A savings account is a type of interest-bearing account offered by many banks. You would put your money in a savings account when you want to earn interest on the balance, but you don’t need to access the money immediately.
Restrictions on Transactions
Savings accounts allow you to make unlimited deposits during the month. However, you’re only allowed to make six withdrawals per month. Any extra withdrawals will incur a fee.
Banks also restrict the way you can withdraw money from a savings accounts. You can typically only withdrawal money from the bank using a withdrawal slip or make a transfer from your savings account to another account either with the same bank or another bank. There may be a fee for bank-to-bank transfers.
Interest on Savings Accounts
Savings accounts pay a small amount of interest on deposits. The APY, or annual percentage yield, on a savings account is currently between .25% and 1.25%. Online savings accounts are more likely to offer higher interest rates. $10,000 deposit earning 1.25% annually would $125 at the end of the year, assuming interest is added annually. It may not be much money, but it’s more than you’d earn if you didn’t put the money in any account at all.
Savings Account Fees
Many savings accounts are free – meaning they don’t charge a monthly or annual fee on the account. But, you can still incur a fee for certain types of transactions. For example, if you make more than 6 six withdrawals in a month, you will be charged a fee for each additional transaction. You may be charged a fee for a bank or wire transfer, for a deposit that’s returned, or for closing your account within a certain number of days within opening. Make sure you understand which fees your bank charges on savings accounts and try to avoid those activities.
Balance Requirements
Some banks may require an initial deposit to open the account. Some banks also require a minimum balance requirement to avoid having a monthly or annual fee charged. There may be a tiered interest rate system, where low balances receive a low interest rate while higher balances receive a higher interest rate. Sometimes, even the opposite is true.
Savings Account Insurance
Up to $250,000 of your balance is safe as long as the savings account FDIC-insured or NCUA-insured (for credit unions). If the bank fails, the Federal Reserve or the NCUA will cover your deposit.