A savings account is one of the simplest types of bank accounts available to consumers. It lets you store cash securely with an insured bank or credit union and earn returns on the balance.
Cash kept in a savings account is a bit less accessible than cash kept in a checking account, which you can generally withdraw without restrictions. For savings accounts, the Federal Reserve limits the number of “convenient” transfers or withdrawals to six a month — but that doesn’t include taking money out through a teller or ATM, for instance.
Too many transfers from a savings account — by check, automatic debit or computer, for example — typically leads to a fee. Repeatedly exceeding the limit may force your savings institution to close your account or convert it to one that doesn’t earn a return.
Savings rates and requirements
In your search for the best savings account, here are some factors to keep in mind:
Rates: Among accounts that provide earnings, a certificate of deposit, or CD, generally delivers better rates than a regular savings account. On average, a CD carries an annual percentage yield, or APY, of 0.56% compared to a savings account’s 0.13%, based on NerdWallet data. However, these certificates also have fixed terms and can impose early withdrawal penalties. Unlike CDs, which typically pay a return at a set rate, the yield on a savings account can change based on economic or market factors or even because of new policies initiated by the financial institution involved.
Account minimums: Accounts with high daily or monthly minimum-balance requirements tend to offer better rates of return than those with no or lower minimums, but you can still find high-yield accounts without this requirement. Bear in mind that dipping below a minimum can trigger a fee.
Initial deposits: Some accounts require a specific minimum amount of money to open. You don’t necessarily have to maintain a minimum balance each month, but read the terms of an account so you know what to expect.
Where to bank
You have a few options when deciding where to open an account, including:
- National banks: The biggest banks offer an abundance of branches, well-known brands and variety of services, but they also tend to pay very low rates on savings accounts.
- Credit unions: Credit unions tend to offer higher rates of return on savings than big banks. You may need to meet certain membership requirements to join one, though, such as living in a certain area or having ties to a particular neighborhood association, employer or union.
- Community banks: These smaller institutions focus on local areas and sometimes offer more favorable rates and impose fewer fees than bigger banks.
- Online-only banks: High-yield savings accounts at online banks generally offer the best interest rates. The primary drawback is that, unlike a traditional bricks-and-mortar institution, there are no branch offices where you can ask for help with something.
The bottom line
If you need a place to put cash you don’t need right away and don’t want to tie it up in a CD, a savings account can be a solid choice. Compare accounts to find the one that’s right for you.
Updated Aug. 6, 2015.
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