be mindful when comparing savings accounts before making a decision.

If you use a credit union, the comparative insurance is known as NCUA insurance.

Budgeting or savings tools

Some savings accounts offer budgeting and savings tools — such as automated recurring transfers — to further boost your experience and allow you to grow your savings faster.

Other accounts go beyond the norm by offering such savings tools as:

  • Roundup savings. When you make a purchase, some banks round to the nearest quarter or dollar and send that change to your savings account.
  • Savings goals. Gives you the option to set up multiple saving goals, with amounts set up to automatically deposit with your paycheck or at another interval.

Overdraft protection

Most banks offer overdraft protection, a safety net for your checking account if you spend too much money. Spending more money than you have in your account is an overdraft.

Though it’s not common, we have seen savings accounts that come with overdraft protection, such as the TIAA Bank Business Money Market account or the Step app designed for kids. The bank either allows the overdraft and charges a fee for the transaction, or it denies the transaction altogether.

Some banks require you to turn on overdraft protection through your online account. Make sure that you understand how your savings account handles overdrafts just in case you overspend your account.

Common fees and how to avoid them

More and more, we’re finding fewer monthly fees attached to savings accounts. If they do have a fee, they’re often between $5 and $25 a month with ways to avoid them, including::

  • Maintaining a required minimum balance
  • Linking a preferred checking account
  • Enabling automated monthly transfers

Another fee is an excess transaction fee. This fee applies only if you break the limit of six withdrawals a month. For those that charge this fee,, it’s typically no more than $10 or they’ll close your account.

Where can I find the best savings accounts?

Savings accounts offered by online banks have become a popular option in recent years. They offer higher yields than brick-and-mortar banks, because they don’t have to worry about overhead costs.

If you’re willing to give up higher rates and lower fees for face-to-face support, brick-and-mortar is still your top choice. For those who don’t mind forfeiting the in-store features like cash deposits, online banking could work for you.

Compare savings accounts

Use our table to compare APYs, minimum opening deposits and other features across top savings accounts..

Name Product Annual Percentage Yield (APY) Fee Minimum deposit to open Interest compounding Offer
Aspiration Spend & Save Account
Finder Rating: 4.2 / 5: ★★★★★
Aspiration Spend & Save Account
Up to 5.00%
$0 per month or $7.99 per month for Aspiration Plus ($5.99 per month if you pay annually)
Deposits are fossil fuel-free. A spend and save combo account with unlimited cash back rewards and deposits insured by the FDIC.
CIT Savings Connect
Finder Rating: 5 / 5: ★★★★★
CIT Savings Connect
Earn an impressive APY on your entire balance. This straightforward online savings account has no monthly service or account opening fees.
Bread Savings™ High-Yield Savings
Finder Rating: 4.3 / 5: ★★★★★
Bread Savings™ High-Yield Savings
Earn competitive interest rates with this high-yield savings account you can open in just minutes. Member FDIC.
Axiom Bank high-yield savings account
Axiom Bank high-yield savings account
UFB Rewards Savings
Finder Rating: 5 / 5: ★★★★★
UFB Rewards Savings
Earn a 2.61% APY with no minimum deposit or balance amount with this no-monthly-fee savings account.

Compare up to 4 providers

Bottom line: Is a savings account worth it?

A savings account is a financial asset for anyone looking to stow away extra cash in a safe place. Plus, you’ll have the savings growth potential from regularly contributing to your account over time. The next step is to select the best account for you.

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