When it comes to financial health, it isn’t just about making more and more money. No matter how much money you’re making, you need to be saving a significant chunk of your funds. This comes in handy in case of emergencies or unexpected expenses. It also isn’t enough to stash away wads of cash under your mattress, which leaves your money vulnerable to fire or theft. A savings account allows you to not only keep your money safe and insured, but you also get to grow your money according to a financial institution’s set interest rates.
What Is a Savings Account?
A savings account is a safe haven for your cash, where it can earn interest under the protection of the Federal Deposit Insurance Corporation (FDIC). Savings accounts are the most basic type of savings vehicle you can get. They’re also widely available at most financial institutions. Unlike a checking account, a basic savings account doesn’t usually include a debit card or check-writing abilities. This is because you’ll use savings accounts more for short-term and long-term savings goals, rather than your day-to-day expenses.
How Savings Accounts Work
Offered by most financial institutions like banks and credit unions, savings accounts are easy to open. They rarely require a credit check and often don’t have high monthly fees, if at all. Savings accounts provide a low-risk savings option, but they also usually earn at low yields.
The interest rate at which your account earns will depend on the financial institution. It can also sometimes depend on your account balance, with higher balances earning at higher interest rates. A savings account annual percentage yield, or APY, usually falls anywhere between 0.01% and 2%. A certificate of deposit or savings bond may offer a better resource for higher returns, but they don’t provide the same liquidity.
Unlike a checking account, which involves moving your money around almost every day, a savings account limits your usage. You can make only six outgoing transactions, like withdrawals and transfers, per statement cycle. You also cannot typically use a savings account to make purchases directly. If you exceed the limit, each extra transaction can land you with a heavy fee.
Most savings accounts allow for automatic and recurring transfers from another bank account, typically a checking account. Some institutions may even require you to open and link a checking account to unlock certain savings accounts benefits.
Why a Savings Account Is a Good Idea
Using a savings account can help differentiate your savings from everyday spending money. Having a savings account allows you to store away money you don’t plan to spend in the immediate future. That way, you won’t be as tempted as you would be if the cash was in hand or in a checking account. Plus, unlike CDs, savings accounts still allow for easy access if you should need to use the funds.
If growing your money with no extra work from you isn’t enough to open a savings account, you’ll can also benefit by improving your financial habits and your standing with financial institutions. Setting up automatic transfers helps you get into the flow of regularly saving money. Then having more funds can help you reach higher financial goals, like the higher minimum requirements on better accounts.
When to Use a Savings Account
Savings accounts don’t usually require much attention on your part. You deposit some money, watch it grow and withdraw funds when you need to. This flexibility makes a savings account ideal for any savings project. This can range from buying new shoes next month, paying for college tuition in 10 years or building your emergency fund. Having sufficient funds ready for these bigger expenses mean you can avoid going into debt to pay for them. This is especially true for emergency funds you can use if you were to lose your job or suffer an accident.
Where Can You Get a Savings Account?
Most financial institutions offer basic savings accounts. However, each bank’s accounts will vary, from the interest rates and fees to the perks and requirements. Ideally, you’ll want a savings account that does not charge a monthly maintenance fee, since the goal is to strictly save your money. You’ll also want to shop around for the highest interest rates and the banks that you feel most comfortable with to find the best savings account for you. Check out some of SmartAsset’s favorite savings accounts below.
Ally online bank offers a 4.25% APY on all balance tiers with no monthly maintenance fees or minimum deposit. Plus, interest is compounded daily which means your interest earns interest. Ally makes it easy to deposit, manage and access your funds online, on mobile, by phone, or via transfers and check requests.
There are no physical Ally Bank locations, however, so it’s only a good fit if you’re comfortable with online banking. It’s also important to note that you cannot make cash deposits to your Ally savings account. You have to deposit a check through Ally eCheck Deposit™, online transfers, direct deposit, wire transfers or sending checks in the mail.
Our second-favorite savings account comes from another online bank, Synchrony. Your money earns at an APY of 4.75% and you won’t need to pay a monthly fee or meet a minimum deposit. Unless you live in Bridgewater, New Jersey, you won’t have access to a physical branch.
Like Ally, Synchrony does not accept cash deposits. Synchrony has a mobile app for mobile check deposits, direct deposit authorization and internal transfers. You can also send a personal or cashier’s check or wire funds from a separate bank. Synchrony also issues ATM cards for account holders.
The American Express® High Yield Savings is great for a simple standalone savings or CD account. The bank lacks a full suite of online banking products and doesn’t have physical locations or ATM access. However, your funds in a High Yield Savings Account will earn at an APY of 4.30%, (rate effective as of September 27, 2023). Plus, you don’t need to make a minimum deposit to open the account or maintain a minimum balance to keep the account.
For those looking for the highest interest rate possible, the High Interest Savings Account from DollarSavingsDirect is the savings account for you. At 5.00%, it’s on the higher end of savings account rates we found. Additionally, there are no monthly fees or minimum deposit requirements.
This impressive rate doesn’t come without trade-offs, though. DollarSavingsDirect is an entirely online bank. In fact, it doesn’t even have a mobile app or any ATM access. You can only access your savings through external transfers. And since the site isn’t as intuitive as other options out there, this may not be the best savings account for the less technologically savvy savers among us.
If you’d prefer a savings account where you can bank in person at a real branch, then a Chase savings account could be best for you. Chase has over 5,100 branches in 33 states, making it one of the most accessible financial institutions in the country. Chase also has an easy-to-use website and great mobile app where you can review your balances, initiate transfers and pay bills. You can even link your savings account to a checking account and any Chase credit cards you may have.
Depending on your account balance, you can open either a regular or premier account. You need at least $25 to open a regular account and $100 to open a premier account. You’ll also need at least $300 in the regular account and $15,000 in the premier account to avoid maintenance fees. As a brick-and-mortar bank, Chase does not offer nearly the same interest rate as our other top picks. The regular account earns just 0.01% and 0.02% with the relationship account.
How to Sign Up for a Savings Account
Once you’ve chosen your favorite savings account from a financial institution, it’s time to set up your account. You can visit the institution, sign up online or give the institution a call to open your account of choice. You’ll need government-issued photo identification (like a driver’s license or military ID), your Social Security number and a mailing address. You’ll want to fund the account with an initial deposit right away or as soon as you’re able to do so. The application process typically takes about 10 minutes to complete, although if you’re applying for an account with an online bank, it will take more time to send copies of your identification.
How to Add Money to a Savings Account
There are a few ways you can add money to your savings account. For one, you can deposit cash by bringing money to a branch during banking hours or by bringing funds to an ATM. You can also deposit checks at either a branch or ATM. Some banks and credit unions even allow you to deposit checks on your mobile device by taking a picture of both the front and back of the check.
You can also deposit funds with electronic transfers. To transfer from your own checking account with the same bank or institution, just use your app, website or customer service line. To move money across banks and financial institutions, you can complete an electronic transfer. You can also work with your employer to establish direct deposit so part of your paycheck goes directly into your savings account.
How to Withdraw Money from a Savings Account
When you’re ready to use your money, you’ll need to take the funds out of your savings account. Unlike with a checking account, you can’t just write a check from your checkbook. In some situations, though, you can request that your bank print a cashier’s check for a specified amount (that you have in your account). This may be useful for larger costs like a down payment. Just keep in mind that cashier’s checks usually charge their own fee of about $10.
If you want physical cash, you can withdraw funds from an ATM or in-person from a bank teller. You can also transfer your money to a checking account within your network by using your institution’s app or website. Lastly, you can make an electronic wire transfer to move funds to a different account through services like Western Union, TransferWise or Paypal.
Savings accounts are an incredibly useful financial tool. Not only do they keep your money safe and insured, but they allow your money to grow according to a set interest rate. There are a ton of basic savings accounts out there to choose from. You stand to benefit the most by opening a savings account with no fees and a high interest rate. These features, especially paired with recurring deposits into the account, make for a more positive savings experience for both short-term and long-term goals.
Tips for Saving More With a Savings Account
- When you have a savings account, you can be content to make one deposit and never touch the account again. However, that can only save you so much. To boost your savings even further, you may want to set up automatic recurring transfers from another account to your savings account. Use a savings calculator to see how this can impact growth of your money over time.
- You’ll also want to be aware of the fees and requirements that can come with a savings account. Some banks do charge a monthly fee to have a savings account. You may be able to waive this fee by meeting a certain account balance. However, if these minimums and fees are not feasible for you to meet, you can easily find another savings account elsewhere.
Photo credit: ©iStock.com/SARINYAPINNGAM, ©iStock.com/baona, ©iStock.com/PhotoInc