Email FacebookTwitterMenu burgerClose thin

How Does a Traditional Savings Account Work?


A traditional savings account works as a straightforward financial tool offered by banks and credit unions. They are designed to help individuals save money by earning interest over time. When you deposit money into a savings account, the bank uses these funds for loans and other investments, in return paying you interest as an incentive. While savings accounts are accessible and easy to manage, they come with limitations on the number of withdrawals or transfers you can make per month, usually up to six. Traditional accounts also differ quite a bit from their online counterparts, as online savings accounts tend to offer much higher rates than accounts usually available from brick-and-mortar banks.

A savings account is often part of a larger financial plan. Speak with a financial advisor about your long-term financial plans today.

What Is a Traditional Savings Account?

The way a traditional savings account works is simple. When you open an account at any bank, including most online and brick-and-mortar ones, any deposits made are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. This protects your money in the event the bank goes under for any reason. 

Traditional savings accounts typically offer lower interest rates compared to other savings vehicles, such as certificates of deposit (CDs) or online savings accounts. In fact, interest rates on brick-and-mortar traditional savings accounts often come in less than 1% as of 2024. While this may seem low, the primary benefit of those who hold these accounts isn’t necessarily the interest earned, but rather the safety and ease of access they provide.

Depending on the bank you use, your savings account may or may not come with a debit card and/or checks. Of course, most banks will provide these to their savings customers, sometimes for a price, if you simply ask. However, withdrawing from a savings account more than six times can automatically convert it into a checking account, as that would break the Federal Reserve Reg D rules.

It’s also important to understand the potential fees associated with traditional savings accounts. These can include monthly maintenance fees, fees for excessive withdrawals and fees for falling below a minimum balance. However, many banks offer ways to waive these fees, such as maintaining a minimum or linking the savings account to an in-house checking account.

Traditional Savings Accounts vs. Online Savings Accounts

traditional savings account

One of the advantages of traditional savings accounts over their online counterparts is having a physical location to conduct transactions, seek advice or resolve issues in person. Some people prefer the tactile experience of dealing with their finances in person, which can reinforce financial discipline and understanding.

Maintaining a traditional savings account can foster a strong relationship with your bank, potentially giving you access to a wider range of financial products and personalized services. This relationship can be beneficial if you need loans, mortgages or investment advice, as banks may offer better terms to loyal customers.

However, the convenience and security of a brick-and-mortar institution may result in lower returns on your savings, as online accounts often offer better rates due to lower overhead costs. The same benefits are true of fees, as online banks tend to have less fees and minimums than in-person banks. These fees can erode the modest interest earned, making it important to choose a savings account with favorable terms or that you can waive fees for.

While many brick-and-mortar banks now offer online and mobile banking options, these services might not be as advanced or user-friendly as those provided by online-only banks. So if the convenience of digital banking is a priority for you, an online savings account may be a better option. 

How to Open and Close a Traditional Savings Account

The first step in opening a traditional savings account is choosing a bank. Research local banks to compare interest rates, fees and account features. Once you’ve selected a bank, visit the nearest branch with the necessary documentation and an initial deposit, which can vary by bank.

Upon arrival, a bank representative will guide you through the application process. You will be required to fill out an application form and provide your valid government-issued ID, proof of address and Social Security number. You’ll likely also have to agree to the bank’s terms and conditions, and be prepared to make a deposit into the account. There may be a minimum amount to open, so be aware of that as well.

After completing the paperwork and making your initial deposit, the bank will set up your account. You’ll likely receive a welcome packet containing your account details, including your account number and how to access your account online. Understanding how a traditional savings account works involves knowing these steps to ensure your money is easily accessible.

When the time comes to close your savings account, start by reviewing your bank’s policies. Some banks may require you to visit a branch, while others might allow closure via phone or online. It’s also essential to ensure that all outstanding transactions have cleared and that there are no pending fees.

Next, visit the bank with your account details and a valid ID. Inform the representative of your intention to close the account, and they should then verify your identity and process the closure. You will need to decide what to do with the remaining balance, so you can either withdraw the money in cash, transfer it to another account or request a cashier’s check.

After the account is closed, the bank will provide you with a confirmation of the closure. Keep this document for your records. It’s also a good idea to destroy any remaining checks or debit cards linked to the account to prevent fraud.

Strategies for Growing Your Traditional Savings Account Balance

traditional savings account

One effective strategy for growth is setting up automatic transfers from your checking account to your savings account. By automating this process, you ensure consistent savings without relying on manual transfers. This method helps instill a disciplined savings habit, making it easier to build your savings over time. You can start with a small amount and gradually increase it as your financial situation improves.

You’ll also want to look for high-interest accounts with a good annual percentage yield (APY) compared to traditional, brick-and-mortar accounts. By choosing one with a competitive interest rate, you can grow your savings more efficiently.

Once you’ve found a good rate, try to leave your money in the account. This will allow the interest to compound so you can grow your savings exponentially. The longer you keep your money in the account, the more you benefit from compound interest. This strategy emphasizes the importance of patience and long-term planning.

Regularly monitoring your savings account is essential for ensuring that you are on track with your savings goals. By keeping an eye on your account, you can track your progress, identify any unauthorized transactions, and make adjustments as needed.

Whenever you receive extra money, such as a tax refund, bonus, or gift, consider depositing a significant portion of it into your savings account. These windfalls provide an excellent opportunity to boost your savings quickly. By directing these funds into your savings account, you can accelerate your progress toward your financial goals.

Bottom Line

A traditional savings account is a fundamental banking product that offers a secure place to store money while earning a modest interest rate. These accounts are offered by banks and credit unions, providing easy access to funds while typically limiting withdrawals to a certain number per month. These accounts can be ideal for emergency funds, short-term savings goals, or simply setting aside extra cash in a safe, accessible manner.

Savings Tips

  • A financial advisor can help you build a long-term financial plan, which can account for your savings. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Interested in seeing what kinds of savings rates are available on the market today? Check out SmartAsset’s rate table to learn more.

Photo credit: ©, © Liang Lim, © Productions