Savings account

What It Means

A savings account is a deposit account for money you're setting aside rather than spending day to day. The FDIC describes it as the place for money you don't expect to need regularly. It earns interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more, which the account's terms state as an annual percentage yieldAPYA yearly rate showing the total interest a deposit account pays, counting how often interest compounds, as defined by federal Truth in Savings rules. See more (APY). At an FDIC-insured bank or a federally insured credit unionCredit unionA not-for-profit financial cooperative owned by its members, offering accounts and loans to people within the field of membership its charter sets. See more, the balance is insured up to the legal limits.

How It Sounds at Home

• "I moved two hundred into savings on payday."
• "Don't touch that, it's in savings for a reason."
• "My savings account pays next to nothing."

The Breakdown

Worked example. Jordan wants a $3,000 cushion in savings. There's $500 in the account now, and $200 moves over from checkingChecking accountA bank or credit union account for everyday money going in and out, used by debit card, checks, transfers and direct deposit. See more by automatic transfer each payday.

Twelve transfers bring the balance to $2,900, so the thirteenth reaches the goal, before counting interest. Whatever interest the account pays, at the APY in its account disclosure, shortens the wait a little.

What the result means. At a balance this size, the monthly amount drives the timeline far more than the rate does: at $300 a month, the same goal takes 9 months. A savings account suits money for a known future cost, an emergency cushion, or anything you want kept away from everyday spending.

What to check on the account

• The APY, and whether it changes with your balance
• Any monthly maintenance feeMonthly maintenance feeA charge a bank or credit union takes each month for keeping a checking, savings or money market account open, often waived if you meet set conditions. See more and what waives it
• The account agreement's limits or fees on withdrawals
• That the bank is FDIC insured or the credit union federally insured

Good to Know

Federal withdrawal rules changed in 2020. On April 24, 2020, the Federal Reserve deleted the six-per-month limit on convenient transfers from Regulation D, but it didn't require banks to drop their own limits, so your account agreement may still cap withdrawals or charge for extra ones, and the Fed's savings deposits FAQ notes a bank can still reserve the right to ask for seven days' notice before a withdrawal. Deposits in savings at an FDIC-insured bank are covered up to $250,000 per depositor, per insured bank, for each ownership category. The CFPB adds that a savings account can carry a monthly maintenance fee, which the bank must show you when you open it.

Related Terms and Categories

• High-yield savings account

  A savings account paying a variable interest rate that's generally higher than a traditional savings account's, often offered by online banks.

• Emergency fund

  Money set aside only for unplanned costs, like a car repair, a medical bill or a lost paycheck, kept where you can reach it quickly.

• Checking account

  A bank or credit union account for everyday money going in and out, used by debit card, checks, transfers and direct deposit.

• APY

  A yearly rate showing the total interest a deposit account pays, counting how often interest compounds, as defined by federal Truth in Savings rules.

• Sinking fund

  Money set aside in small, regular amounts for a known future cost, so the bill doesn't land on a single paycheck.

• Automatic savings

  Saving that happens on a schedule without a decision each time, through a split direct deposit or a recurring transfer from checking to savings.

Household money and budgeting