savings account

Savings Account

A savings account is a deposit account offered by banks and credit unions that allows you to store money safely while earning interest over time. Unlike a checking account, a savings account is generally intended for money you do not need to spend right away. Financial institutions typically pay you a small percentage of your balance, called the annual percentage yield (APY), as a reward for keeping your funds on deposit.

Savings accounts are generally insured by the Federal Deposit Insurance Corporation (FDIC) at banks, or by the National Credit Union Administration (NCUA) at credit unions, up to $250,000 per depositor. This insurance means your money is protected even if the institution fails. Most savings accounts allow you to withdraw funds when needed, though some accounts may limit the number of withdrawals or transfers you can make per month.

Why it matters

A savings account gives your money a secure place to grow, even if the growth is modest. Keeping savings separate from your everyday spending account can make it easier to build an emergency fund or save toward a specific goal, such as a vacation, a car, or a down payment on a home. Because the funds are insured and generally accessible, a savings account is typically considered one of the lowest-risk ways to hold money.

Interest rates on savings accounts can vary widely between institutions. Online banks, in most cases, tend to offer higher APYs than traditional brick-and-mortar banks, so it is worth comparing options before opening an account.

Example

Suppose you open a savings account with a $1,000 deposit at a bank offering a 4.50% APY. After one year, assuming no additional deposits or withdrawals, you would earn approximately $45 in interest, bringing your balance to around $1,045. If you set up automatic transfers of $100 from your checking account each month, your balance and interest earnings would grow steadily over time, helping you reach a savings goal faster.

Related terms

• Checking account
• Annual percentage yield (APY)
• Certificate of deposit (CD)
• Money market account
• FDIC insurance