A savings account is a bank account where you can deposit money and earn interest. These accounts are a good place to keep money for a specific purpose, like buying a car or for money you don’t need for your day-to-day expenses. In many cases, a savings account you open will be linked to a checking account or other account at your bank.

Savings accounts are simple to open and make it easy to access your funds. Depending on the type of savings account and where you open it, these accounts sometimes earn significant interest rates. Savings accounts are also a safe place to store your money — up to $250,000 in deposits per account type, per account holder is insured by the Federal Deposit Insurance Corporation (FDIC) in case the bank fails.

How does a savings account work?

Almost all financial institutions that offer banking services allow customers to open savings accounts, including traditional banks and credit unions and online banks.

You start earning interest as soon as you add money to your account. How much interest you earn depends on the bank, how much money you add to the account, and current interest rates.

Banks use the term annual percentage yield (APY) to indicate how much interest you can expect to earn on the account in one year. The higher the APY, the more interest you earn. Savings accounts usually have variable interest rates, so the APY will change over time — sometimes earning more interest, sometimes less.

Savings accounts earn compound interest, which means you earn interest on the money you deposit, plus also on the interest you’ve already earned.

There are several ways to add money to a savings account, including:

• Depositing a check or cash by ATM

• Depositing a check or cash at a bank branch

• Transferring money from a linked bank account

• Wiring money from another bank account

• Depositing a check through the bank’s mobile app

• Setting up direct deposit to deposit your paycheck into the account

To withdraw money, you can transfer it to a linked checking account or go to the bank and take it out in cash. You can also ask for a cashier’s check. Most savings accounts don’t come with their own debit cards, though there are some exceptions.

Many banks allow you to withdraw from a savings account only six times a month without incurring a fee. Withdrawals or transfers made by ATM, mail, or in-person with a bank teller don’t count against that limit. The limit originates from a regulation that required banks to keep a certain amount of cash on hand to cover customer withdrawals. The Federal Reserve suspended the rule in 2020 and hasn’t reinstated it, but some banks still have the restriction in place.

Checking vs. savings accounts

The basic difference between checking and savings accounts is their purpose. A checking account holds money you need to spend regularly, such as paying bills, putting gas in your car, or buying food. A savings account is to save money you don’t need right away.

The money in a checking account is also usually easier to access because you can write checks or use a debit card. Most checking accounts earn little to no interest.

Different types of savings accounts

Not all savings accounts offer the same benefits, and you should shop around for one that suits your needs.

Traditional savings account

This is an interest-earning savings account that is offered by most banks and credit unions.

• Pros: Easy to open and maintain with few requirements

• Cons: Lower interest rates, particularly at large bricks-and-mortar banks

High-yield savings account

A high-yield savings account is similar to a traditional savings account, but with higher interest rates — online banks typically offer the best rates.

• Pros: High interest rates and low fees at online banks

• Cons: Inability to do in-person banking through most online banks

Money market account

Money market accounts (not to be confused with money market funds) are high interest-earning accounts that offer some of the features of a checking account.

• Pros: High interest rates and the ability to write checks and use debit cards with the account

• Cons: Significantly higher minimum balance requirements in most cases

Certificate of deposit (CD)

A CD is another type of interest-earning account that locks your money into place for a set term, typically at a fixed interest rate.

• Pros: High rates, good for locking in an interest rate when rates are high

• Cons: Penalties for withdrawal before the term ends

What to look for in a savings account

The best savings accounts offer a high APY, low fees, and the necessary banking features. Make sure your account is at a bank insured by the FDIC, or the National Credit Union Administration (NCUA), if you’re using a credit union. Other factors to consider include:

• Is there a minimum balance requirement? You might have to add a minimum amount of money to open the account and/or keep the account open. Some banks also require a minimum balance to get the highest interest rate.

• Is there a monthly fee? Some banks charge a monthly maintenance fee to keep your account open or if you don’t meet a minimum balance requirement. These fees can add up fast.

• Do you have to pay ATM fees? Using an out-of-network ATM makes it easy to rack up fees — the average fee was $4.73 in 2023. If you use ATMs often, you may want to look for a bank that refunds ATM fees.

How to open a savings account

Opening a savings account is usually a simple process. Some banks allow you to complete the entire process online, but in some cases, you’ll have to visit a branch for part or all of the process.

Most banks require the following to open a savings account:

• A government ID such as a driver’s license, a state ID, a military ID, or a United States passport

• Your Social Security number

• Your address and a previous address if you’ve lived in your home for a shorter period

• A phone number

• An email address

• An initial deposit, either by check or with an electronic transfer from an existing account. You may be able to open the account without an initial deposit.

Once you’ve provided the required information and filled out the account application, the bank will decide whether to approve your account or not. Approval should be quick — anywhere from minutes to a few days.

How much money should you keep in your savings account?

Generally, financial pros recommend that you have enough money to cover three to six months of expenses in an emergency savings fund. If you’re saving for a specific goal, you’ll want to save more in the same account or a separate one.

A good savings formula to follow is the 50/20/30 rule. This rule suggests that you should spend 50% of your income on your needs such as food, utilities, and housing; 30% on wants such as entertainment, travel, and gifts; and the final 20% on savings and paying off debt.